TR EMERITUS

By Eugene Yeo, Consultant Editor (Editing by Jeremy Yau) [This article is an addendum to Part 2 of the Trilogy - "Debunking official myths of HDB flats: HDB flats are affordable to most Singaporeans"] In a letter published in the Straits Times forum on 31 August 2009, HDB Deputy Director Mr Ignatius Lourdesamy wrote that HDB flats remain affordable to eligible first-time households as they use between 21 to 25 per cent of their monthly income to service their loans on new and resale HDB flats which are well below the international affordability benchmark of 30 per cent. (read letter here) Though he did not state it explicitly, he is likely to be referring to the average shelter-cost-to-income ratio (STIR) or the proportion of total before-tax household income spent on shelter. The shelter-cost-to-income ratio is calculated for each household individually by dividing its total annual shelter cost by its total annual income. A STIR higher than 30 per cent is conventionally taken as indicating a serious housing affordability. As I was unable to obtain any international studies published online using the STIR to assess housing affordability in different countries including Singapore, I have to use the Median Multiple, which correlates closely to the STIR. It is used by the "Demographia International Housing Affordability Survey" whose extremely detailed and comprehensive report is available online in pdf format. (read report here) The 5th annual Demographia International Housing Affordability Survey covers urban housing markets in Australia, Canada, Ireland, New Zealand, the United Kingdom and the United States. It is unique in providing standardized comparisons of housing affordability between international housing markets. (Note: the study does not include Singapore and the median house prices use are that of private, and not public housing) The Demographia International Housing Affordability Survey uses the "Median Multiple" (median house price divided by median annual household income) to assess housing affordability. The Median Multiple is widely used for evaluating urban markets, for example being recommended by the World Bank and the United Nation. It is an easily understood indicator of the structural health of residential markets and facilitates meaningful housing affordability comparisons. In recent decades, the Median Multiple has been remarkably similar among the nations surveyed, with median house prices generally being 3.0 or less times median household incomes where demand and supply are balanced. Housing affordability ratings are assigned based on the Median Multiple. If the subject of the Survey were valuation, rather than housing affordability, the same Median Multiple categories could be used to evaluate markets as appropriately valued, moderately overvalued, seriously overvalued and severely overvalued.   Demographia Housing Affordability Rating Categories: Rating                                      Median Multiple Severely Unaffordable:      5.1 and over Seriously Unaffordable:       4.1 to 5.0 Moderately Unaffordable:  3.1 to 4.0 Affordable:                                3.o or less Let us compute the Median Multiple of Singapore's HDB flats based on our median household income and the median price of the latest flats launched by HDB, Punggol Residences. According to the latest figures published by the Singapore Department of Statistics in January 2009, the monthly median income of employed households living in 4-room HDB or larger flats is S$5,600. This translates to an annual median income of S$67,200. (Source: Singstat page 5) The prices of Punggol Residences, the latest launch by HDB range from $264,000 to $322,000 for four-room flats and from $344,000 to $409,000 for the five-room flats. (Source: HDB Infoweb) Let us now compute the individual Median Multiples using the annual median income of S$67,200: Cost of HDB flat                      Median Multiple                  $264,000                                           3.92 $322,000                                          4.79 $344,000                                            5.12 $409,000                                          6.09 As we can see from the above figures, all the flats lie in the "unaffordable" category according to the Demographia Housing Affordability Rating Categories with flats costing $344,000 lying in the "severely unaffordable" category. Since the Demographia International Housing Affordability Survey study the affordability of private housing in first world developed countries, this means that public housing in Singapore costs more than private housing in these countries. Furthermore, the annual household income used in the calculations is only a median which means that HDB flats are definitely unaffordable to half the number of households whose annual income are below the median figure of $67,200.   Using STIR as a benchmark Though I do not know how HDB arrived at its figures of 21 and 25 percents, let me attempt to use the STIR to make an estimated calculation based on the limited information available. Assuming the annual shelter cost to is derived by the total shelter cost divided by 30 years excluding the bank interests rates for simplicity of calculations, then the cut-off price for affordabilty will be (0.3 x 67,200 x 30) = $604,800. HDB flats will be affordable to those households living in 4-room flats with a median annual income of $67,200. Even this benchmark of $604,800 is exceeded by new flats built under the Design, Built and Order scheme. 4 and 5 room units at City View (Boon Keng) launched in 2008 fetched on average more than $600,000 with the units on the top-storey selling at almost $800,000. If we use the median annual income of employed households living in 3-room flats (which is $38,760), the cut-off price for affordability will be (0.3 x 38,760 x 30) = $348,840 which will effectively make new and resale flats unaffordable.   Conclusion Both the STIR and Median Multiple have their limitations in assessing household affordability as they do not take into account varying mortage rates as well as social and economic circumstances unique to each country. The Affordability index measures the ratio of the actual monthly cost of the mortgage to take-home income and offers a much more realistic measure of the ability of households to afford housing. However it is more difficult to calculate and for the purpose of discussion here, the Median Multiple is used. The Median Multiple appears to have set a lower threshold than the STIR for housing affordability. For a median annual income of $67,200, a house is considered "affordable" if it cost less than $201,600 while for the STIR, the affordability ceiling is as high as $604,800. Using the Median Multiple of 3.0 as a cut-off for affordability of HDB flats, the median price of a four-room HDB flat should cost no more than $201,600. As this is a median price only for those earning a median income of $67,200, the figure is higher for those who earn a higer than median income. Though eighty per cent of Singaporeans qualify for housing subsidies and afford the mortage loan, it doesn't take away the fact that they are paying much more than they should for public housing which should be heavily subsidized by the government in the first place. Not only should HDB flats be affordable, they must also be "easily" affordable which means the ideal Median Multiple for HDB flats should have a lower threshold than 3.0, perhaps at 2.o of less. If we use 2.0 as the cut-off, the median price of a HDB flat should be at $134,400 or less. The rising costs of HDB flats kept artificially high by a limited supply of flats, constant demand from an increasing population due to influx of foreigners and outdated HDB policies such as the cap of $8,000 to qualify for housing subsidy introduced way back in 1994 will continue to impose an ever greater financial burden on Singaporeans, especially the younger generation who do not own any property from which they can capitalize on its asset value.   DISCLAIMER: [This article is merely a simple exercise to show that housing affordability varies depending on the benchmark used and not to refute HDB's claims that public housing is affordable. There must be reasons why HDB prefers the STIR over the Median Multiple which is widely used to assess housing affordability in the United States, Canada, Australia and New Zealand. More research needs to be done to discover the strengths and drawbacks on both benchmarks Other articles in the series: >> Part 1: Singaporeans own their HDB flats >> Part 2: HDB flats are affordable to most Singaporeans  Read More →

From our Correspondent A 19 year old polytechnic student with the name of "Christine" has posted messages on ST707 and sgaids to "sell" herself in order to raise money for her mother's medical treatment. [Christine's photo posted on ST707 portal] She claimed that her mother was terminally ill and in need of “a lot of money”. [The ST 707 portal on which the advertisement is posted]   [The advertisement is posted on 22 August 2009 on ST 701] Describing herself as a "cute local Singapore poly girl" offering "freelance service", Christine wrote that she is also looking for a "sugardaddy" below the age of 40 to support her family while providing "freelance service" in the meantime. The news was reported widely in the Straits Times, local Chinese tabloids as well as the Malaysian papers The Star and Sin Chew Daily. "Freelance service" is an euphemism for self-prostitution which is technically not illegal in Singapore. However, open advertising for sexual services and touting for customers in the public are against the law. Christine had uploaded three scantily-clad pictures of herself on her blog. In the pictures, Christine was half-naked, wearing only a lacy black G-string. There was a separate link to more “racy pictures” on the blog where one had to pay to view the site. Her handphone number is also provided. However, it is not known if the advertisement is a hoax or a spam linked to a pornographic site. Due to the current economic crisis, there is a rising number of young Singapore girls including undergraduates who have to resort to "freelance services" to earn a living to support their studies or families. (read report on NUS social escorts on UPIU) While some local undergraduates have financial difficulties and have to take up part-time jobs to continue their studies, foreign students studying in Singapore universities on government scholarships offered by MOE have their tuition fees pay for entirely on top of a monthly allowance. They are often enrolled in courses like engineering, computing and science. These scholars are guaranteed good-paying jobs upon graduation - they are required to work in approved companies by the Singapore government for between three to eight years. In contrast, Singapore graduates have to seek out jobs on their own and are burdened with a hefty study loan. Scholarships offered by local universities and MOE to foreign students: 1. National Technological University 2. National University of Singapore 3. ASEAN scholarships (full tuition fees covered with an annual living allowance of $4,200, no bond required) 4. Goh Keng Swee scholarship for Asian students (full tuition fees covered with annual maintenance allowance and one return economy air passage to home country, required to work for three years in approved company in Singapore - essentially a bond) 5. Singapore Undergraduate Scholarship (tuition fees covered with annual maintenance allowance of $6,000 and one return economy air passage to home country, required to work for six years in sponsoring/approved company in Singapore) 6. Singapore scholarship for foreign students (tuition fees covered with annual maintenance allowance of $4,300 and one return economy air passage to home country, no bond required.) 7. C N Yang International undegraduate scholarships (tuition fees covered with annual maintenance allowance of $8,200, guaranteed place in hall of residence for 4 years, 3 years bond with Singapore government.) [P.S: For those of you who are familiar with the Chinese cyberspace, please email any sites you have come across about specific Singapore undergraduate scholarships to PRC students to us at [email protected]]     Related articles: >> PRC prostitutes solicit for customers on Singapore's cyberspace Debunking the official myths about HDB flats series: >> Part 1: Singaporeans do not own their HDB flats >> Part 2: HDB flats are unaffordable to most Singaporeans >> HDB flats will be "severely unaffordable "using the Median Multiple as benchmark for assessing housing affordability EDITORS' NOTE: If you like our work and would like to support us, please transfer your donations via paypal to our account ([email protected]). Any amount will be greatly appreciated! Alternatively, you can also help boost our advertising revenue by clicking on the ads displayed. Thank you! Join our tweet at: http://www.twitter.com/temasekreview  Read More →

From Royal Institution of Chartered Surveyors (Rics) Commercial property prices rising in a less acute pace comparing to residential property. Surveyors have become slightly less pessimistic on the pace of price falls into Q3 despite the unanimous expectation across all sectors that rents will continue to fall, reflected in the RICS survey report. Dr Megan Walters, RICS International Governing Councillor and Director (Chief Economist), Research and Business Analytics (Asia Pacific), Cushman & Wakefield, commented: "Asia generally has low levels of debt at Government, corporate and consumer level, which aid the speed of the recovery process now underway. In particular Singapore has good reserves and is well placed to benefit from the emerging green shoots. Brokers in Singapore have observed that the positive sentiment in the Singapore market has translated into more confidence from occupiers. They have seen a significant turnaround in the number of viewings second quarter of 2009. Prime office rents are registering a slower decline and probably do not have much further to fall. Taking a positive view, the reduction in rents will bode well for the longer competitiveness of Singapore." A sharp downturn has already occurred in the commercial property sector in early 2009. The Q2 2009 RICS survey of agents' reports that tenant demand stabilized albeit at low levels of the second quarter across office, industrial and retail properties. This was the first time that agents haven't reported a contraction in tenant demand since the onset of the credit crunch. Similarly, surveyors in Singapore are reporting that the pace of price declines eased in Q2 2009 for the second consecutive quarter. Rental expectations whiles negative have improved off their lows indicating that the pace of decline at least will moderate in the second half of 2009. Furthermore, investment purchasing activity actually turned positive for the first time in 2 years in the second quarter with the biggest rise in activity seen in the office and retail markets. Pessimism towards the pricing outlook remains bleakest in the office sector despite it having seen the largest rental correction to date. This could reflect the nature of the current downturn and its longer lasting impact on the future size of the financial sector. Whilst declines in rents are likely to weigh on capital values in the Singapore market over the course of 2010 the rapid re-pricing which has already occurred in the office market to date and improved sentiment towards the global outlook may have encouraged long term investors back into the frame. Source: RICS  Read More →