The bear: Look before you leap

By Joyce Teo - Dec 9, 2006
The Straits Times
THE trauma of struggling with a housing loan has kept him from investing in the property market, and it's a lesson he hopes others can benefit from.

Financial consultant Leong Sze Hian, 52, warns that while it may be very tempting to buy property now, investors should do their sums carefully before they take the plunge.

Some buyers have made handsome profits from flipping apartments but investors must also have a fair bit of capital to fall back on, he cautions.

'Otherwise, because of the illiquid nature of property, you could go bankrupt if your cash-flows cannot meet the mortgage repayments, particularly when interest rates are rising,' he says.

ONCE BITTEN, NOW PROPERTY SHY: Financial consultant Leong Sze Hian, 52, owns only one property - a 5,000 sq ft semi-detached house in Serangoon Gardens - even though he can afford to buy more. He had a tough time paying off the loan for the family home after his father's business failed years ago. Photo/ Chew Seng Kim

It is a lesson the president of the Society of Financial Service Professionals learnt the hard way in his younger days.

When his father's business failed, Mr Leong took over payments for the family home at the age of 25.

For the next five years, he struggled with a $900 monthly mortgage for the 5,000 sq ft semi-detached house in Serangoon Gardens.

His monthly income then was just over $800. 'It was a tremendous struggle to keep the family home,' he says, recounting how he gave tuition to supplement his income.

He finally had to refinance the loan 19 years ago, taking up a $130,000 loan over 20 years.

Today, the house is still the only property he owns, even though he can now afford to buy more properties.

Instead, he eagerly awaits the day - a year from now - when he will finally be free of his housing debts.

Mr Leong still has $20,000 left to pay. He has not redeemed the loan because the legal costs of full redemption may not be worth it.

And with the interest rate at just 6 per cent, he prefers to keep the loan and use his money to get better returns on his investments elsewhere.

Another important factor investors should consider is that the current market recovery is 'abnormal', he says.

The recovery is now apparent in the high-end property segment but prices in the bulk of the market, comprising HDB flats, are not moving up.

'There is no such thing as 20 per cent of the market moving up and 80 per cent moving down anywhere in the world,' says Mr Leong who has three master's degrees in financial planning and financial services.

Property sentiment has been hit by the relaxation of the policy on the renting out of HDB flats, he says.

Early last year, the Government relaxed its rental policy for HDB flats, for instance allowing owners to sublet their flats after they have occupied them for 10 years, even if they have an outstanding HDB loan. The previous limit was 15 years.

The introduction of reverse mortgages for HDB flats, recent CPF cuts and the impending GST hike have also hit sentiment, says Mr Leong.

A reverse mortgage typically involves an elderly person pledging his home for a sum, with which he buys an annuity that provides a regular monthly income.

'We are in an abnormal situation. My view is that the lacklustre mood in 80 per cent of the market will filter up and bring down the whole market.'

While the recent property fever benefits from 'hype' over the upcoming integrated resorts, casinos do not create a lot of high-end jobs, he warns.

'So the expected increase in people renting private properties is very minimal. My rich friends who invest in properties know that the property recovery can't be sustained by foreigner buying and by just the high-end segment.'

He adds that the general 'downgrading' in the rest of the property market is not a good sign.

'Everybody is downgrading nowadays, not upgrading. The HDB is also building more two-room flats, studio flats and three-room flats.'

HDB resale prices will also be affected by the large pool of flats available for rent, he says.

All these factors explain why he is 'neutral' despite the current market hype. 'You have a lot of unknowns.'

There is also no reason for investors to buy property now that investment choices have widened, he adds.

Unlike in the past, there are now more than 10 real estate investment trusts, unit trusts and exchange- traded funds available in Singapore, offering exposure to regional or even global properties.

'There are more choices, so why should I take the risk and (brave the) hassle of buying a physical property?' asks Mr Leong.