Most Singaporeans will never, ever have to rent property. Many just make the transition from children living in their parents’ flats to (mostly married) homeowners. That’s just the way things work here.
That also means that people start thinking of purchasing property at a relatively early age, usually the minute they realise their romantic relationships are getting serious and it’s time to ballot for a flat.
While this isn’t necessarily a bad thing, it also means that people tend to throw a fairly large proportion of their money into the property market. Here are three mistakes Singaporeans continue to make that are making them poorer than they have to be.
1. Committing to a flat before they’re ready to get married
One of the easiest ways to lose a ton of cash is to ballot for a flat when you’re not ready, plonk down the downpayment and then… fail to tie the knot.
Thanks to HDB’s stringent home ownership policies, if your relationship falls apart, you’ve got a lot more to worry about than how you’re going to react if you run into your ex in the streets. You lose any money you’ve put down on the flat, including downpayment.
The problem is that many couples ballot for a BTO flat long before they’re actually ready to tie the knot. In a sense, you can’t really blame them, since a BTO flat usually takes 3 to 4 years to get built.
On the other hand, I have way too many friends who started balloting after less than one year into the relationship, and only proposed when they really had to—when the HDB issued their deadline for submission of the ROM cert.
Unsurprisingly, it’s not that uncommon for couples to lose all the money they’ve thrown into their HDB flats as a result. One of my friends even lost the money they’d spent on renovating a resale flat when they called off the ROM ceremony at the last minute.
2. Overstretching themselves when purchasing private property and then finding themselves in trouble when they can’t find a tenant
Private property is free from many of the restrictions that HDB property is subject to. You can start renting out the property the minute you pick up the keys.
This makes many purchasers think that if they can cough up the downpayment on a condo, they can afford to buy it, since their rental proceeds will be able to cover the bulk of their loan repayments.
That leaves them extremely vulnerable to fluctuations in the rental market. Rental prices have been plunging over the last few years, and landlords are finding it harder and harder to get tenants.
In the event that a purchaser is unable to find a satisfactory tenant and the loan repayments are too onerous, he might be forced to sell the property at a loss, which more and more private property owners have been doing lately.
3. Letting their home be their only investment
Many Singaporeans think of property as an investment. The previous generation might have been able to make a killing on the property market due to how much property prices rose during Singapore’s most rapid period of development.
But it’s safe to say those days are over. Property values may still go upward over time, but they’re not going to balloon the way they did in the past.
In addition, if you can only afford to buy one property, selling it could mean you’ll be left without a home.
It’s thus not a great idea to exclude all other forms of investment from your portfolio just because you’re saving up to buy property or repay your home loan. Surveys have shown that two thirds of young Singaporeans haven’t invested a single cent, while more than 40% of Singaporeans haven’t started saving for retirement.
In addition, investing in nothing but your own home displays lousy portfolio diversification. The property market is very sensitive to government intervention, while private property tends to be quite sensitive to overseas investors.
If you’re unlucky enough to be trying to retire during a property downturn, you’ll be wishing you had made some other investments.
Are you guilty of any of the above mistakes? Share your stories in the comments!