The impact of interest rate cuts on the property market
It is still unknown whether the interest rate cut will bring about a turnaround for the property market, but many figures can actually be calculated and predicted. In these times of crisis, property owners should manage their finances more prudently and deal with asset risks as early as possible.
Things that property owners should pay attention to
- Prudent financial management
- Deal with asset risks early
The owner is insolvent and cannot pay for the building
Although the story behind each hot pot case is different, in summary, it can be summed up in one word: the debts are insolvent and the housing cannot be repaid. It is not difficult to understand the reason for this situation. It is because property prices have risen over the years, and almost all property owners can enjoy the dividends of the increase in property prices. After the asset value increases, some owners will choose to increase their mortgage or remortgage to cash out, and reinvest the funds brought by the increase into the real estate market to purchase other properties, one for two or two for three, thereby accumulating multiple properties in hand. With interest rates continuing to be low and the economy improving, it is not difficult to rent and support. This has created a group of people who have successfully leveraged the property market to get rich.
Risks of investing in the property market
Recently, I encountered a case. Mr. Chen (pseudonym) has many years of experience in investing in the real estate market. Through buying and selling properties many times and then leveraging them, he has continued to enter the market for many years. He has accumulated multiple properties in his hands, but all of them are not fully supplied. state. Fortunately, the overall mortgage ratio of the property is not high. Even if the monthly payment increases after the interest rate hike, it can still be managed by renting. However, Mr. Chen is no longer young, and his retirement is just around the corner. He can more accurately estimate the amount of assets he will have at the moment of retirement, such as pensions, Mandatory Provident Funds (MPF), savings, etc., but he discovers that these funds are not enough to cover his current needs. The total liabilities of all properties combined. What worries him even more is that some properties were purchased when property prices were at a high, and their book value has depreciated a lot. If property prices fall further, or if there is still no improvement before retirement, not only will the property be worth nothing, but it will even end in bankruptcy.
If he encounters a major change before retirement and is called for a loan by a bank, the situation will be even more unprepared for him. Regarding this situation, the author suggests that Mr. Chen should formulate a sound financial plan as soon as possible and try to maintain a certain amount of cash flow to cope with emergencies. At the same time, he should also review the mortgage situation on hand and try to reduce the scale of liabilities.
Get rid of the most depreciating assets
For example, some properties that have depreciated the most rapidly or deeply, or whose perceived value is relatively low, should be sold as soon as possible to avoid further expansion of the decline in property prices and further debt imbalance. If the property has become a negative equity, it depends on the level of losses. If it is only a slight loss, you can still wait for the interest rate cut to start and sell it when the property price rebounds; but if you have already recorded a large loss, you can only hope to sell it with as little loss as possible after a period of rebound. As for high-quality Assets can be retained.
Traditional Chinese and Hong Kong mortgages
When it comes to buying a property or investing, the most important thing is to manage your risk. Don’t let wishful thinking get to you in the end.