Risk profiling for homebuyers?

Such checks would minimise impact of sudden economic downturn on investors

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.

Ee Teck Siew

Source : Today – 17 Dec 2008

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