Tuesday, September 15, 2009

Are HDBs affordable at all?

With reference to my earlier article, I have calculated that a couple who bought a decent 3 bedroom unit at Dakota Residences will have paid about $3.3M in interest and principal. It is an awful large amount of money. I would never even dare to dream I have that kind of money!

What about HDB?

Let us now consider the cost of HDB from a cost-salary historical perspective. I draw the following information from Lianhe Zaobao, 6/9/09, written by financial columnist Xu Li Qing.

In 1970s, a 3 room HDB flat costs $8,000. A fresh graduate then earns $1,000 monthly. It is about 8 times his salary. Of course it was extremely rare to have a graduate then!


In 1980s, a 3 room HDB flat in Ang Mo Kio costs $40,000. A fresh graduate then earns $1,600, which translates to 25 times his salary.

Currently, a 3 room HDB flat in Ang Mo Kio costs $270,000. Compared to a fresh graduate’s salary of $2,700, it is 100 times his salary!


HDB prices have increased 12.4% (compounded) annually and our salary has only increased 3.4% (compounded) annually.

In simple words, HDB prices have since increased 30 times, compared to 2.7 times our salary since 1970.


And HDB has always maintained that prices are reasonable and affordable. I supposed it is, for the higher income families!


This explains why dual income is the dominant income model for most families. It makes houses 50% more affordable!


It is not exactly a wonderful feeling to know that my entire portfolio of stocks is barely enough for a 4 room HDB flat or a 20% down payment for a 2 room apartment.

When can I afford to buy my own house?

4 comments:

Musicwhiz said...

Property in Singapore is just too exorbitant. I totally agree with your post....

Let's hope MBT's moves will cool the market a little, including the HDB resale market.

Cheers,
Musicwhiz

Wealth Journey said...

I would think HDB's classification of affordable is when you are able to service your home using < 35% from your monthly income(CPF included for 20 or 30yrs. It's not correct but it's the way it is done by the govt and accepted by the people.

But I agreed that it does not make sense when suburban condos are selling for a million dollar or more nowadays. This is already a bubble in my opinion. Only in Singapore where a millionaire does not feel like a millionaire. Uniquely Singapore! :P

Kg Folk said...

then what do you think the main reason is for the tremendous and incridible uprising of the prices of even flats only in Singapore? Specualtions or?

JW said...

Hi,

I would think that it depends on why you are buying it for.

However, I would say it's not wise to buy at the moment, be it for investments or for stay, unless absolutely necessary. There are still a lot of people out there flushed with cash from en bloc sale looking to buy.

Another thing... property speculators. There are many who bought and flipped a few times a year to earn near $200k per flip. My aunt's ex-hubby did that, and that got him filthy rich.