If you’re buying a house, is it really the best choice before the consumption tax increase?
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Right now, six hundred villagers are
suffering from a life-threatening disease.
There are two treatments available.
If you choose Treatment A, you can surely save two hundred lives.
With Treatment B, there is a one-third chance
to save all six hundred people,
but there is a two-thirds chance that no one will be saved.
Now, which treatment would you choose, A or B?
Barry Schwartz
'Why We Pick and Regret It Every Time
(Random House Japan Co., Ltd.)'
October 23, 2012, First Edition
From P.82
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Hello, this is Shimoyama.
“If you’re buying a house, now is the chance before the tax increase.”
Seems such words are being tossed around.
Many people’s hearts are swayed by the idea of a
“dream home.”However, when buying a house, perhaps it is best to do so before the tax increase?
Of course, if you’re going to buy anyway,
getting it before the tax rise is certainly more advantageous.
“Land price” is tax-exempt, but
the “building price”
will be taxed with consumption tax.
As the tax increase is from 8% to 10%, a 2% rise,
for example, if the building cost is 30 million yen,
you will add 600,000 yen.
If you start from 30 million yen
both 30 million and 30.6 million
may psychologically feel like little difference,
but in everyday terms,
60,000 yen is not a negligible amount.
Additionally,
“brokerage fees” are taxable,
and the calculation of “property taxes”
depends on the purchase price.
Therefore, buying before the tax increase
is certainly advantageous.
However …
even so, does rushing to buy before the increase really make sense?
Many people go ahead and take out loans to buy a home,
but the very question of whether taking out a mortgage is okay
is something you should seriously consider.
For example, if you tell someone
“I’m going to buy a house with a loan,”
they might say
“That’s dangerous, don’t do it.”
There’s probably not a lot of people who tell you to avoid it.
Taking out a loan to buy a house is
not commonly perceived as a risk in society.
But, please think carefully.
A home loan is
an extremely high-risk transaction.
For example, if a person earning 5 million yen per year buys a 40 million yen house with no down payment,
that’s leverage of 8x.
Many people
will say “dangerous,”
“it could wipe out your funds,”
and in stock margin trading, even
leverage is only 3x.
Given that,
wouldn’t your impression of housing loans
also change?
Some may think,“Stock prices fluctuate daily, but
housing loans are different.”
You might think so, but
houses also change in value a lot.
Indeed, some properties appreciate,
but generally, once you buy a house, its value tends to fall,
and the notion that “in ten years halves, in twenty years becomes zero”
is not entirely false.
Of course,
if future, you could earn guaranteed income
from a company you know will pay you,
then there’s no problem, butno one can guarantee that 10 or 20 years from now.
Recently, Nissan Motor Co. announced
a workforce reduction of 10,000 worldwide,
and even jobs at companies considered secure
can be lost through layoffs,
and even if you sell the house,
the loan balance may not be covered,
So you should be cautious to avoid such outcomes.
Still,
the world seems to have many who
dream of a home.
According to the Nikkei Newspaper recently,
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The national balance of housing loans reached about 200 trillion yen at the end of last year, a record high for eight consecutive years,
and households’ risks cannot be ignored.
One is the possibility of rising interest rates.
About 60% of契約者 choose variable rate that can change mid-term.
(From Nikkei Newspaper, July 26, Real Estate, The Price of Overheating (4))
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That’s what they say.
Low interest rates are likely also encouraging people to take out mortgages.
Nowadays in Japan,
the balance of housing loans is considerably swollen.
However,please, you should
not be swept up by this trend.
If you are going to take out a loan to buy a house,
recognize the risks clearly.
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You think you are making a choice yourself.
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Whether you buy a house with a loan or not
is not just about that;
there are moments in life when you must make big decisions
several times.
And depending on those choices, your life afterward can change dramatically,
but unfortunately,
rarely can you make a wonderful choice at that moment.
More often, you are drawn to options that aren’t optimal
because you’re led by some force.
You think you’re choosing freely,
but you are actually being influenced by others’ interests.
“No,I am confident I can choose by my own will!”
you might say,
but let me test you with a question.
At the beginning,
I introduced the story of treatment that would save the villagers,
please take a look,
and after choosing treatments A or B,
please answer the following question as well.
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Right now, six hundred villagers are
suffering from a life-threatening disease.
There are two treatments.
If you choose Treatment C,
you will surely have four hundred die.
With Treatment D,
there is a one-third chance
that no one dies, but
a two-thirds chance that all die.
Now, which treatment would you choose, C or D?
Barry Schwartz
'Why We Pick and Regret It Every Time
(Random House Japan Co., Ltd.)'
October 23, 2012, First Edition
From P.82
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So what do you think?
Would you be inclined to choose D?
Treatments A and C, Treatments B and D ultimately say the same thing,
only the phrasing is different.
Yet,
even if the wording changes, many people choose a different option.
There are many advertisements and prompts in the world that cleverly exploit human psychology like this.
When you must make a choice, please remember this.
That said, even with caution,
it is very difficult for humans to resist instinct.
Therefore,avoiding making a choice as much as possible
is also a valid approach.
Steve Jobs is famous for always wearing Issey Miyake clothes,
which is said to help him focus on important decisions
by reducing the number of choices.
In my stock academy, too,
I teach methods of focusing on one stock and trading.
If there were no selection tasks at all,
you could devote more energy to important decisions.
I hope today’s content helps you make choices with as little regret as possible.
Thank you for watching until the end today as well.
Thank you.
Keizo Shimoyama
