Houses will become more affordable when income of every household grows, according to a Saturday report.
With that, a correct comparison should be done.
It is useless to relate the recent property boom with the developments in 1996 and then assume that things are much better now than in the past. This is likely similar to the comparison of the sub-prime financial crisis and the 1930s Great Depression and concluding that these issues aren’t so serious.
Similarly, it is worthless for Citigroup economist Kit Wei Zheng to conclude that the present developments are much better than in 1996. Though the recent property boom is not the worst, it doesn’t mean that it is not bad.
For a better understanding of the recent situation, people must take note that condominium prices have increased threefold from 1990 to last year, while, during the same period, the median family income improved only 2.1 times.
This means that from this period, there were only 50 percent growths in condominium prices. Therefore, the current situation is truly a worse off as compared to 1990.
Additionally, the affordability computations of Jones Lang LaSalle head of research Chua Yang are also confusing.
First of all, it is not right to use the per capita gross domestic product (GDP) as only 40 percent of the current GDP is attributable to wages.
Moreover, in absolute terms, the 22 percent growth in the per capita GDP of the previous year over its 15-year average is just $9,156, while the 38 percent growth in condominium prices over its 15-year average of about $700,000 totals to $266,000.
Thus, even before looking at the stakes, it will take an additional 29 years for further incomes to pay for the growth in condo prices.
The statement of Mr Kit, which indicated that the increase in salaries in the past 11 years had outpaced the increase in property prices, was also wrong. Comparing property prices and the median income for the past nine years, it took about five years for the property prices to develop income.