Don't overextend yourself in the market

COMMENTARY

Property is a big deal for most of us.

According to Singapore's Department of Statistics, home mortgages accounted for 74 per cent of our household debt during the second quarter of this year.

Since our home and real estate investments play such a big part in our financial well-being, we naturally follow closely the ups-and-downs of the SRX price indices and other indicators which measure the state of Singapore's residential property market.

When prices are up, we feel confident about our financial position; when they are down, we might be anxious.

Even when we have no plans to sell, we might worry about a drop in our net worth, our ability to sell in a pinch, or our ability to make a sufficient financial return on our home in the long run.

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Recently, The Straits Times reported the impact of falling luxury house prices at Sentosa Cove. While home owners there have the reputation of being super rich, this does not mean they do not feel the same type of anxiety which the rest of us feel when they see their property go into the red.

According to SRX Property, more than half of the owners in the nine condominiums (Sentosa 9) around Sentosa Cove would lose money today if they were to sell their units at their X-Value, which is the computer-generated market value for each home in Singapore.

In 43 cases, or about 4 per cent of the total units in these nine condominiums, owners would lose 40 to 50 per cent of their purchase price if they were to sell at each unit's X-Value.

CAUTIONARY TALE

While the Sentosa 9 experience may not be indicative of all residential areas here, it serves as a cautionary tale for all.

The important takeaway: Do not overextend yourself when you buy or invest in a home. The reality is that, as individual home owners, we do not control the property market.

We must therefore be prepared to ride out downturns in the market, whether the latter is caused by financial crises or Government policies.

In the last 20 years, home owners have had to deal with such factors as the 1997 Asian Financial Crisis, Sars, low interest rates, housing supply crunches, the Global Financial Crisis and cooling measures.

Indeed, tomorrow marks the fifth anniversary of the start of the Government's cooling measures.

On Sept 14, 2009, the Government took the first step to cool the private market, with measures that included elimination of the interest absorption scheme.

We do not know how much longer the cooling measures will last, and home owners must be prepared to see a further decline in the net worth of their homes.

The best way to prevent anxiety during this period, or any property downturn, is to buy property that you can afford to hold for five years or more.

During a downturn, you may feel that, at least on paper, your home value is in the red.

As long as the Singapore economy continues to grow, the value of your home should eventually return to the black.

But you do not want to find yourself in the position of having to sell before you are back in black.

We cannot control external factors like global financial shocks, but we can control our personal property investments. If you do not overextend yourself financially, you are less likely to see red in property.

Sam Baker is CEO and co-founder of Singapore Real Estate Exchange (SRX), a digital information platform that provides the Singapore property market with pricing information, comprehensive listings, and mobile applications to buy, sell or rent property.