Wednesday, February 13, 2013

Risk of buying property at inflated prices

While there has been a large spurt in home prices over the past two years, due to low interest rate and higher demand, buyers should be prepared for the risk that the bubble will burst in the near future.

Already, the government has introduced measures to restrict the amount of loan and to impose additional stamp duties on these transactions.

However, buyers still see the headline news that prices continue to increase. These news are deceiving. Developers are giving discounts to home buyers, but the list prices are still being reported.

New projects are being bought at prices much higher than similar projects sold recently in nearby locations. Someone quoted a inference of 30%.

After paying a hefty price, you have to suffer a large discount when you sell your asset. It will take many years for the price to appreciate enough to cover this over-payment. You will live all your life paying for n over-priced property.

If you lose your job or cannot pay your higher mortgage due to increase in interest rate, be prepared to sell your property at a discount of up to 50 percent. This will happen in a slump.

Do not assume the home prices will continue to increase, and that this is a good investment.

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