Do I Really Need to Own a Property?
Some people look for a beautiful place.
Others make a place beautiful.
With more news of record property transactions such as this 5-rm HDB in Bishan being sold for $1.295M, you may start to wonder if we are currently in a property bubble and whether the next generation has the means to own a home. Is this the right time to buy a home? What if you wanted to sell and downgrade? How about upgrading to a swankier new place?
A living space, like other products and services, provide three kinds of benefits; utilitarian, expressive and emotional.
Property as homes all provide the same utilitarian benefits — in return for the money spent on it, it provides you shelter. As a property owner, you experience additional utilitarian benefits if your home value rises and utility costs when your home value goes down.
Expressive benefits help to project your image, values or social status. It helps to answer “what does this house say about me?”. For some home owners they derive satisfaction from the ability to buy a house in a much coveted district or to design and build a house which expresses their tastes and likes.
Finally, emotional benefits from owning a house is basically how the property makes them feel. Some homeowners enjoy the emotional benefits in the pride of owning a home, and also from the peace of mind that they gain in having a roof over their head that is not beholden to any landlord.
Having the benefit categories in mind can help you answer the following common questions:
Should I rent or should I buy a house?
Should I keep my mortgage or pay down on it?
Should I sell my house, monetise some of its value and move into a smaller one?
As advisors, we get asked these questions quite often. However, guiding a person towards the best decision will depend on what are their individual driving benefits of home ownership. Some advice you may receive suggests that the faster you pay down your mortgage, the better. Conversely, other well meaning advice may tell you to take on as much debt as possible given that interest rates are low. There is a large group of people who prefer to rent and conversely many proponents of home ownership as well. In the end, there is no right or wrong answer, there is only what you’re comfortable with.
In your decision making process, before you take the plunge, consider what drives you and makes you happy. If a simple no-frills home is sufficient and brings you contentment, then there is no need to keep up with the Joneses. If you aspire to own a large bungalow with a fantastic garden and swimming pool to convey your status, then so be it. Just remember a basic tenet in financial planning — diversification of assets. Property ownership forms a very large portion of the wealth of an individual. In financial planning, we always advocate a nice balance and mix of assets in any portfolio. Skewing too much one way or another exposes you to unnecessary risks.
If you’ve kept reading to this point and feel you may need help to make a good decision, we are here for you. Come and speak to one of our advisors.
