Risk profiling for home buyers?

http://www.businesstimes.com.sg/sub/...10401,00.html?

Published December 17, 2008

LETTER TO THE EDITOR

Risk profiling for home buyers?


MANY Singaporeans who bought property last year have ended up in a bind.

Following the financial turmoil, the property market took an about turn and some banks froze lending altogether. People would stand to lose a lot of money trying to sell in this declining market, a problem further compounded by 'flippers' who are stuck with properties they bought under the deferred payment scheme with every intention to dispose of them when prices went up before TOP.

While property prices can head north erratically during a boom, economic turmoil can also bring about a collapse of the property market with severe consequences for the economy, given the significant proportion that property values constitute in total wealth.

Many people are oblivious to affordability when buying a long-term asset, such as property, when prices skyrocket, and blindly jump into the market hoping to get a good bargain, or simply to make a windfall by flipping the unit.

Like the financial advisory and insurance industries, maybe it is time that the government and industry association implement a fact-finding process for potential home buyers.

Under the Financial Advisers Act/Financial Advisers Regulations, a fact-finding process is mandatory before any investment product can be sold to a consumer. The objective is to ensure consumers buy what they can afford, taking into account their needs and risk profile.

Buying a property involves substantial financial resources and for the average person, probably a life time of commitment to service the loans. Many could end up enslaved by their properties.

They could face significant financial losses when their outstanding mortgage loans far exceed the market value of their property. It is high time a more rigorous regulatory regime be introduced to help in their financial decisions.

Ee Teck Siew
China

http://www.todayonline.com/articles/292923.asp

Wednesday, December 17, 2008

Risk profiling for homebuyers?

Such checks would minimise impact of sudden economic downturn on investors

Letter from Ee Teck Siew


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.