Housing Affordability in 2023: Is Singapore Property Truly Unaffordable?

Housing Affordability in 2023: Is Singapore Property Truly Unaffordable?

It’s no secret property prices in Singapore are high. Over the course of the pandemic, we saw prices in both HDB and private property markets jump, sparking fresh debate over housing affordability concerns.

In an article published in The Business Times on 5 June 2023, Dr Lee Nai Jia, Head of Real Estate Intelligence, Data and Software Solutions, PropertyGuru Group provided a fresh perspective on the topic.

To find out more about his thoughts, we sat him down to discuss his article “Housing affordability or a premium for good housing?”

Why Do People Think Singapore Property Is Unaffordable?

PropertyGuru (PG): Hi Dr Lee Nai Jia! Thanks for taking the time to chat with us. Let’s jump right into it then: what are the factors that make people think property prices in Singapore are unaffordable?

Dr Lee: Prices for property in both public and private housing markets are currently at an all-time high. Having high prices is one thing, but it is not as much of an issue if salaries have kept up. We all know, they haven’t. So, really, affordability is the topic of discussion.

PG: Are there some stats to back it up?

Dr Lee: Firstly, Singapore’s median private home prices now stand at US$1,200,000 (~S$1,610,300), the most expensive in the Asia-Pacific region. We’re even more expensive than Hong Kong. Over the course of the pandemic, URA data revealed private home prices grew 28%, from Q1 2020 to Q1 2023.

Secondly, public housing prices have not been spared too. HDB resale flat prices grew 32% over the same period.

Currently, Singapore’s affordability ratio of median property price to median annual income is 13.7 for private property and 4.5 to 4.7 for public housing. This firmly places private homes in the “unaffordable” range. For context, the monthly resident household income is about $10,099 and properties around $1.58 million will be considered unaffordable to the median household.

The same story also goes for rental homes. Singapore’s median monthly rental cost of US$2,600 (~S$3,500) makes it the most expensive city to rent in regionally. URA data private rentals jumped 50.3% from Q1 2020 to Q1 2023.

PG: Ok, you’ve got us convinced. But is Singapore property truly unaffordable for most?

Dr Lee: Interestingly, Singapore homes were declared “most attainable” in the Urban Land Institute 2023 Asia Pacific Home Attainability Index. Mostly because of how affordable public housing is.

With how HDB resale flat prices are increasing, some might disagree with what I’m saying. But it’s good to bring up that the traditionally-used “price-over-income ratio” may not capture the full picture of housing affordability. Like I mentioned, you also have to consider economic opportunity, social aspirations, and social mobility.

Who Is Buying Property in Singapore?

PG: So, who is driving property demand in Singapore and pushing up prices?

Dr Lee: It’s mostly the locals. 77.8% of home purchases were made by Singaporeans from 1 January to 13 June 2023. Annually, from 2016 to 2023 year-to-date, foreigners only represented 3% to 5.5% of all home purchases. In the grand scheme of things, that’s not a lot at all.

PG: Can you give us an idea of how much people are buying houses for? Especially for new launch condos?

Dr Lee: Sure! For instance, Blossoms by the Park – a major new launch condo in Q2 2023 – sold 209 units over its launch weekend. The average transacted price for each unit was $2.02 million. Another major launch for the quarter was The Reserve Residences. The development sold 520 of its 635 units over its launch weekend at an average price of $2,460 PSF.

PG: Do you have more info on these buyers?

Dr Lee: Yes, 41% of the buyers for Blossoms by the Park were aged between 31 to 40. Another significant group of buyers were the ones aged between 21 and 30 years of age; they made up 22% of those who bought a property.

This can seem surprising if you consider Urban Land Institute statistics. If median income earners need to earn and save for more than 13.7 years to afford a private property, then it’s quite surprising that many of these buyers are so young.

How Are Singaporeans Affording High Private Property Prices?

PG: So how are these young buyers affording these high property prices?

Dr Lee: Three words: intergenerational wealth transfer. Basically, the baby boomers who are now aged 59 to 76 have been able to accumulate wealth over the years. As compared to previous generations, they also have fewer children. Essentially, they are likely helping their children to finance their property purchases.

With about 959,000 citizens aged between 55 and 74, or approximately 27% of Singapore’s population, that’s a lot of wealth transfer going on. More often than not, this wealth transfer phenomenon goes unnoticed.

Discussion: “Are Singapore Homes Truly Too Expensive?”

PG: So that leads to the question you brought up in the article. Is Singapore’s high property costs a signal we have affordability issues?

Alternatively, is this a sign of something else such as we’re paying a premium for quality housing? Or is this simply a reflection that Singapore remains an attractive place to live and do business in?

Dr Lee: The appeal of Singapore’s private residential homes and Singapore as a thriving economy has certainly been reflected in prices. This is why we often find gateway cities more expensive from a global perspective.

PG: So would you say that Singapore’s homes are still affordable?

Dr Lee: If you use the “price-over-income” ratio as a yardstick, then public housing is still affordable. When discussing housing affordability, it’s important to focus on those who need the most support – the young, first-time home buyers.

The Budget 2023 announcement saw more grants and subsidies announced for first-timer families buying HDB resale flats and first-timer applicants trying to secure a BTO flat. Likely, more will be needed in the long term to make sure housing remains affordable for most of the population.

Meanwhile, the April 2023 cooling measures reaffirmed the Singapore government’s commitment towards prioritising housing for owner-occupation. It is a strong signal that they are trying to curb interest from local and foreign investors, as well as second-home buyers.

PG: What about affordability for private housing?

Dr Lee: Private housing is a little pricier, but again, they do not house the masses. But there are different implications when we discuss the affordability of private housing. I think the questions to ask largely surround Singapore’s housing aspirations, especially those who seek to upgrade their properties.

Here are some questions I brought up in my op-ed with The Business Times:

• How do we strike a delicate balance between preserving Singapore’s competitiveness and ensuring Singaporeans have access to quality homes?

• Would it be advantageous, then, to dissuade housing upgrades or wealth transfers to maintain affordability?

• How can the Government manage affordability whilst acknowledging the investment interests of mid-to-high-income Singaporeans?

These questions do not have easy answers.

Moving Forward: What Can We Expect from the Property Market

PG: So, what say you to the question: “Is Singapore property unaffordable or are we just paying premiums for quality housing?”

Dr Lee: By all indicators, Singapore property – especially public housing – is still affordable. But for those looking at private property, they are paying a premium to own an asset in one of the most attractive, liveable cities in the world.

Individuals tend to park their wealth in Singapore property as they view them as safe havens for long-term investment. While discouraging investment might lessen the effects of a potential recession and keep the income gap from growing, it could push more towards riskier asset classes.

As it is, the current housing market is propped up by the ongoing intergenerational wealth transfer and the aspiration to upgrade homes.

PG: Will we see property prices drop any time soon?

Dr Lee: Unless the economy undergoes significant contraction, it is unlikely we will see a significant price correction. But there have been signs that price growths are slowing and are expected to gradually move sideways.

PG: In response to the still-high property prices, do you think we can expect another round of property cooling measures in the near-term?

Dr Lee: No one can say for sure. But whatever move the Singapore government chooses to make, careful deliberation will be needed before the introduction of any property-related policy. Miscalculated moves could result in undesired consequences.

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