Tan Kin Lian's Blog: Affordability of housing

Thursday, September 23, 2010

Affordability of housing

This article suggests that a person can spend up to 40% of the monthly income for the monthly mortgage payment for a home. This is too high.

My benchmark is 25% of the monthly income on a loan not exceeding 25 years. Based on my benchmark, which is explained in Practical Guide on Financial Planning, the price to pay for a propery should not exceed 5 years of the combined income. If the couple are both working, the cost of employing a maid should be deducted from the combined income. The negative consequence of putting too much earnings into a home are also explained in my book. There is a need to accumulate savings to meet unemployment, which is now a high risk in Singapore.

My book is available at www.tankinlian.com/ishop. There is a 40% discount under a 5 book bundle.

4 comments:

DareToAct said...: I wonder what interest rates they use and what income data they use to compute the affordability data. And is it correct to think about affordability from monthly cash-flow basis?; September 23, 2010 11:01 AM
C H Yak said...: REDAS was quite misleading in the article for obvious reasons - commenting to prop up the property market correction, and trying to exercise "pulling power" to interfere with market forces.

There is also another misleading article here :-

"Private property rental rates set to rise with the expected arrival of 80,000 foreign workers"

Link :- http://www.todayonline.com/Business/EDC100920-0000074/Private-property-rental-rates-set-to-rise-with-the-expected-arrival-of-80,000-foreign-workers

Some of these young reporters are quoting analysts out of context without checking out the true facts.

If I remember correctly, the PM or MOM had clarified that these 80K more foreign workers, to be let in, will do works of a menial nature rejected by Singaporeans, so how could they afford to stay in private properties to boost rentals, forget about reasonable yield. LOL.

Some of these analysts would be fired from they jobs by their employers if they say something too adverse to affect the property market.; September 23, 2010 11:42 AM
Unknown said...: It seems like this group like to compare records price in property around the major city in the world. Why not they compare affordability with other major city in the world.
Perhaps down payment should increase to 40% like what Hongkong does?; September 23, 2010 12:21 PM
Spur said...: I believe the average home debt ratio in Singapore has been over 30% since 2006. If the govt has more wisdom and care for the ordinary people, it should have taken concrete steps years ago. Now it is hard to lower this debt ratio without causing much pain to existing homeowners, big business and much political cost to the govt.

This 40% "affordability" ratio is stated by REDAS. They are even using the previous property high in 1997 of 50% as some kind of benchmark. I think as long as the home debt ratio is below 45% they will still think it's ok. This CNA article recalls to mind a down-to-earth and succinct saying by Warren Buffet: "Never ask a barber whether you need a haircut or not".; September 23, 2010 12:38 PM