DOWNGRADING: REASONS AND FUTURE TRENDS

Abstract

Upgrading of homes, be it from smaller to larger HDB flats or from HDB flats to private properties used to make up the majority real estate transactions. Property boom in the 90's caused many to believe that real estate is the safest and most profitable form of investments. Unfortunately, the Asian Financial Crisis taught painful lessons to this group of people. Whilst it is true that property prices would always rise in the long-run, no one knows when they would reach the pre-crisis level. Economic studies also found that today's economy has become much more volatile than in the past. Hence, many Singaporeans found themselves over-committing their cash in property. This has led to recent surge in downgrading movement. Interviews with housing agents dealing mostly with HDB transactions for at least 10 years confirm downgrading phenomena today. All of these agents list down the same categories reasons for downgrading. These categories are financial related, age related, and divorce related. Majority downgrade because of the first category. Secondary analysis of qualitative data is then performed to find out whether the above categories of reasons would continue into the future. It was found that even when the economy recovers, financial related reasons to downgrade would continue to exist. Downgrading during bad times is unwise because prices of smaller flats rise, while that of bigger flats fall. Hence, bad times downgraders are people who are desperate for cash. There are people who are not too desperate for cash but feel they over-invest in properties, and therefore, plan to downgrade when the economy improves. As for age related reasons, Vnot only Singapore population is ageing, there is also greater inclination towards independent living among elderly. Finally, secondary data analysis also finds that divorce rate is increasing and that rate of remarriage would remain below that of divorce rate. The findings of this study is therefore consistent with the author's hypothesis, that factors contributing to downgrading would continue to exist although downgrading would assume a slower yet steadier pace as the economy picks up.