TL;DR – Despite the rising price of HDB resale flats, Singapore’s public housing still remains affordable amongst countries like Korea, Japan, and Hong Kong.
Residential property makes up about 42 per cent of our household assets. That being said, our mortgages are our biggest liabilities.
Initial capital aside, conservatively, your monthly loan repayments should not exceed 30 per cent of your income, and the total cost of the property should not exceed five times your annual income.
For HDB properties, the Mortgage Servicing Ratio (MSR) enforces this 30 per cent limit. Private property buyers can elect to take on higher debt. According to the Total Debt Servicing Ratio (TDSR), Private property buyers just need to ensure that their monthly loan repayments plus other debt obligations don’t exceed 55 per cent of monthly income.
How affordable is housing?
In a research by Associate Professor Lee Kwan Ok and two economists from the Asia Development Bank, a sample of 211 cities in 27 developing countries in Asia concluded an estimated average Price to income ratio (PIR) of 13.3.
In comparison, the Demographia International Housing Affordability Survey (2019) shared the average estimated PIR of 4 for developed countries. Indicating how housing in Asian cities is severely unaffordable.
For a four- to five-room BTO flat in the last 20 years (2001 to 2020), Singapore’s average PIR of 4.1 suggests that our housing is within a reasonable range of affordability. Taking the various CPF housing grants for first-time home buyers, the ratio will be even lower.
The grants range from S$5,000 to S$80,000 for HDB buyers with a monthly household income of not more than S$9,000.
CPF Savings supplement housing affordability concerns
Most Singaporeans use their CPF savings to pay for their mortgages. Assuming the usual contribution of 37 per cent, a lower wage earner of S$2,500 per month will contribute about $925 per month to their CPF account. Over a period of 10 years, this works out to over $111k. But this calculation is very conservative because naturally, the monthly salary should increase over a span of 10 years. So their CPF savings should amount to more than the calculated $111k.
Generally, HDB homes are bought by couples, so assuming that both are earning the same monthly wage, the previously calculated $111k should be doubled as both their CPF savings can be tapped.
What we should be grateful for
Taking old and new 4-bedroom HDB flats in consideration, the average size is 98 sqm. Compared to homes in cities like Korea, Japan, China, and Hong Kong, we have some of the biggest homes.
Every major country is struggling with rising property prices. Despite this, it is laudable that Singapore still has a high homeownership rate. Comparing Singapore’s homeownership rate to other cities, we come out on top!