Read this article.
My view
Although the prices keep going up, I want to encourage Singaporeans to be patient. Do not panic and pay high prices for HDB flats. It has to come down to a level that is supportable by the average wage in Singapore. It is now far too high. In the meantime, stay with your parents or rent a room or flat.
We should try our best to abstain from supporting these unsustainable prices.
ReplyDeleteIn most modern and developed economies, the benchmark for home values is 5-6 times annual income.
I read recently that our annual income on average is 2400pm or just under 30k pa. Therefore, even at the upper end of this range, the max we should be paying for our homes is 180k. We have a target of 3100 per month or about 37k pa so maybe in 10 years, the correct value should be 200k or so.
In some countries, when it hits 8 times, panic bells amongst the administrators start ringing.
Another point is buying out of fear. This is simply stupid. Buy out of need and within affordability. Make sure that you have enough for retirement. The fallacy of using one's primary home as a retirement tool is beyond my comprehension. If you buy at inflated prices and sacrifice your retirement planning as a result, you are just creating a scenario where you can never stop working. Perhaps this is desirable for some...
Today, our population is growing only through migration. Some of these people stay, many don't.
In 20 years time when you want to sell your "expensive" property to downgrade, there will not be enough buyers to buy everyone's property. Our population at that point will have hit its critical mass.Our birth rate is unlikely to go significantly higher. We are a another Japan in the making, but just drawing out the inevitable via immigration policies.
So, before you sign the cheque thinking in the long run, it will sure make money, try to look ahead 20 years. Population maxed out and housed. Not enough young people to buy your unit when you want to downgrade and of course, you have limited retirement resources as you thought you would be able to cash out.
As long as we grow the economy as a result of increasing volume of factors of production as opposed to the output of each factor of production, our long term potential is obviously constricted. We will plateau.
We need to focus on more value-added ways of increasing output, and of course innovation. What we are doing, by offering cheap factors of production, is merely discouraging innovation, and therefore, we will never be able to raise the bar significantly.
Our GDP figure as the ultimate measure may be a fallacy. It needs to be measured alongside income distribution and of course other less tangible measures, like ability to retire independently. If we really want to become a great place to work live and retire, then, we need to look beyond growth rates on their own.
The current situation is destined for trouble. A huge segment of overgeared individuals, who are underprepared for retirement is looming in the not too distant future.
The authorities should look further out and realise now that what is happening is not going to have a happy ending.
We are now playing an expensive game of muscial chairs where players need to borrow 800k or so to participate. When the music stops, and you can't afford to ungear to leave the game, there will be trouble.
Just my $0.02 worth.
Hi Singapore Plebian the benchmark should be 3-3.5 times the annual household income.For two working adults that means 4800*12=57.6k , *3.5= 201.6k max. Many Singaporeans with recent new flats(BTO pungool) of 300-350k is now 5.2-6.08 times which are clearly unsustainable. For those that bought resale flats even worse 350-500k, 6.08-8.68 reaching critical bubble.Unfortunately, my guess of correction will only occur in 2-4yrs most likely after 2013 when the huge amount of BTO recently launched have been built.
ReplyDeleteSingapore Plebian,i agree with the rest of your analysis and agree that housing being so illiquid should not be part of your retirement portfolio.
I want to ask one question i asked in other website but nobody seem to know: Mr Tan and others,
Singapore have been actively developing our bond market over the past 10 yrs. Is our cpf being increasingly used to buy this increasing debt which has balloned our public debt to 113% of gdp. Will the collapse/correction of the housing market affect the balance sheet assets of the cpf which will mean lesser credit to buy our SGS and other bills and
bonds? Is this why the government have been actively trying to prop up our hdb prices by letting in numerous foreigners to drive the resale market and thus the new hdb flats up. Is such a move sustainable for 10-20 more years?
Look, if everyone buys high priced HDB and condos and commit to 30 year loans, they may not have enough $ for their retirement, especially meeting the ever increasing minimum sum.
ReplyDeleteIn order to meet the minimum sum, the people may have to reverse mortgage back to HDB. How much reserves do you think will be left by then? Also, what if the large number of PRs withdraw their CPF and return back home? Tsunami.