Martin Lee @ Sg
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Property Cooling Measures Working?

In the Sunday Times yesterday, National Development Minister Mah Bow Tan said that the recently introduced cooling measures by the government was working.

In the resale Housing Board market, median cash over valuation (COV) payments in October fell to $25,000, from $30,000 in the previous quarter.

Unfortunately, even though COV is dropping, the current formula of pegging prices of new HDB flats to transacted prices (less subsidy) means that valuations of HDB units will continue to go up as prices chase the COV in a never-ending spiral…

Mr Mah also pointed out that in the private property market, prices are still rising but the increases have moderated.

According to the Urban Redevelopment Authority (URA), private residential prices rose 2.9 per cent in the third quarter of this year. This represented a step-down from the previous quarter, when prices jumped 5.3 per cent.

Seriously, I don’t think this kind of growth is sustainable. 2.9% a quarter or almost 12% a year. Are our incomes even growing at 12% a year? Perhaps so for just a small select group of people.

Which leads me to introduce this affordability ratio:

Property value/annual disposable income

Where annual disposable income is your income net of tax

At the peak of the massive Japanese bubble, the ratio was at nine times in Tokyo. It is already 14 times in Beijing with the rest of China having a national average of about 8.

How affordable really is Singapore property?

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15 comments
Joe P says 8 years ago

Yeah well I was not so smart that I switched UKP into Singapore $ when they were 3 – 1 and SG property was cheap. I could see it but somehow I couldnt do anything with knowledge. I am now switching into UKP now they are 2-1 I wouldnt buy UK property as it still seem grossly overpriced against every single metric but UK people are still saying its different his time. Again only low interest rates and welfare payments are stopping the collapse but welfare is being cut. The only way out of this mess I can see for the majority is to have hyper inflation. Double salaries and other costs while keeping mortage payments the same and destroying the savers and pensioners.

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Joe P says 8 years ago

I came out in 96. The west was dead and the Asian economies were all tigers. The UKP was something like S$2 Everyone I met was making money from real estate. People were paying 100k over HDB valuations. Then 1997 happened. My rent reduced by 50% between 1996 and 1998. Along the way the UKP went to S$3. I met a lot of taxi drivers who told me they had been millionaires in 95. Rents never really went up significantly again until 2005 – 2007 when rents seemed to double or more and property took a huge hike.Like many I was expecting a correction down which doesn’t seem to have happened yet but maybe that is the only lesson. You pause and the market doesn’t correct so you leverage more, the market goes up and everyone says it is different this time. It is different because there is a lot more Chinese money floating around. The west is dead and the future is in tiger Asian economies. The UKP is s$2. Everyone i meet is making money from real estate. What happens when that Chinese money switches into cheap property in cheap currencies I wonder .

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    lioninvestor says 8 years ago

    “This time is different” almost always ends up being the same.

    Reply
Timothy Gan says 8 years ago

@Joe P

http://www.singstat.gov.sg/pubn/popn/smd2009.pdf

From page ix, you have data to calculate ratio of divorces to marriages over the past 6 years.

2004 28.78%
2005 30.03%
2006 29.76%
2007 30.21%
2008 29.34%
2009 28.32%

And your leveraged couples timebomb will not detonate until we enter a rising interest rate cycle. Committing to a 30-year mortgage is affordable right now since the couple is young and healthy, and they were “prudent” that the payments are only about 30% of their incomes. That is with a 1.5% p.a. rate. When mortgage rates are over 3% p.a. (many old and not-so-old timers will recall this), suddenly it will be half your 2009 income. You better pray that your income has doubled as well.

That’s when your bomb really starts getting real.

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    lioninvestor says 8 years ago

    For those who leverage to the tilt and depend on rental income to pay off the loans, they might be hit with a double whammy if they can’t get tenants…

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Joe P says 8 years ago

Anyone have the marriage counselling or divorce stats ? I was looking at those median incomes and thinking they were high but I assume many are joint incomes. Over leveraged couples go off like an exploding bomb when one of them stops wanting to work 7 days a week to impress their family and friends and starts wanting to have fun.

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lp says 8 years ago

With liquidity & low interest rates, it’s just a pause before the next move up. Nice to be able to ride it, probably until 2015 then leave the party and watch it pop.

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Timothy Gan says 8 years ago

Some ratios to ponder when conversation veers to residential property, as everyone talks about it. Note that the income figures are from 2009, and property prices from 1Q 2010. I believe wages are far stickier upwards than housing prices.

Singapore’s Median monthly household income from work among all resident households declined by 1.9 per cent from $4,950 in 2008 to $4,850 in 2009.

Among employed households, median household income from work was $1,090 for those in HDB 1- & 2-room flats, $3,190 for HDB 3-room flats, $5,560 for HDB 4-room or larger flats, and $12,500 for private flats, condominiums and private houses in 2009, lower when comparing with 2008.

The Gini coefficient, a summary measure of income inequality, declined from 0.481 in 2008 to 0.478 in 2009. (Author’s note: Only HK and Lat-AM or African nations have higher Gini numbers.)

http://www.singstat.gov.sg/news/news/op19022010.pdf

http://www.hdb.gov.sg/fi10/fi10321p.nsf/w/BuyResaleFlatMedianResalePrices?OpenDocument

1. Median HDB resale price for 4-room and larger flats =(378k+452k+530k)/3 = SGD 453kMedian annual Household income for HDB 4-room or larger flats = 5,560 x 12 = 66,720

Cost of flat relative to household income = 6.78 times.

2. Median HDB resale price for 3-room flats = SGD 295kMedian annual Household income for HDB 3-room flats = 3,190 x 12 = 38,280

Cost of flat relative to household income = 7.7 times

http://www.asiaone.com/Business/My+Money/Property/Story/A1Story20100426-212422.html

Based on URA’s numbers, the median price of an apartment in the first quarter of 2010 was $9,952 per sq metre (psm), and for condominiums, $10,490 psm. Let’s take the average of the two to represent the median price of a non-landed private property. That works out to $10,221 psm. A 100 sq metre unit would cost some $1.02 million.

3. Median price for a condominium: SGD 10,490 per square meter x 100 sq m = SGD 1,049,000Median Singapore annual Household income for private flats, condominiums and private houses in 2009= SGD 12,500 x 12 = SGD 150,000

Cost of condo relative to household income = 6.99 times

In a nutshell…not in bubble territory yet, but almost there….Multiples are lower in many developed nations, but income taxes and capital gains taxes are higher too.

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Singaporean says 8 years ago

GST to help the poor. High property prices to help Singaporeans. We are doing this for the long term…

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so1trg says 8 years ago

As much as I believe that the property market is a bubble, what i believe is not important. What the ruling incumbent makes of this property market is more critical.
What we have is a bubble strongly propped by “our gahmen” and going by their past history and track record, this bubble will take years (even decades) to pop.

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Musicwhiz says 8 years ago

Haha thanks Lion Investor,

Well a lot of the liquidity sloshing around is supported by rich (and I mean blinking rich) foreigners bringing their money in to our shores, and providing support to property prices.

From another angle, there’s also the “HDB Upgrader” group who have money from divesting their (overpriced) HDB flats and then plonking that money into private property, where the gap is not that great.

Then there are also the heavily leveraged individuals, who buy and flip properties more quickly than I can change T-Shirts.

So if you add up all these disparate groups of people, I guess yes you can probably say we are approaching bubble territory….haha

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Musicwhiz says 8 years ago

Hmm nice article. Do you happen to know the affordability ratio for Singaporeans?

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    lioninvestor says 8 years ago

    Dear Musicwhiz,

    I don’t have but we can easily relate this by looking at how much HDB units cost and what’s the income levels of the people buying them.

    I think we are not far from bubble land. Or are we there already?

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Nuts says 8 years ago

The total quantum of HDB resale transaction prices are still rising (valuation + COV), albeit at a slower pace, just like for private properties. In fact HDB resale prices increased a whopping 4.0% on-quarter in 3Q, barely down compared to the 4.1% increase in 2Q.

If you drill down to the individual resale prices on HDB website, you’ll find that they are still increasing in Oct compared to before the “cooling measures”. E.g. average price of 5-rm Punggol was $460K in Aug (before the cooling measures), but was average $480K in Oct. So even though COV may be coming down a bit, but this is more than made up by the still increasing valuations.

Today’s COV becomes part of tomorrow’s valuation. So as long as COV remains persistently high e.g. $20K and above, this immediately represents at least a 4+% markup over so-called valuation figures and contributes to stubborn increases in valuations as well as increases in actual transaction prices.

New HDB flats are simply sold at 25% “discount” to nearby comparable resale HDB transaction prices. Hence if resale HDB still keeps going up, those BTO flats will also be priced ever higher.

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