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\nHome sellers have been bringing down their asking prices to accommodate buyers\u2019 budgets.
\nWhile we\u00a0anticipate\u00a0a market recovery in 2018, we need to remember that increases in prices need to be tempered by an understanding of\u00a0home\u00a0buyers\u2019 affordability \u2013 how much individuals\u00a0are able to\u00a0commit to their real estate purchases.\u00a0
\nBy Chang Hui Chew\u00a0
\nAs the real estate market holds its breath for an anticipated increase in prices\u00a0in 2018, it might be an opportune time for us to look at housing affordability. After all, measures curbing affordability were a contributing factor to the property market moving downwards.\u00a0
\nWith housing supply looking to push their prices further upwards in 2018 on the back of increasingly exuberant activity in collective and land sales, it is important to maintain a view on how buyers are constrained by how much they can spend on their real estate purchases.\u00a0\u00a0
\nRecent history\u00a0
\nBy imposing limits to the amount that home\u00a0buyers could use to service their loans, the Monetary Authority of Singapore (MAS) effectively brought down the demand for properties in Singapore, with many realising that the properties they wanted to purchase were now effectively out of reach. As a result, sellers, including real estate developers, had to \u201cright price\u201d their properties, focusing on reducing overall\u00a0quantums,\u00a0in order to\u00a0move units.\u00a0\u00a0
\nThe primary measures that MAS used to curb affordability was the Total Debt Servicing Ratio (TDSR) for the purchase of private properties, and\u00a0Mortgage Servicing Ratio (MSR) for HDB resale flats and executive condominiums. The former capped\u00a0the total amount that home\u00a0buyers could use to service their loans at 60 percent of their incomes per month, while\u00a0the latter\u00a0imposed a ceiling of 30 percent.\u00a0\u00a0
\nDespite some mild tweaks in the early half of 2017, MAS has said that these\u00a0particular measures\u00a0which enforce financial prudence will remain. This is because mortgages were often the largest source of household debt in Singapore, which these measures have effectively brought down.\u00a0
\nIn the most recent Financial Stability Review, released at the end of 2016, MAS strikes a note of optimism, highlighting that \u201cthe mortgage servicing burden for the median household remains below 50 percent under a severe stress scenario of a 10 to 20 percent decline in household income, on top of a\u00a0three percentage\u00a0point increase in mortgage rates\u201d.\u00a0
\nProperty affordability sentiment among Singaporeans is weaker compared to other regional countries due to higher home prices here.
\nMedian multiples\u00a0
\nWhen comparing housing affordability across countries, most economies look at a\u00a0particular statistic\u00a0\u2013 the median multiple. This is the ratio of median house price in the country or city, by the median annual household income.\u00a0
\nSingapore\u2019s\u00a0median multiple, as calculated by the think tank\u00a0Demographia\u00a0in its latest report,\u00a0is\u00a04.8, or\u00a0\u201cseriously unaffordable\u201d\u00a0(refer to\u00a0Figure 1).\u00a0\u00a0
\nIn comparison, Hong Kong, one of the most expensive housing markets in the\u00a0world, stands at 18.1. Singapore is also better placed than Sydney, at 12.2, and even San Francisco, which saw a median multiple of 9.2.\u00a0\u00a0
\nSingapore\u2019s median multiple might seem lower than expected, given our perception that we are one of the most\u00a0expensive\u00a0real estate markets in the world. Indeed, Singapore\u2019s median multiple has improved, as we saw a ratio of 5.1\u00a0in 2013, classified as \u201cseverely unaffordable\u201d, the first year that our island\u2019s property market was included in the report.\u00a0\u00a0
\nDemographia\u2019s\u00a0report calls the Singapore government out for the \u201cunique public commitment to keeping house prices under control\u201d.\u00a0Demographia\u00a0however, does not\u00a0take into account\u00a0government grants and subsidies, nor does HDB share the full extent of pricing for Build to Order flats. Both data points could potentially improve Singapore\u2019s median multiple even further.\u00a0\u00a0
\nPerception is reality\u00a0
\nSingaporeans however, have a far more pessimistic perception of our own affordability.\u00a0\u00a0
\nIn\u00a0PropertyGuru\u2019s\u00a0recent Consumer Sentiment Survey, our housing market saw an index score of 29, the lowest amongst the four countries (Malaysia, Indonesia, Thailand and Singapore) surveyed.\u00a0\u00a0
\nOne of the key reasons for this low perception of affordability is that property prices are too high, with 71 percent of respondents echoing this sentiment.\u00a0At the same time, respondents also called out government policies as \u201crestrictive or unfavourable\u201d, suggesting that\u00a0affordability curbs or higher Additional Buyer Stamp Duties (ABSD) were impacting their ability to purchase properties for investments.\u00a0\u00a0
\n29 percent of respondents also indicated that prices are likely to increase, compared to 15 percent in 2016\u2019s survey. Meanwhile,\u00a0overall\u00a0satisfaction with the real estate market also remained\u00a0pretty low, at 34 percent\u00a0(refer to\u00a0Figure 2), a\u00a0two percent decline from\u00a0previous.\u00a0\u00a0
\nCompared\u00a0to our neighbours\u00a0
\nIn comparison, respondents from Indonesia were the most optimistic about their affordability, with an Index score of 52, while Malaysia and Thailand stood at 38 and 34 respectively.\u00a0Singaporeans therefore perceive their affordability to be even lower than our neighbours in the region.\u00a0\u00a0
\nIndonesians were also the most satisfied with their real estate climate, with 63 percent indicating positive sentiments towards it.\u00a0\u00a0
\nConsumers across the region however, expressed similar sentiments. The chief reason for dissatisfaction with\u00a0their respective real estate markets\u00a0are a perception of\u00a0high property prices, but\u00a0indicated that they felt positively about the prospects for capital appreciation in the long term.\u00a0\u00a0
\nThis\u00a0reflects an interesting dilemma of course. When investing, people often follow the adage of buying low and selling high, but this implies that there must be another party who is willing to buy at\u00a0the elevated prices, who\u00a0will\u00a0then look forward to selling at an even higher price in the future.\u00a0\u00a0
\nPropertyGuru\u2019s\u00a0Consumer Sentiment Survey is conducted twice a year, with over 600 respondents in Singapore, and more than 3,000 across the region.\u00a0\u00a0<\/p>\n