Tuesday, October 11, 2005

Asset rich cash poor.

From ST:

Oct 11, 2005
Some flat owners can't afford to downgrade

They won't have enough to buy cheapest flat after paying off loan
By Daryl Loo

NEARLY half of the wealth of Singaporeans is invested in their homes, very often in bigger HDB flats.

Even in the bottom 20 per cent income group, more than half own HDB homes that are four-room flats and bigger, according to a paper released by the Department of Statistics (DOS) yesterday.

There is a danger in this, said Dr Amy Khor, chairman of the Government Parliamentary Committee for National Development.

By doing so, some Singaporeans may over-extend themselves financially in their zeal to own a home and may not be able to afford to downgrade when they need to - such as when the breadwinner loses his job, she added.

Calculations by the DOS show that almost one-third of the bottom 20 per cent will get less than $100,000 cash back when they sell their home and pay off their HDB loan.
This means they cannot afford even the cheapest three-room HDB flat which costs $150,000.

And renting an HDB flat has stiff conditions, including a 2 1/2 year waiting period after the sale of an HDB flat.

The overwhelming focus on property ownership is a result of the Government's constant push for people to buy their own homes, 'to encourage a sense of rootedness in the country', noted Dr Khor.

But she expects this 'asset rich, cash poor' situation to improve over time, as the Government now encourages home buyers to be prudent.
It also recommends that banks adopt stricter checks when assessing whether a home owner can afford the loan he wants.

In all, Singaporeans' wealth in residential properties is a whopping $359 billion, or 47 per cent of their total wealth.

The remaining $407 billion is invested in other financial assets such as savings, shares and life insurance.

Property consultancy Knight Frank's director of research Nicholas Mak estimates that the proportion invested in homes here is much higher than in the United States and Europe, although he did not have exact figures.

'But the 47 per cent in homes should be similar to that in Hong Kong and Japan,' said Mr Mak.

Nanyang Technological University's Associate Professor Tan Khee Giap said it is a predictable phenomenon that Singaporeans invested such a large portion of their money in their home.

'That's because historically, putting your money in property had been the fastest way for your assets to rise,' he said.

According to the DOS, about nine in 10 Singaporean households own their own home, with 93 per cent of HDB families owning the roof over their heads, and 88 per cent of those living in private homes.

Well, the article had said it all. Singaporeans are assets rich and cash poor. What made things worse is that the bulk of the assets that a typical Singaporean owns is his/her HDB flat.

With the soft property market, which comes together with the economic downturn, it become nearly impossible for people to cash out on their assets without making a loss. Furthermore as we all know, shelter is a basic necessity. New accommodation needs to be found after the flat is sold. Hence it is often a double whammy for Singaporeans when they need to cash out on their assets during economic downturns.


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