Prices of private homes may be rising yet again but newly gathered data imply home buyers who are in to the current home-buying trend are not necessarily living beyond their means and overstretching their budgets.
Homebuyers now consider condominium units more reasonably priced vis-à-vis their income, even more so than they did at the peak of the mass market property boom in 1996. This can be attributed to the recent years’ strong wealth generation. Separate new figures from financial and professional services company Jones Lang LaSalle and financial services giant Citigroup arrived suggest the same conclusion.
“Today, the average condominium is probably selling for around 19 times the annual income of the average Singaporean. While this is by no means cheap, it is still significantly lower than the peak of over 40 times in 1996, and around 24 times in 2007, though obviously higher than the lows of around 15 times from 2003-2006,” said Citigroup economist Kit Wei Zheng.
Kit’s analysis took into account absolute prices rather than looking at prices per square foot. His gauge for affordability does not look at a couple of factors currently enhancing affordability in the market.
First, the typical condo buyer has a higher-than-average income. He also probably enjoyed a faster salary growth.
Second, interest rates are lower now than they were in 1996 and 2007. Analysts explain that this helps in boosting demand.
Also, Kit’s analysis uses average income, which might be considerably higher than the midpoint or median wage rate taking into account the wide disparity between the rich and the poor. He also uses the average selling value of condominiums, which might also be higher than the midpoint since the average selling price is somehow dragged up by the sales of high-priced prime housing units, particularly in recent years.
Jones Lang LaSalle records an affordability index that mainly takes into account the interplay between housing prices, mortgage rates and economic growth rates. LaSalle’s index has been dropping since 2007.
Doctor Chua Yang Liang, LaSalle’s head of research for the Southeast Asian region, said that the index now indicates that private mass market units are more reasonably priced to first-time buyers and Housing and Development Board (HDB) upgraders than in 1996 or 2007.
Chua further explained that affordability has improved more for HDB upgraders than for first-time buyers since HDB prices have increased substantially.