In my previous article named Singapore Property Update for 2012 I have replied a reader's question on my thoughts about Singapore property. Now, I will reply another reader question asked in the article named 100,000 residential units coming in 2014-2015 and property prices:
"The thing is Singapore still see new rental high and it keeps going north? Property drop of over 5% look unlikely. You have talked about the Chinese investors coming in to Singapore. So now is October 2011, how you percieve the property market in suburban area will go? What you think about Executive Condo? Is EC good buy for capital appreciation. And if a person have an hdb that is more than 5 years old, do you advise him to rent out his hdb and buy private condo or buy EC (which means he cannot keep his hdb for rental purposes? Renting out his hdb is a way to convert cpf into cash.)"
A few weeks ago around the time I have seen this question, a Singaporean friend has also asked me a similar question. His 5-room flat is approaching to the end of its minimum occupancy period and he was talking about the possibility to upgrade to an condo by selling it. He also asked me what I would do if I were him. My answer to him would be same as my answer to the question of our reader.
If I had an HDB approaching to the end of its minimum occupancy period of 5 years, it would be a large unit like his one due to my household income. If I had 2 kids like he had, I would be fine with a 4-room unit so I would sell my 5-room flat in resale market and buy a 4-room flat. Everything else equal, the difference between them now would be around 50,000 - 100,000 SGD. This much reduction in my mortgage would make me years nearer to rent and mortgage free home. They call it downgrade here in Singapore just because the newer flat has fewer room. I call it upgrade because it is closer to be a fully paid home than the larger one.
As I have given my thoughts on property as of October 2011 in Singapore Property Update for 2012, I am not interested in Singapore property as an investment and I do not care about this value appreciation or depreciation thing. Or upgrading and downgrading. And although I have called Singapore home for years, these kind of "upgrade, downgrade, capital appreciate" concepts are still alien to me. To be frank, seeing many normal, paycheck dependent people treating their only shelter as an investment and turning it into a single point of failure in their portfolio freaks me hell out. For me, and for the majority of the world overseas there, the flat I stay in is home and all my focus and money would go to paying it up fully as soon as possible and being rent and mortgage free. In the place where I have originally came from, many of my friends in their early 30s are about to fully pay their flats not only because they are cheaper (adjusted to net income they are not significantly cheaper compared to here) also because they put every cent they can to pay it fully. And after they pay, they stay in it for years without thinking about upgrade or downgrade unless they significantly get richer or poorer.
Higher interest rates also forces them to pay early but this is not a bad thing. With interest rates not lowered artificially people make more sound decisions and tend to buy within their means. Artificially low interest rates almost always created resource and wealth misallocation in the past, especially in the property sector. I do not think this time is different.
Media is full of experts who would advise that mortgage is the cheapest credit you can have so it is financially better to keep the mortgage for a longer period then paying it in a shorter period. I do not care about these advises not only because they are wrong (the cheapest credit you can have is the credit you give to yourself from your savings) also because they do not appreciate the opportunities opened when you have no mortgage to pay at your relatively young and productive ages. You would be able to take more risk in your career or even go and start your own business which would make you richer and higher executive or an entrepreneur when the flat you have do not demand a monthly large sum of payment to a bank. When you have to pay a loan to a bank for 20 - 30 years, you tend to fully avoid risk, even the risks which would bring you more prosperity. They do not also appreciate the feeling of mental freedom with a fully paid shelter. You can save more for your retirement when you have a fully paid home instead of paying an over-sized, over-priced investment.
I know there are many people out there who have to go for a long mortgage period even with the cheapest and smallest units available. But there are also many out there who go for larger, pricier units and treat them as investment although they have more suitable alternatives and they have no fully paid homes yet.
"The thing is Singapore still see new rental high and it keeps going north? Property drop of over 5% look unlikely. You have talked about the Chinese investors coming in to Singapore. So now is October 2011, how you percieve the property market in suburban area will go? What you think about Executive Condo? Is EC good buy for capital appreciation. And if a person have an hdb that is more than 5 years old, do you advise him to rent out his hdb and buy private condo or buy EC (which means he cannot keep his hdb for rental purposes? Renting out his hdb is a way to convert cpf into cash.)"
A few weeks ago around the time I have seen this question, a Singaporean friend has also asked me a similar question. His 5-room flat is approaching to the end of its minimum occupancy period and he was talking about the possibility to upgrade to an condo by selling it. He also asked me what I would do if I were him. My answer to him would be same as my answer to the question of our reader.
If I had an HDB approaching to the end of its minimum occupancy period of 5 years, it would be a large unit like his one due to my household income. If I had 2 kids like he had, I would be fine with a 4-room unit so I would sell my 5-room flat in resale market and buy a 4-room flat. Everything else equal, the difference between them now would be around 50,000 - 100,000 SGD. This much reduction in my mortgage would make me years nearer to rent and mortgage free home. They call it downgrade here in Singapore just because the newer flat has fewer room. I call it upgrade because it is closer to be a fully paid home than the larger one.
As I have given my thoughts on property as of October 2011 in Singapore Property Update for 2012, I am not interested in Singapore property as an investment and I do not care about this value appreciation or depreciation thing. Or upgrading and downgrading. And although I have called Singapore home for years, these kind of "upgrade, downgrade, capital appreciate" concepts are still alien to me. To be frank, seeing many normal, paycheck dependent people treating their only shelter as an investment and turning it into a single point of failure in their portfolio freaks me hell out. For me, and for the majority of the world overseas there, the flat I stay in is home and all my focus and money would go to paying it up fully as soon as possible and being rent and mortgage free. In the place where I have originally came from, many of my friends in their early 30s are about to fully pay their flats not only because they are cheaper (adjusted to net income they are not significantly cheaper compared to here) also because they put every cent they can to pay it fully. And after they pay, they stay in it for years without thinking about upgrade or downgrade unless they significantly get richer or poorer.
Higher interest rates also forces them to pay early but this is not a bad thing. With interest rates not lowered artificially people make more sound decisions and tend to buy within their means. Artificially low interest rates almost always created resource and wealth misallocation in the past, especially in the property sector. I do not think this time is different.
Media is full of experts who would advise that mortgage is the cheapest credit you can have so it is financially better to keep the mortgage for a longer period then paying it in a shorter period. I do not care about these advises not only because they are wrong (the cheapest credit you can have is the credit you give to yourself from your savings) also because they do not appreciate the opportunities opened when you have no mortgage to pay at your relatively young and productive ages. You would be able to take more risk in your career or even go and start your own business which would make you richer and higher executive or an entrepreneur when the flat you have do not demand a monthly large sum of payment to a bank. When you have to pay a loan to a bank for 20 - 30 years, you tend to fully avoid risk, even the risks which would bring you more prosperity. They do not also appreciate the feeling of mental freedom with a fully paid shelter. You can save more for your retirement when you have a fully paid home instead of paying an over-sized, over-priced investment.
I know there are many people out there who have to go for a long mortgage period even with the cheapest and smallest units available. But there are also many out there who go for larger, pricier units and treat them as investment although they have more suitable alternatives and they have no fully paid homes yet.
Disclaimer
This blog article is to provide general information only and should not be treated as an invitation to buy or sell any property or as sales material. Users of this report should consider this report as a one of the many factors in making their investment decision. Users should make reference to other sources of information and specific investment advice to obtain a more objective view of the property market. Asia Singapore shall not be responsible for losses suffered.
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