HDB's Historical Resale Price Index (RPI) Chart
At the end of the previous month, HDB just released the latest update of the Resale Price Index (RPI) and this latest update shows that the RPI has increased by another 4.1% in the Q2 of 2010. The chart above shows the historical RPI and as you can see, the RPI is some way above the previous peak already.
I noticed that many have the misconception that rising flat prices are beneficial since it makes them richer, or at least on paper. After all, the current flat prices are way higher than the original buying price. But that is only true if you own more than one property.
Let's say you own a 5 room HDB flat and that HDB flat is the only piece of property you own and you are currently staying in it. The market price is much higher than the original price which you have bought it. Thus you can sell it and profit from the difference between the market price and the original price which you have bought it. But after selling your HDB flat, where are you going to stay in ? Assuming all things equal, it is not possible that you can get another 5 room HDB flat at a lower price. Well, you can buy another 5 room HDB flat at a cheaper location at a lower price and profit from the difference but the similarity ends here. The profit that is gained does not come from the rising market prices but from the disparity between the locations.
Well, it is possible that you can buy a 4 room HDB flat and since a 4 room HDB flat is cheaper than a 5 room HDB flat, you can profit from the difference. But it is the same as the previous example since the profit that is gained comes from the disparity between the size of the flats and not from the rising market prices.
As such, only those who own more than one property has the potential to benefit from rising market prices. This group of people are not bounded by where they are staying in. As such, they can stay in one property and use the other properties they own to sell at a higher price and not be forced to buy another one at a high price so that they can have a place to stay. Thus, they can capitalize on the market by selling their other properties at a higher price and wait for the market to fall so they can buy properties at a lower price. Unfortunately, the majority of the public do not belong to this group.
Posts
i agree with what you have said. that is also what i am trying to tell my mother. the money you make, will not be enough to cover for the renovations and stuff...
ReplyDeletefor those who have HDB, always remember you are not a home-owner, but a lease-owner. this is a big difference. it means you own the lease (the thing you have to pay monthly) but the flat ultimately belongs to the HDB.
thus, i agree with your observation that rising HDB prices DO NOT BENEFIT ANYONE, less those with additional property.
For those who has only HDB flat, he/she will need to think carefully before selling to take profit and don't end up like my ex-neighbour.
ReplyDeletehttp://createwealth8888.blogspot.com/2010/01/home-for-living-and-not-for-profit.html
Good article which is honestly common sense. Unfortunately most Singaporeans have no financial common sense. It's good to have reminders like these every now and then.
ReplyDeleteHi,
ReplyDeleteIt's a pretty interesting read on the article which you have posted the link on. That is a example of what I'm trying to say. His profit came not from the rising property price but the disparity in locations between his old and new flat.
Kay
The mutated recession have enforce people belief in the property's myth....what can we do?
ReplyDeleteclearly, property market is been used by the smart and rich aristocrats to re-distribute wealth to themselves so that they and their next generations don't need to work forever. This is also the case of those who advocate no or later retirement age - they take more wealth and deprive others of opportunities. Power corrupts. Absolute power corrupts absolutely ! I learn this from "The Animal Farm" by George Orwell. Unfortunately, many are blind and unable to see this inequality
ReplyDeleteThank you. Great article. This is the exact same thing I have been trying to tell people too.
ReplyDeleteAsset inflation favors the rich and middle class over the poor the poor are punished horribly by inflation in general.
ReplyDelete