Tuesday, August 12, 2008

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Property Investment Advice: Don't let a big part of your earnings go to the bank

Slightly more than 10 years ago, a young couple bought something that almost ruined their lives financially.

It was the middle of 1996, a boom time for the stock market as well as the property market. The couple - working professionals - were earning salaries that disqualify them for subsidised HDB housing.

Just married, they were yearning for a nice place to stay in. They set their eyes on a 1,300 square foot condominium just north of Ang Mo Kio. The location is not very central, but the asking price was a crazy $1 million. It was a stretch for the couple. Without huge savings, they could only afford the initial 20% downpayment and had to borrow the rest for the progress payments.

But given the rosy economy then, and the fact that they were holding well-paying jobs (making a combined $150k a year), they went ahead and bought the condo.

We all know what happened next. The economy tanked. Asia went into financial crisis. Jobs were lost. Stock and property prices fell. Drastically. Salaries were cut.

The couple also saw their income go down. Yet, they still had to make the mortgage repayments. A big part of their earnings went to the bank. They were slaves to the mortgage loan. (It’s still the case now. So they don’t save a lot.) Worse, the condo’s value went down, almost to negative equity level, i.e. owing the bank more than the property’s worth. Even now, when property prices are at peak levels (and maybe on the way down), the couple’s condo is still a loss-making investment. Why? Their condo is a leasehold property.

So, this unfortunate couple is “stuck” with a still-sizable bank loan, a condo that’s depreciating in value, and low savings. And they are considered high income earners… A wrong move, and they are hit financially for a long time… Will it happen again?

The above account is posted by anonymous at the Singapore Property Forum

May also want to read:
History of Singapore Property 1960 to 2008
Buy or Not Buy: How to decide amid mixed market signals
When to Buy, When Not to by
Property Price Index Graph Plotter & Online Property Valuation
Your Property Investment Determines Your Financial Success in Your Life
HDB Resales: West Sees Highest Price Increase


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Dear visitors:
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The blogger here has been affectionately named by close allies as "Smart Buyer" but really, he's not smart. Smart Buyer just believes that being prudent is smart. That's the essence of the message of this blog and Smart Buyer hopes it'll benefit other property buyers.

Smart Buyer :)