HDB resale prices are expected to reach 2008 affordability levels by the third quarter of next year, a HSR report released last week said.
Prices would need to come down by 6 percent to become affordable.
But what does affordable means? The report calculates affordability as the cost of a resale flat at 4.4x average annual household income of HDB dwellers.
However, note that HSR’s report expects that affordability will be reached only if household incomes continue to rise.
According to HSR, “We observe that household income has been on an upward trend from 2005 to the present.
“Barring any macroeconomic crisis, income should continue on an upward trend in the future.
“We have based our income projections using the historical Compound Annual Growth Rate of 5.6% for average annual household income of HDB dwellers.”
Also, the calculations are done based on the following assumptions – that the buyer is a first-time Singapore buyer, where the impact of taxes and duties is minimal.
Also, the calculations are based on the example of a 1,000-square-foot resale HDB flat.
According to HSR, such a flat is now “5x the average annual household income of HDB dwellers”.
By the Q3 2015, it expects this to be lowered to 4.4x.
However, this is still higher than the 4x that National Development Minister Khaw Boon Wan promised for Build-to-Order (BTO) flats in March last year.
Also, latest statistics show that three-room BTO flats are still 4.57 times that of applicants’ annual salaries.
Four- and five-room flats are at 5.26 times and 5.36 times of applicants’ annual salaries, respectively.
Also, when seen in the context of real incomes increasing by only 0.4 percent last year, it is uncertain if incomes will increase fast enough for housing prices to become affordable to Singaporeans again.
HSR’s prediction might be a tad too optimistic in this instance.
Moreover, HSR also said, “We expect demand to increase due to greater affordability if price and income continue on current trends.
“This means that residential property will become more affordable to more people, leading to increased demand.
“This could potentially lead to higher transaction volume and prices.”
And so, the cycle continues. If this assumption by the HSR is factored in, housing prices might take even longer to reach affordability.
The HSR report tries to be optimistic but where it is increases in income and price fluctuations are uncertain, unless the government takes affirmative action to reduce housing prices, such expectations have to be moderated.
As it is, Mr Khaw had promised to the prices of new flats to four times the annual median income of its applicants but this promise is far from being fulfilled.
Source: www.therealsingapore.com
