Thursday, December 18, 2008

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Property agents to do financial risk-profiling of potential property buyers?

The following letter is published in several mainstream media. I've reproduced it for blog visitors' comments. For discussion of this topic, read also the post:
Is there sufficient government regulation to deter a subprime crisis in Singapore

Risk profiling for homebuyers? - Letter from Ee Teck Siew

Such checks would minimise impact of sudden economic downturn on investors
MANY Singaporeans who bought properties during the boom years have since been caught up by the sudden financial turmoil and found themselves in a bind as the property market has taken an about-turn and some banks have frozen lending.
Such investors stand to lose a lot of money should they sell in this declining market. The problem is compounded for “flippers” who are stuck with properties bought under deferred payment schemes, which they had every intention of selling as soon as prices went up. At its worst, economic turmoil can bring about the collapse of the property market, causing severe consequences to the economy at large.
Many people do not consider whether they can truly afford a long-term asset such as property when prices skyrocket, and blindly jump into the market hoping to get a good bargain — either to buy a dream home while it’s available, or to make a windfall by flipping the unit.
As with the financial advisory and insurance industries, maybe it is time that the Government and the relevant industry body implement a fact-finding process for potential home buyers. Under the Financial Advisers Act/Financial Advisers Regulations, the fact-finding process is mandatory before any investment product can be sold. The objective is to ensure consumers buy what they can afford, taking into account their needs and risk profiles.
Buying a property involves substantial financial resources and, for the Average Joe, probably a lifetime of commitment to service the loans. Many could end up enslaved to their properties. They could face significant financial losses when a negative equity situation occurs, in that their outstanding mortgage loans could exceed the market values of their properties.
It is high time a more rigorous regulatory regime, one with a focus on educating consumers, be added to help Singaporeans in their financial decisions.

May also want to read:
99 Leasehold Property: Calculation of Depreciation Rate based on Singapore Land Authority Data
Spore Property History 1960-2008
Property Investment Tip: Don't put all your eggs in one basket
HDB Resale Price Index 1990-2008: Graph & Chart


Red said...

Isn't this getting a bit off the charts? Before I buy a property, I get assessed on truly whether I can afford it! Kinda like an insult or mockery isn't it.

Smart Buyer said...

Dear Red,
An objective financial risk-assessment for the buyers is, I'd say, prudent. Perhaps it can be done just before the point of commitment, rather than when you're just doing viewing.

I doubt property agents would want to put such "road block" to their sales. I don't think property agents are best people to give objective risk-assessment. Regulators could require buyers to secure a bank loan first before any purchase commitment. Banks, I think, would be in a better position to do the risk assessment given their own risk.

Just my thoughts.

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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 :)