IPS forum on CPF: Housing and the CPF.

The next speaker was Associate Professor Lum Sau Kim who is the Director of Graduate Programmes in the Department of Real Estate in NUS.

She spoke about what I would call the love affair Singaporeans have with real estate. Housing takes a big chunk of our CPF money. It is the dominant use of our CPF money, she said. 

Many would completely exhaust their CPF money for housing. Many people actually leverage as much as possible and buy the biggest homes possible.

Prof Lum said that, in effect, many are using housing as their pension funds and this is, in part, due to the lack of alternative investment vehicles. AK feels that this phenomenon can also be described as an overconsumption in housing and regular readers will remember that this is something I blog about often. 

People mistakenly think that their homes are investments when they are in reality consumption items unless they decide to rent out a room or two if they have spare rooms.

Prof Lum also made a good point on how due to Singapore's demographics, demand will not support higher prices of housing in future. Bigger flats will go down in prices faster than smaller flats as seniors downsize their homes, monetizing their bigger flats.

"Managing house price expectations is key. Otherwise, as we hit various demographic bumps, there may be clustering or cohort effects where the simultaneous rebalancing of household portfolios induces new shocks to the system, for instance in asset sales." Prof Lum.

We should also remember that with 99 years leases as the norm, as properties age and have less than 60 years left to their leases, it becomes harder for buyers to get financing. 

So, prices of such older properties could also suffer declines when the time comes. What the sellers are doing are selling the tail end of the leasehold.



Click to enlarge.

Interesting? I believe that this was something I cautioned readers about before on the buying of HDB flats with relatively shorter leases left.

In conclusion, please be prudent in the purchase of our homes. Do not over-consume thinking that housing prices will only go up and never go down. 

Housing prices and rentals are volatile and thinking of our homes as our future pension funds could be a bad idea.

See slides: here.

Related posts:
1. AK attended forum on CPF.
2. Buying an apartment: Considerations.
3. Don't think and grow rich.
4. Never lose money in real estate?