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Singapore has one of the highest rates of home ownership in the world.

Most Singaporeans, including myself, own our own homes. Your home is your single biggest investment you will make and has a fundamental impact on your lifestyle and your retirement because our retirement fund — the central provident fund (CPF) ordinary account savings can be used to pay for the home. Thus, your choice of home will determine the amount you can save, invest and ultimately your financial freedom.

Choice of Home

During the times of rising property prices and overall economic growth of Singapore in the 60s to 80s (prior to recession in 1985), the conventional wisdom was to buy the biggest home you could afford because rising affluence, economic and population growth coupled with our small land area meant that property prices for both Housing and Development Board (HDB) flats / apartments as well as private residential property (landed and apartments) only went up one direction. UP! However, the 1985 recession made some aware that property prices could go UP and it could also go DOWN.

But those whose jobs were secure and had extra cash who bought in 1985-86 period made a bundle as property prices continued their onward march upwards until the Asian crisis hit in 1997. I still remember the time when people talked about the windfalls they could make by upgrading their HDB apartments from 3-room to 4-room to 5-room to executive apartments etc. Many thought that property was the way to financial freedom and wealth for the ordinary working class.

Paradigm Shift – 1997 Asian Crisis

The key takeaway for me during the 1997 crisis was the fragility of this entire cycle of prosperity. Job security became a novel concept because globalization meant that jobs and sometimes entire industries could be outsourced and lost to lower cost competitors. Along with the evaporation of liquidity and speculative fervor that propped up properties prices, the collapse was dramatic and drastic. Those who could not hold on to their jobs or businesses had to downsize their homes or worse, lose their homes when they couldn’t pay their mortgages.

A new paradigm emerged to challenge the long-held view that buying the biggest property you could afford and upgrading was the way to financial freedom. Instead, it became buy what is sufficient for your family size taking consideration your financial capacity as well as security of your job because if you lose the roof over your head and also a lot of your equity. Read more…