Affordability?

[RT]

runaway property prices will only work up and anger the vast majority who are watching enviously and helplessly as the small filthy rich few indulge in their casino hype/sentiment greedy gamesmanship in property trading. the consequences if unchecked, over time, could be unsettling. there is a limit to everything. guess the authorities here and in china and india are aware of this and watch it, further tightening of the screws can be expected. the risks of losing votes will be formost in their minds.     

[Cruncher]

To poi...
"I am sorry to say that your opinion does not matter. Fair value is determined by market forces beyond our control."
Actually, I beg to differ. My opinion does matter. Because I am part of the market. And, based on my own circumstances (re: affordability and views on "value") I would not be prepared to pay the asking prices today. Not to mention the level of risk already discussed. Hence, the reason for my post. As for market forces; yes, the "market" is pushing prices up to levels that - again, I stress in my view - do not reflect realistic levels of affordability or value. I think "the market" will soften - perhaps significantly - once all the new supply comes onto the market and when interest rates start the trend up over the next few years. That will be when the collective opinions of "the market" judge that what they thought was fair value or wise investment was in fact, not.

[poi]

Cruncher
Not so long ago I attended a property launch. I commented to the salesperson or agent that the prices were so high and the young people present cannot afford to pay. The agent assured me that the sales were good and its the old folks (parents) who paid up. Many of these parents are loaded with cash in the CPF and they bought their homes( private or HDB) a long time ago. It's a growing trend that parents are buying properties for their children.
The govt. know that there is group of people( or voters) who do not qualify for HDB and cannot afford private housing so they created a type of housing call executive condos whereby the applicant gets $40k grant from the govt. but he cannot sell within 5 years.
As you can see, it is not a level playing field. The odds are against the expats and the locals have many advantages.
You are hoping that supply will far exceeds demand, but the biggest land owner is the govt. The major developers have great holding power and they will not lower their selling prices.
Can the property market crash? Sure, if the locals have no jobs and all the expats suddenly head for the airport. I must say that the probability of such an event is pretty low.             

[Cruncher]

Fair enough! If all the rich locals are happy to pay multiples of millions for a thousand square foot of living space, they are welcome to do so! On the other hand I - and quite a lot of the expats I know personally - find Singapore too expensive today (renting, not even thinking of buying) based on the salaries we were offered to come here and what they can "buy". When our contracts are up, we will be happy to return home where we see more value. Quite a few people/colleagues I know have elected to return home over the past year, even when offered the chance to extend their contracts (citing they find it too expensive - property,transport and/or schooling costs especially). I'm sure I will be told that for every expat that leaves, there is an Asian able to replace us! But my question stands: can they afford these prices? Or are they happy to live in the HDBs vacated by the rich locals?
One point I'd make again though: stats indicate the majority of sales are still going to foreigners! And I make the argument again, if they are investing and expecting rents to rise in tandem, they may be miscalculating.

 

[Lab Mouse]

Cruncher, expats aren't the only ones...there's a significant number of educated Singaporeans who are also leaving the country because they don't see much value in staying put. While Singapore is a wonderful country, in itself, it is still not compelling enought to mortgage our future and our children's future just to live in it. It may be one of the best places to live and work (the play part may still come up a little short at the moment), but it is not the only one.

[$Pripps]

Some people are not so ignorant.

_________________________________
No empirical evidence to suggest that public housing in Singapore is affordable by any standard

March 2, 2010 by admin   
Filed under Columnists, Letters, Ng Kok Lim, Opinion

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Dear Prof Yu and Prof Tu,

I refer to the commentary you wrote for Straits Times that was published on 27 Feb 2010.

Dominance of public housing in Singapore

You first pointed out that the HDB is the dominant housing provider in Singapore, accounting for 82% of the population’s homes.  This in turn makes Singapore unique compared to other cities where normally, private housing dominates instead.

What you could have also pointed out is the passing of the Land Acquisition Act in 1966 which allowed the government to buy land as cheaply as $1 in the name of national development.  The forcible acquisition of land at dirt cheap prices is normally referred to as expropriation in other countries and is normally illegal too.

Furthermore in Hong Kong, when mortgages of public flats are fully paid for, the flats can be traded in the open market and are classified as private instead.  If we were to adopt this definition, more than half of our flats would have been classified as private already.

Public home ownership in Singapore is for 99 years only

You next pointed out that only Singapore has significant home ownership when it comes to public housing.  But you omitted to say that public home ownership in Singapore is for 99 years only which is comparable to long tenure or even perpetual rental contracts in other countries.

We are compared to expensive Hong Kong and London but not Sydney. While your study began with the comparison of four cities, Sydney was dropped when it came to actually comparing housing price to income ratio, leaving only notoriously expensive Hong Kong and London to be compared with Singapore.  If affordable housing in Singapore can only be established in comparison with the most expensive cities in the world, doesn’t it say something about how expensive Singapore really is?

Wrong to consider expensive Hong Kong Island only

Your figures show that Hong Kong’s housing price to income ratio is almost four times those of Singapore’s.  But the calculated ratio of 19.8 for Hong Kong is ridiculously high and dubious.

Using only the figures provided in Table 2 of your commentary, we can work out Hong Kong’s median housing price to be HK$ 74,593.93 per square metre which matches very closely with the average per square metre price of private residential units in Hong Kong Island as given on Page 7 of “Housing in Figures 2009″, a source quoted in your commentary.

However, we know that Hong Kong doesn’t comprise of Hong Kong Island only and that the latter is much more expensive than Kowloon and the New Territories.  Considering the housing prices in Hong Kong Island only is like considering the housing prices in Bukit Merah, Toa Payoh and Marine Parade only while ignoring those in Woodlands and Jurong West.  You’d invariably end up with a distorted pricing picture.  In fact, the same source you quoted showed housing prices in Kowloon and New Territories to be 71% and 54% that of Hong Kong Island respectively.

Furthermore, the same source also shows that housing on Hong Kong Island forms only 10% of all housing which makes it all the more distortionary if we were to base housing prices on Hong Kong Island only.  In other words, your supposed median housing price for Hong Kong is more like the price of the top 10% of housing in Hong Kong.

Wrong to compare Singapore’s public housing to Hong Kong’s private housing

Next, we need to consider the fact that the median housing in Singapore is actually public housing so when we compare with Hong Kong, we cannot ignore Hong Kong’s public housing.  The median housing price cannot be based on private housing only.  Since 55% of all housing in Hong Kong is private, the median price of housing in Hong Kong ought to correspond quite closely with the cheapest forms of private housing in Hong Kong.  That would have more than halved the ratio you worked out for Hong Kong to less than 9.9 easily.

Still, there is no denying that housing price to household income ratio is higher for Hong Kong than for Singapore.  This can easily be reconciled with the the fact that Hong Kong’s liveable space per person is less than half that of ours as shown in Table 2 of your commentary.  Thus, Hong Kong’s higher housing price is due to they being more overcrowded than us.  The lesson we must glean from this is that the more we choose to overcrowd ourselves, the more expensive our housing will become.

Public housing omitted for Greater London Area

Similarly, you have omitted to take public housing into account which makes up 23% of all housing in Greater London Area.  In order for an apple to apple comparison, we need to apply Singapore’s situation to London and consider what happens when the 23% of Londoners staying in rental housing are forced to buy their houses using their retirement money and leaving them with little or no money for retirement much like what is happening in Singapore.  These 23% public housing would automatically be counted for in the computation of housing prices and will significantly reduce London’s median housing price.

Is Singapore housing much affordable?

Hence, contrary to what you claim, there is no empirical evidence that housing in Singapore is very much affordable by any standard.  Since the empirical evidence you provided is highly flawed, the only standard by which Singapore can be ajudged to be affordable is one that is twisted and that which omits all but the most expensive cities.  Therefore, it is not true that Singapore has achieved a lower housing to income ratio.  If interpreted correctly, your figures do not reveal that our housing system delivers affordable housing to the majority of Singaporeans.

Thank you

Ng Kok Lim

[TheWrathOfGrapes]

Dear Prof Yu and Prof Tu,

You two are accused of data mining.

You too?

[Moolah Talks]

Who pays their salaries?

[Kubes.SG]

$Pripps,

Excellent commentary you shared with us.  Ng's analysis shows how quickly and blatantly the Govt sycophants will distort, manipulate, exclude and misinterpret data to make SG look far better than it really is.

[poi]

How do you define "affordability"? All new HDB units offered for sale are oversubscribed and sold out.

[aw]

Its pathetic that they had to resort to this.

One other glaring fudge on the analysis - in comparing the ratio for Singapore they used different basis for the numerator and the denominator. For the numerator (price) they used just the median HDB flat price, but in the denominator they used the median income in Singapore, as opposed to the median income of HDB dwellers (which will of course be lower than those living in private housing). Either they should use islandwide prices and compare it with islandwide income or used HDB prices with income of people in HDB. Pretty amateurish trick to make the ratio low by inflating the denominator and keeping the numerator low.

[Cruncher]

I'm talking about private condos and affordability for foreigners (who the government want to work in Singapore as part of its economic drive?). The cost of renting or buying has increased substantially, while compensation has remained flat (or declined in real terms). This makes Singapore less affordable.
OK, so the new condos that cost $2-3m each may be fully sold (if whoever is buying considers them worth it) but if these investments need proportionally higher rents to earn a yield, will there be foreigners around to 'afford' it? Alternatively, if this supply is for owner occupation, that takes supply out of the market for foreigners needing to rent.
That was my topic. Is property affordable for expats like me? And for me personally, the answer is no. I can't afford Singapore if there is any further housing inflation. S$5k a month in rent off a $20k a month salary is my max. Perhaps other expats are coming here on $30-40k a month who can pay $10k a month in rent for a condo that cost $3m to buy? But, I don't think there are many of those expats around. Majority are just like me, I reckon.

[true]

I'm talking about private condos and affordability for foreigners (who the government want to work in Singapore as part of its economic drive?). The cost of renting or buying has increased substantially, while compensation has remained flat (or declined in real terms). This makes Singapore less affordable.
OK, so the new condos that cost $2-3m each may be fully sold (if whoever is buying considers them worth it) but if these investments need proportionally higher rents to earn a yield, will there be foreigners around to 'afford' it? Alternatively, if this supply is for owner occupation, that takes supply out of the market for foreigners needing to rent.
That was my topic. Is property affordable for expats like me? And for me personally, the answer is no. I can't afford Singapore if there is any further housing inflation. S$5k a month in rent off a $20k a month salary is my max. Perhaps other expats are coming here on $30-40k a month who can pay $10k a month in rent for a condo that cost $3m to buy? But, I don't think there are many of those expats around. Majority are just like me, I reckon.

The rents are coming down quite much and many new units are still empty. If you buy now, you have to be financially prepared to keep it unoccupied most times. This is one more thing hurting the 'affordability' of these new condos. And expat packages are getting less and smaller...

[Dr. Phil]

The new condos around Amber, Marine Parade are strikingly small and appear of an inferior quality, prone to high maintenance. Perhaps this is "resort living".  

My own valuation of these condos is no more than SGD400k for a 2-bed and perhaps SGD500k for a 3-bed. This assumes that they are freehold.
This SGD500k is almost one quarter of a million pounds sterling which buys increasing value in UK and especially USA.

When I read these condos are selling for huge sums, frankly I must express my disbelief. Who would spend their OWN money this way, except perhaps where such are ill-gotten and require laundering?

We know previous spending frenzies were sourced by reckless lending of our (High Street Bank) savings which caused an on-going economic melt-down and ought to have be regulated and subjected to stringent controls to prevent investment banks especially from squandering it all for their big personal bonuses. Seize the Day!.

Today, I hope all borrowing recognises realistic payback terms which allows families to survive with one single parent's income. And full term mortgages for such large sums will only be available to the young who have the majority of their lives ahead... but we seem to be presiding over their enslavement with hard debt which bodes ill for the future, impacting on all aspects of family life, divorce, fall in population etc. and will eventually destabilise a nation

To me, the whole system of mortgages has always been fundamentally flawed.
We borrow on terms which demands at least 25 years subservience. I have mentioned previously, a friend built her own beautiful walled mansion in Romania for usd50k (SGD 70k) and throughout most of eastern Europe, people likewise build their own homes with land for a vegetable garden, chickens etc without a lifetime of debt.

But we have made deep inroads into Eastern Europe over the past decade, "growing profits" as we go and all this will change when we have brought western civilisation (banks) to these backwaters.  

I do yearn for the days when media news was simply news and business updates, stocks and shares, global opinion........ simply did not exist.  

[fritjes]

$Pripps,

Excellent commentary you shared with us.  Ng's analysis shows how quickly and blatantly the Govt sycophants will distort, manipulate, exclude and misinterpret data to make SG look far better than it really is.

Some of the local blogs have also pointed out that one of the authors of the article is a board member of the HDB. Not exactly an unbiased commentor for sure.