Many people paid too much for a property thinking that it will appreciate in price and is an investment. This is the wrong way to look at a property. The property should be looked at an expense, representing 4% of the cost of the property.
If you pay $500,000 for a property, you should take your cost of occupying the property to be 4% or $20,000 a year. This is the amount that you have to pay, if you rent a property.
The large appreciation in property prices in the past will not be repeated, as the property prices are now too high, relatively to the average income of the people. Read these important facts in my FAQ on "property" in my website.
www.tankinlian.com (search for Property).
As the financial talking heads would say: Prices are already at elevated levels. There is little upside going forward. Conversely the risk is to the downside as mean reversion takes hold.
ReplyDeleteMany people will know what it feels like to be squeezed in a nutcracker soon, first with deflation as home values drop below outstanding mortgages, and then inflation as interest rates increase and blows up the "just nice" servicing ratio.
Mr Tan
ReplyDeleteYou say property prices are too high relative to people's income. What people's incomes, Singaporeans? I believe our govern is targeting private property for high income foreigners. For locals HDB flats, so I believe HDB flats will have limited upside to prices
If property price is high because people are generally paid more in wages and have higher purchasing power, i think it is healthy
ReplyDeleteBut if property price is high because the banks are willing to lend more, and it is the "hot money" that is pumped in from foreigners, i am quite disturbed by it
For the average Singaporean or the yound chaps just starting out to work, buy or rent property are both painful and expensive. In the past, it takes about 10,15 years to fully pay off a HDB flat. Now i reckon it takes 25, 30years to do that? Worse, the new flats get smaller in floor area and built closer to each other.
And the saddest fact is, you slog so hard (even to the point of dropping dead beyond the "retirement age"), to pay off the loan of a HDB flat which you never really owned (as all HDB flats are technically leased from HDB)