On February 2019, I chance upon this Business Times article that illustrate the trend of the median household income from work in Singapore. Over the period from 2013 to 2018, median household income shows an increase of about 3.4% in nominal terms.
What got me curious is that with this median income, what is the price of a house that such a family can afford to buy. Taking in account the median income here, are the prices of the condo properties here in Singapore expensive? Or is it underpriced?
I put in some assumptions, and at the same time did some quick calculations:
- Family income: $9,293
- Interest rate: 3.5%
- Age of family income earners: Age 40
- Loan tenure: 25 years loan
- TDSR: 60%
The loan the at this family will able to get is estimated about:
Assuming over the years this family has accumulated through their CPF and savings:
Savings and CPF: $200,000
(the $200,000 can also come from the CPF refund and cash proceed when selling their first house)
Adding all the numbers together (Loan: $1,113,770 + Savings and CPF: $200,000), this family can afford to buy a property up to about $1,313,770.
In the above example, we are looking at taking the maximum loan and using the TDSR ratio of 60% to service the mortgage.
What if the family decided not to max out their loan ratio? Assuming now, they decided to be more conservative and use a lower loan servicing ratio. Using only 40% of their income to service their mortgage loan:
- Loan ratio: 40%
The loan now this family will able to get is estimated to be about:
- Loan: $742,513
Assuming they have the same amount of savings and CPF: $200,000
With this new loan ratio, this family can afford a property up to about $942,513 (Loan: $742,513 + savings and CPF: $200,000).
If the above assumptions are accurate, we can see that based on median household income of $9293, a median household here can afford properties of about $940k to about $1.3M. Looking at the current property prices, between $940k to $1.3M we should be able to get a 2-bedroom or 3-bedroom condo units both in the new launch market as well as the resale market, depending on the location of the property. In this instance, it seems that the property prices here do not seems to be overpriced.
Another article here that could support this observation:
In this article, it mentioned that over the last twenty years, both prices and household incomes enjoyed a steady compound annual growth rate of 3 to 4 per cent. This puts the home prices in tandem with income increase. Thus, households are able to afford to buy a property according to their income level.
Looking further into the details of the article, the ratio of median home price to income is estimated to be 4.6 years as at end 2018 compared to 6.1 years in 2012. The ratio of median private residential unit price to income is estimated to be 6.2 years as at end 2018 compared to 7.5 years in 2012. It seems that the prices of property have become more affordable as compared to 2012.
Looking at another aspect, comparing to other major gateway cities, Singapore home price to income ratio is one of the lowest.
I believe the housing market in Singapore is stable due to all the cooling measures implemented together with all the sound and sustainable housing policies. This has ensured housing here to continue to be affordable compared to other global cities.
Just like the cooling measure implemented last year, on 5th July 2018, the government acted early to prevent home prices from rising to unsustainable levels. With residential market being affordable, I think the market will continue to grow and remain affordable.