Is The Property I Am Occupying Currently An Asset Or Liability
Before going into the topic of determining if your property is an asset or liability, let us understand what defines an asset and liability. According to Robert Kiyosaki, a personal finance expert, an asset is something that gives you a stream of income and a liability is something that will decrease your cash amount.
In the past, property was deemed to be an asset to all. Several economies were beginning to do well, and it led to prices of properties in the market to increase as well.
However, times have changed and property is largely seen as a liability now due to mortgage, insurance for the house, taxes, and maintenance costs. Economies are also slowing down and the possibility of going into a global recession is high. Simply put, property prices will be affected negatively.
Factors that determine if your property is an asset or liability are:
Market condition when property is sold
The Government has introduced cooling measures to make housing more affordable for Singaporeans. After staying in the flat for the Minimum Occupation Period of 5 years, you might want to sell the flat off to make a profit; or so you think. The market might be going through the effects of the cooling effect, which will lead to the value of your property being lowered. As a result, the profit that you were expecting might not seem as much now; even worse, the profit might become non-existent at all.
Usage of property
Following the definition of asset and liability by Kiyosaki, if the property is used to generate income, it will be an asset. An example would be to rent out the flat to get rental income. Do note that the rental income must cover the property’s expense (mortgage, taxes, maintenance) in order to be considered an asset.
Accrued interest of CPF
If you used CPF to pay off your flat and wants to sell the flat off several years later, the full sum that was paid using CPF AND accrued interest that could have been gotten by not touching on the CPF has to be repaid into the account.
Using a $500,000 flat that was fully paid through CPF as an example, the total amount that has to be put back into the CPF account would be $xxx, assuming that the accrued interest rate is x%.
It might sound like a small matter to some, but the cash that is being repaid could have been used for a better use, e.g. investment in bonds, child’s education, or retirement savings.
Having said all that, you should not determine if a property will be an asset or liability before purchasing one. What you should consider is the reason you are purchasing a flat. Will it be used to generate passive income or will it be used to start a new home? If your reason is the latter one, even if the property might become a liability, the benefits of starting a new home will definitely outweigh that of the property being a liability – you will be able to lead a comfortable life and watch your children grow up.
Contact Mortgage Consultancy now to get the smartest financial bank loan advice specifically for your home. We are able to provide more than 100 loan packages from 16 banks for you to compare and choose from! Feel free to contact us at +65 8556 5271 so that we will be able to help you make an informed decision, suited to your needs.