Tan Kin Lian's Blog: Cost of a home

Friday, April 02, 2010

Cost of a home

Every family needs a home to live in. A high property price translates into the high cost of a home and a high cost of living. When a family buys a costly property, they have to work hard for many years to pay off the mortgage to the home. They cannot afford to be unemployed or to have reduced earnings, as they cannot afford to pay the mortgage.

There was a mistaken belief that high property prices benefit the people at large, as the value of their asset has increased. In reality, they are paying a higher cost of living and have to work harder to survive. They are not able to unlock the value of their asset, as they still need a place to live in (unless they move to a smaller size property).

A small number of people benefit from the escalating property prices - people who own land and properties that they can sell to those who need a home. The families that need a home suffer from the higher cost.

Tan Kin Lian

9 comments:

Anonymous said...: Those who had bought properties for investment have benefited from the high property prices but too bad for those who buy it for a home.

I knew of a young engineer (30+) who stay in a HDB flat but had bought a private property for investment using bank loans. The bank readily granted him a loan based on his job and salary. He recently sold it for a handsome return.

This is an example of how some enterprising ordinary Joes benefited from the recent property bull run.

But many more suffered because they need to buy a home to stay in.

That's why despite high costs and what not here, some ordinary people also benefited from it.; April 02, 2010 11:19 AM
Anonymous said...: A small number of people? Can I give a different perspective? I think a lot of people benefitted:

1. Government
2. Banking and Finance (Loan)
3. Mortgage brokers
4. Lawyers
5. Property agents
6. Newspapers (advertisments)
7. Convention centres
8. Publishing (on books on how to make money on property)
9. Mediacorp (advertisements)
10. Insurers (mortgage insurance)

The Insurance Agent; April 02, 2010 11:32 AM
Vincent Sear said...: There's another problem and burden added onto lower middle families who simply only want decent flats to live in. That's property tax. It's based on annual valuation. Previously, 4-room flats and below didn't have to pay property tax or paid negligibly little.

Now with the escalating annual valuation, even 3-room flats are taxed at S$100+ to S$200+ per year depending on location. I suggest that flats that are fully owner-family occupied be exempt.

Property tax is based on annual rental valuation. Why should one be taxed when one doesn't derive any rental income from it?; April 02, 2010 12:48 PM
Wealth Journey said...: Unrelated... but worth a watch.

"Capitalism : A love story" by Michael Moore.; April 02, 2010 4:55 PM
Anonymous said...: I agree every family needs a home to live in but it is a mistaken belief that buying a property is a need. It is a want.

There is no rationale about buying property. One can always rent and it requires less cash outlay and one will not be in debt.

With so many people staying in one property and owning another property, it is inevitable that rental will be cheaper.

People must change their mindset about what they need and want.; April 02, 2010 9:18 PM
Anonymous said...: REX comments as follows,

"Insurance Agent" correctly commented that a large number of people are benefiting from escalating prices of properties contrary to kinlian's article. I agree with this view: if you do a check of the price trends of property for the last 50 years, i think there might have been only one down blip in the asian financial crisis year, it's up all the way or at least flat. Therefore, statistically it is quite obvious that the number of people who actually benefitted from flipping properties, are much more than imagined.

The issue is really whether there is a limit. If we reach the limit then we have a problem, because the future generations cannot enjoy this property flipping game.

In all things there is a limit, and i think the limit is here already. As salaries are not catching up with price indexes especially properties, the young people in their 20's are really stuck. Their only hope is inherit something (for the fortunate) and wait till their parents conk.

It is said, people witout a vision shall perish.

rex; April 03, 2010 8:02 AM
Anonymous said...: REX comments on VincentSear post:

Yes, i cannot see any reason why 2 room HDB flat owner is charged Property Tax. Similarly, I also cannot see why poor families still have to pay GST for water, electricity, gas, rice and cooking oil.

It is mindset and responsibility, the first step for the govt to do is to have the mindset the Taxes are designed to extract money from those who are more able to afford it. Once this is done, immediate measures should be in place to abolish these taxes for the specific categories mentioned. Don't worry about less revenue to run civil service. The basic issue of taxation must come first above all else. Find other ways to fund the super salaries of the civil service, there are always solutions. If not, cut salaries of course or sack redundant dead woods. One problem, numerous solutions!

I think in regard to tweaking the tax system, one significant move recently made was the sudden announcement of abolishing estate duty. I never understood how it helps to bridge the income gap, which is after all one of the objectives of taxation. If anything that particular policy change favours especially rich octogenerians and near octo-generians... How does that tax policy tweak help the citizenry i don't know. It would have been far more beneifical to singaporeans if they had tweaked the taxes on property tax and GST as suggested above.

rex; April 03, 2010 8:12 AM
Anonymous said...: In life if you can pay off your home mortgage and stay healthy and happy are the greatest gifts of all. You can own a bungalow with ten rooms but you can only sleep in one bed.What is life if you can only lie down flat in bed and not able to enjoy simple things in life like having a simple meal with your loved one.; April 03, 2010 10:26 AM
Anonymous said...: Our gahment worship and follow the US. If you are observant, each time US has a new approach or policy, the chances that we see it here is high. This is my observations over the years. I think this may be because most of our scholars are educated there, like Harvard, etc. So they worship the Ang Mo because Ang Mo supposed to be smarter, and what they do is prbably right. That's a no brainers' job but worth $3M+ per month anyway.; April 03, 2010 4:37 PM