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Monday, 16 August 2010

The Property Bubble & Investment Trap

Mr Tan Kin Lian wrote this piece "Burst of property bubble" in his Blog; and expressed that "Property prices are too high in Singapore" and "The sharp increase in recent years is due to temporary factors, such as immigration and low interest rate. The danger is that property prices (and rental rates) are out of line with income levels, and cannot be sustained."..."A warning sign - there is a report that no bids were received for an executive condominium project in Jurong".

I have worked in the construction industry for more than 20 years as a quantity surveyor. I have done major  hotel upgrading, mega-scaled projects and a few private condominiums (condo) in Singapore and I agree totally with Mr Tan that property prices here are too high and not sustainable. Without any prejudice, I feel obliged to highlight this "investment trap" in my blog.

It was reported in TODAY that our GOVT is pushing out more EC sites. 4 sites to be launched in next 3 to 6 months; about 2600 units. The last EC launch was in 2005 and completed 2008.

Based on current land prices, the EC will be priced at $650 to $750 psf. The median price for private suburban condo is about $824 psf (at least 10~25% higher) assuming the historical 30 per cent gap between private suburban homes and new ECs. Slightly upmarket locations are selling at $850~950 psf for mid range condo, especially "Freehold" ones. Even properties in the West Coast area have caught up with this price craze.

How high are current prices as compared to the highs of 1996 "peak" ? After the 1996's peak, the GOVT stepped in with control mesaures in 1997 to curb the "hot" property market. However, it seems that the GOVT is joining the fray of speculation this time, despite the current "highs" by pushing out more ECs at current land prices. Such high prices also have a rippling price effect on the HDB re-sale market and new launches of DBSS and BTO HDB flats.

In 1996, the price of mid range private suburban condo was about $700~750 psf (freehold). Hence, a hike of at least 15~18%. EC was priced about $480 psf then or even lower. Lower range private suburban condo was going for $580~650 psf, often due to a shorter lease, say 99 or 999 years or less popular locations.

Imagine EC is now about 35% more expensive. This is ridiculuosly high !

SIM Lian Land had put in what is likely to be a record bid for DBSS plot at Tampines this month, amid buoyant prices in the Housing Board market. At $261 psf ppr, a developer will have to sell three-room flats for $380,000 to $400,000, and four-room flats for $530,000 to $550,000, as projected by a Ngee Ann Polytechnic real estate lecturer. He expected five-room units would have to be pitched at between $640,000 and $670,000.

This works out to at least $550 ~ 580 psf. With DBSS flats priced at such high costs, is it ridiculous? This was the lower range private suburban condo price in area such as Hillview during the 1996 market peak for 999 years leasehold condo.
The real secret about the construction costs is that other than "steel" and "aluminium", other costs are relatively stable. Condos use less "aluminium" than "Commercial" or "Institutional" buildings. So, the critical factor is "steel" price.

But with the global slowdown, steel price has consolidated a lot just like stocks. Euro$ is cheap now and you get marble and good quality tiles (from the PIGS EC countries) quite cheaply. Bangla and Indian workers ... still cheap ... because they are not building condo back home. Chinese workers are slightly more expensive than before but still managable.
The problem with current high property prices then lies with the private Developers and GOVT as landowners. Both are aiming for an appreciation in price benchmark of about $200 psf in their launches.

Put simply, you are getting a "lesser value" in property than the peak of 1996 prices, in terms of number of years of leases. It is one grade down...meaning at 1996 freehold price .. you now get 99 or 999 leasehold. If it is 999 leasehold, it is still not that bad for future investement. You also get EC now at 1996 99 or 999 leasehold mid range condo prices. You also get HDB DBSS now at 1996 EC or 99 private low range condo prices.

DBSS HDB flats goes as high as $580 psf. In 1996, you could buy suburban 999 years leasehold / freehold condo at that price. Ridiculous, Right? !!! Due to HDB tendering out land sites to China Design & Build  contractors cum developers, local firms also join in with high bids for lands ... TRAP for Investment, I call it.

Why would MBT thinks this is healthy? He needs these statistics to prove his HDB BTO flats are still "affordable". If not, he needs to give more real subsidy.

The next "investment trap" I like to share is the length of lease.

Developers have come out with 103 years leasehold titles for condos. This sort of take into account the few years of development time, so that when you actually buy and takeover, it is close to 99 years leasehold.

The developers are very smart. They control this "land bank" for their "family assets". If freehold titled, an old condo has high "en-bloc value" in future. So developers carved out shorter leases and supposing sell the units at lower affordable prices ... but actually buying such properties means losing future "en-bloc" value although you are buying at prices equivalent to 1996 high prices of freehold condo and / or even at much better locations.

Hence, in Katong area, 103 years leasehold condo are priced at over $1,200 psf. You buy now at higher benchmarked price of additional $200 psf but lose the future "en-bloc" value. After the 103 years, land and property titles revert back to the "developers" and their "family" enjoys the future values.

Another price trap (also investment trap) is "bay window area" ... which is counted as "saleable area" ... but actually does not constitute as actual GFA of your property ... suddenly at time of handing over of new condo apartment, but how come you find that all the bedrooms and even living area become so small ? Even smaller than that of your old HDB flat actual GFA which has no bay windows. But you pay each sf of the bay window at say $1,200 psf as per above example. The problem is when you view the show unit, you could have been misled by the Inetrior Designer's spatial gimmick.

Imagine, you can't even put a Queen-sized bed with a study table into the bedroom. Forget about side lockers and very often the TV antenna point is not at the right place.

Say you have 2 bedrooms with bay windows and the living room also has a bay window, you will lose about 12~20 sq metres or about 125 ~ 210 sf. i.e. almost one bedroom in total or about $250,000 based on 1,200 psf saleable area.

Hence, you find you lose "1 bedroom" in space but pay the developer as if it is one bedroom equivalent to your old HDB flat.

So for EC ... it is easily 35% + 10% more expensive than before, if you fall into the "bay window trap".

Your property agent is not going to tell you this if it is a sub-sale and the 1st buyer is a speculator in the private property market. He gets his fixed percentage of sale price. Your lawyer is most slightly also not with you when you place and sign the booking option. And he gets his fixed fees based on % of sale price. For DBSS and EC, you get caught in the lock-in period and have to bear the cost of investment (Interest) over this period.

Be wary of the EC to be launched soon and also HDB DBSS flats.

I feel these would be priced to catch up with other categories of private condo already launched or to be launched which are inflating the property bubble...Govt announced good GDP results ... don't be tricked into it.

My reservation is that you will be buying a lower category of condos and flats but at the high price of 1996 for a higher better quality (Finishes / Location) class of properties ... the Govt curb prices in 1997 ... but now due to low interest rates, and with the Govt joining the speculation fray, I am skeptical and must advise "CAUTIOUS" in your move.

There is now a hike of $200 psf for all categories from 1996 high prices.

The "investment" trap is also the "employment" trap.

With a high mortgage to service, the enslaving model means you have also fallen into the "employment trap" and uncertainty of the volatile business envirnment.

Employers will demand that you work at lower salaries. When times are bad, they will asked the Govt to cut CPF. If you rely on CPF to service a substantial part of your mortgage, you will be hit hard. Remember the "faster" and "cheaper" slogan? The worst culprits are the MNCs and some GLC companies.

In the worst case, you may be retrenched, and even without "retrenchment benefits". The MOM is still silent on statutory protections for those earning above $4,500 per month, particularly PMETs.

Based on salary of $4,500 per month, what category of property can you try to invest? Say your wife earns the same $4,500 per month. Mr Tan recommends : 5 years x $4,500 x 12 x 2 = $540,000 property ... probably a HDB 5 Rm flat. On the conservative, even the DBSS is out, and forget about EC. [ Note : This is not considering "maid" and "car" expenses ]

Based on current land prices, the EC will be priced at about $650 to $750 psf. The median price for private suburban condo is about $824 psf.

The smallest of EC say about 1000 sf (95m2) will cost $650,000 ~ 750,000.

So be wary of the EC to be launched soon and also HDB DBSS flats. It is simple Maths...no big theory.

Do not "over-leverage" yourself, it is stressful and future returns may not justify it ! There may not even be returns as the cost of investment may eat away the small capital gains just because it is a 99 leasehold. Those who invested in the 1996 "High" and managed to sustain the mortgage perhaps had only "break-even" or made marginal gains if they had invested in 999 or freehold properties.

Do not be carried away by these press reports and news snipplets on TV about soft launches selling like hot cakes. I bet the beautiful lady interviewed by the media , who said she bought a few units - one for her own stay and the rest for investment, must be a staff from the Developer or Marketing Agent's firm. 

Who are those who want you to "bite" this cherry? - Developers, Banks, Real Estate Agents, Lawyers and also our Government. Who will have to bear and see through the mortgage and the "enslaving" model - You and Your Family, especially for those borned without a "Silver Spoon".


Reference :-
TODAY
Aug 13, 2010
Condo comeback

Government to ramp up flat supply for middle-income home buyers
by Jo-ann Huang

SINGAPORE - The executive condominium (EC) market looks set to stir when new projects are launched over the next three to six months. According to property consultancy CB Richard Ellis, ECs are making a comeback after a hiatus of five years as the Government steps in to ramp up flat supply for middle-income home buyers.

Four new EC projects in Compassvale Bow, Punggol Field, Buangkok and Yishun - yielding some 1,400 units - will be launched in the next three to six months.

These sites were awarded in the first half of this year. The Government will also be selling another five EC sites later in the year - at Jurong West, Punggol Drive, Pasir Ris, Tampines and Segar Road - which are expected to yield about another 2,600 units.

The last EC launched was La Casa in Woodlands in 2005, which was completed in early 2008.

CBRE said the comparatively cheaper pricing of ECs is expected to attract a large number of HDB upgraders.

Executive director of CBRE Research Li Hiaw Ho said assuming the historical 30 per cent gap between private suburban homes and new ECs, the median prices of new ECs are likely to stay around $650 to $750 per square foot (psf).

The median price for private suburban homes as of the second quarter stood at $824 psf.

Ms Tay Huey Ying, director for Research and Advisory at Colliers International, expects prices for ECs to rise moderately. "It will still fall below private units in terms of absolute price per square foot simply because there are conditions attached," she said.

For example, foreigners are not allowed to buy ECs. On top of that, those whose monthly household income exceed $10,000 cannot buy ECs.

Mr Li added that the prices of ECs will match those of comparable private apartments in the same locations after five years, as they will be treated as private properties.

Currently, the non-landed private home market is attracting a lower share of HDB upgraders compared to last year with only 36.1 per cent of them making new home purchases in the second quarter.

At its peak in the first quarter last year, the proportion of HDB upgraders reached 63.6 per cent but it has steadily dipped below the 10-year average of 44 per cent.

Mr Li said with the steep rise in prices of new private homes, more HDB upgraders face a bigger burden of servicing huge mortgage loans.

"The lowering of the housing loan limit from 90 per cent to 80 per cent since March this year also meant that HDB home buyers need to pay more cash upfront," added Mr Li. "Despite this, HDB upgraders can find a less-costly alternative with the upcoming ECs."


No bids received for EC site at Jurong West.

Despite a buzz generated by a resurgence of the executive condominiums (EC) in the coming months, the Housing and Development Board (HDB) has received no bids at the close of the tender for an EC site at Jurong West Street 42 yesterday.

The land parcel has a land area of over 16,800 square metres and a maximum gross floor area of about 50,445 square metres.

It has a lease period of 99 years ...

12 comments:

  1. So you rather whole of Singapore land and housing prices fall and who will suffer and benefit then?
    If the value of these homes aree unsustainable, it will collapse or the demand will fall.
    But judging from the buoyant market, these homes must be affordable despite its high prices?
    Better to have a healthy property market than an unhealthy market.
    So your doomsday forecast or lament on high prices is rather puzzling.

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  2. Hi Anon 13:21

    A bubble will burst no matter how "healthy" you perceive and make believe an actual unhealthy property market to be otherwise.

    This is not a doomsday forecast but to warn speculators and those who over-leverage.

    One ought to distinguish between meaningful investment vs "consumption" on luxury.

    If the property market consolidates, the genuine investors and home owners will benefit.

    If prices continue to go up unrealistically, those who fell into the investment trap actually suffers, especially if they cannot even 'sustain' their own employment, while "Developers, Banks, Real Estate Agents, Lawyers and also our Government" will laugh all the way.

    A decent effective GOVT should not join the speculation fray. A current positive step is the newly formed STAT Board to control agents.

    A "healthy market" does not equate to high unrealistic property prices.

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  3. Problem here is, high prices are relative. If you look at current prices from the household income of the bottom percentile of the populace, prices may be high. But this group can be helped with government subsidies or grants. As for the rest, most can afford a modest home here so long as they be realistic. And some even can afford more than one home. So housing prices are generally tightly priced, not excessively priced beyond affordability of the average man yet.
    I think our government is aware of the danger of an overheated property market that is bad for everyone.
    The key is to maintain a healthy and sustainable and stable property market which is in the interest of everyone, not just for the rich.
    If we burst the market at this point, many will be hurt and our economy will suffer like in japan.
    That said, not everyone can make money in current prices. Hence, I believe there are more genuine home buyers( who can afford) than speculators.
    Speculators have become very savvy now a days and the risks of them driving prices to unrealistic level is unlikely.
    Our healthy property market is probably attributed to burgeoning liquidity.

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  4. Hi Anon 09:53

    @ "high prices are relative. If you look at current prices from the household income of the bottom percentile of the populace, prices may be high."

    Your argument here is flawed. The bottom percentile could not afford and does not contribute to the "DEMAND" pull at all for DBSS & EC. What they need is real subsidy from the GOVT and HDB for flats like BTO. The GOVT does not need to subsidise the population to own EC or even DBSS. If they cannot get new flats, they get caught in the HDB re-sale market which is chasing after DBSS & EC prices. How do you define "populace"?

    The property market need not be a "homogenous" one. One category of property need not be propped up another with Govt intervention and policies. When the Govt also strategise to gain from the inflating market, it is contributing to the "bubble" and is "unhealthy".


    @"If we burst the market at this point, many will be hurt and our economy will suffer like in japan."

    We need not burst a bubble, it will burst by itself...the market should be allowed to consolidate. It is already too high. So why should HDB sell EC & DBSS at high prices, while the Govt continue to push out more land supply for private tendering.


    @ "the risks of them driving prices to unrealistic level is unlikely.
    Our healthy property market is probably attributed to burgeoning liquidity."

    I disagree, it is already driven too high, how could you say the market is still "healthy"? Burgeoning liquidity ? I doubt. Maybe China is - They can purchase properties with real physical cash, not in Singapore.

    I like to use $4,500 / mth salary (basic PMET pay) as a check. This yardstick is used by the GOVT for various purpose. It means this personal salary is above the average national median salary for 52% of the population. And if you will multiply by two (including wife), it means the combined income is above 81 % of the individual median salary, as if you are the top 20% earners in Singapore individually. Other costs aside, and my practical financial sense is that they can hardly afford to own EC or even private low range condo unless heavily leverage by taking a long mortgage.

    "Burgeoning liquidity" ? I doubt. Burgeoning credit - maybe.

    Step in but beware of the investment trap ... Read here :-

    http://www.salary.sg/2007/compare-your-income/

    http://www.salary.sg/2010/at-property-peaks-dont-buy/

    http://www.salary.sg/2009/perceived-affordability-of-hdb-flats/

    http://www.salary.sg/2010/when-buying-properties-avoid-flood-prone-areas/

    http://www.businessweek.com/ap/financialnews/D9GM5IA83.htm

    http://sg.finance.yahoo.com/news/Singapore-property-prices-apf-959687708.html?x=0

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  5. There was an article in the papers recently showing a chart of various life time income of a spectrum of professions - high income to low income. If home mortgage is cap at 3%, a graduate couple could potentially earn about $4M+.
    Base on a third of that income going into housing, this graduate couple could afford a 1.4M home or something like that.
    Well, it is just a rough chart but I know my relatives, a young average couple, had already paid off their EC( new at $ 700K) in which they lived for not more than 10 years - no inherited wealth or windfall, purely from savings.
    I think you have grossly undermined the affordability of public housing here.

    The other factor is that you tend to look at the extremes in the property market. You are cautioning the market because you think we are over stretching prices here. And to correct the situation, you went to the other extreme and warned of a property bubble.

    But the authorities I believe are working towards optimizing the value of homes and land pricing here. So it is a complete different in philosophy of price management.

    Hence, either extremes are bad for the nation.

    We should be maintaining a sustaining property market, not one with constant boom and bust which only stoke investors and home ownership confidence.

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  6. Hi Anon 09:22

    @ "The other factor is that you tend to look at the extremes in the property market."

    You are contradicting yourself. Why ? See Below.

    @ "If home mortgage is cap at 3%, a graduate couple could potentially earn about $4M+.
    Base on a third of that income going into housing, this graduate couple could afford a 1.4M home or something like that."

    There is still a big gap between "too optimistic" and "absurdity". A graduate couple earning $4M - what segment it represents the population? Without consideration, I would discount what you said by 50%. And over what length of time? The Whole life?

    Maybe a couple earning $2M over both their lifetime or say 20~30 years is more likely to be possible and representative. But I still doubt about such make believe "terrific savers" which are not the norm.

    Going back to your relative.

    @ "
    I know my relatives, a young average couple, had already paid off their EC( new at $ 700K) in which they lived for not more than 10 years - no inherited wealth or windfall, purely from savings.
    I think you have grossly undermined the affordability of public housing here."

    $700 K for a EC? What floor area ? Say equivalent to 5RM HDB - 110 m2...cost. That means $600 psf. Compared to 1996 high, you can get 999 leasehold private suburban condo. If it is already paid off, can they sell now at say $700~$800 psf now considering cost of investment (interest)? Mind you, for an EC? Catching private mid range condo at $824 psf? Ridiculous, who will buy your EC at near $800psf to prop up the next higher category of private condo? If so, are they stuck with it? Is it then investment?

    You said they paid in 10 years. What was their base? How much did they borrow?. Young ? How young ? Say 35 years old. Bought immediately when they graduate ? They married when in university?. Say they had already a HDB flat, where did they get the money to buy this first HDB flat? Parent support - FOC? Say they made $150 from the HDB flat and no need to return money to parents - they would still need to borrow $550K. Each contribute $275K to mortgage loan?

    Mr Tan Kin Lian recommends 5 years on the aggressive assumption for loan amount. Say they have zero other expenses, $275K divide by 5years divide by 12 months = $4,583.00 per month. Each of them has to earn this pay the day they graduate. If what you said is true, it is a unique case...and not representative.

    Can a unique example as your relative prop up a whole property market to sustain it? How many earns $4M as you claimed in the "papers" over 20~30 years?

    Both what you quote from the "papers" and your own unique "relative couple" is contradicting what you proposed is good for the market and what the "authorites" "are working towards optimizing the value of homes and land pricing".

    @"I think you have grossly undermined the affordability of public housing here." -

    Dear Anon 09:22, show me how and why, with more details, so as not to mislead others if you do want to prove your case.

    I have not even considered unsustainable employment conditions in the volatite job market, and other living expenses.

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  7. Further to my posting & comments above, these are few good pieces, as published in TODAY 20 Aug 2010. Read them and my blog posting, you will understand and see the whole perspective I am coming from and going to. Where are you in the PROPERTY MAZE? Understand THEIR strategy, and see the RISKS and TRAPS before you pursue YOUR OWN strategy.

    (a) Watch what they do, not what they say
    Link : - http://www.todayonline.com/Business/Property/EDC100820-0000039/Watch-what-they-do,-not-what-they-say

    (b) Pushing price boundaries in private residential market
    Link :- http://www.todayonline.com/Business/Property/EDC100820-0000034/Pushing-price-boundaries-in-private-residential-market

    (c) New kid on the block is good news
    Link :- http://www.todayonline.com/Commentary/EDC100820-0000032/New-kid-on-the-block-is-good-news

    (d) Twin Peaks of luxury
    Link :- http://www.todayonline.com/Business/Property/EDC100820-0000069/Twin-Peaks-of-luxury

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  8. thank you for your comments. On a recent trip to UK, I found out that the typical housing mortgage there is three times your annual salary.

    A new HDB four-room flat in my estate is going for 7 times my annual salary. Worrying.

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  9. It is good that there is a Singapore blog that warns of the danger of the illusion of housing as a investment and that liquidity is still very important. Here is a Canadian blog that have warned of the unafforability in Canadian real estate and debunk all the myths of real estate and the final countdown have finally arrived for their real estate:
    http://www.greaterfool.ca/2010/

    Hope that you will continue to highlight the property problems. I believe that like Garth Turner from the above link says : "Price inflation (the cost of living jumps) along with asset deflation (the value of houses plops)" will be the future facing many countries in the years ahead.

    Singaporeans will be in a big mess like the western people are or will be facing when they placed such a big percentage of their net-worth into one asset class

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  10. Hi Yak,

    Like I said, I've just discovered this blog, so I'm picking up old discussion threads. There's two things I'll like your clarification:

    "However, it seems that the GOVT is joining the fray of speculation this time, despite the current "highs" by pushing out more ECs at current land prices. Such high prices also have a rippling price effect on the HDB re-sale market and new launches of DBSS and BTO HDB flats."

    If I remember correctly, the govt's story for pushing out EC is that they are trying to cater for the sandwiched class, i.e. household income between $8K to $10K per month. In your opinion, what should the Govt do then... if don't push out EC?

    2nd question: why use 5 years earnings to calculate property price a couple can afford?

    YS.

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  11. Hi YS

    To answer you, I will need to do a posting, anyway, I will try here.

    Q1 : Yes. My own opinion - it was the fault of PAP's wrong policies due to GCT's More Good Years & Swiss Standard of Living...5 C Singaporean Dream etc. If I also remember correctly, it was also to give some "privilege or priority" to civil servants & army officers, just like old Reservist Policies for HDB flats. In those years, public sector salaries not so high and bonus were peanuts.

    It is good if EC could be "affordable" for sandwiched class. I would salute any political party who can implement it well. But not the case now. EC prices had now become expensive at what mid-range condo used to sell. If prices climb further and launch prices are as high as what analysts predicted in Money Week last week, it would be ridiculous. Breaching another benchmark to equate high mid-range FH condo prices now, not 1996 or 2006 high.

    So we should see how developers bid for land. If you had followed my other postings, I had said even established developers are forming JV to bid for EC plots. Mass market 99 condo prices are marginalised in a way. For developers, why bother about this segment, they can also make same profit with EC...leaving the subsidy part to MBT... it is almost like an invalid class now. Developers are controlling the selling price while they are the ones biding for land at crazy prices ... Govt just control land supply, and collect money; and if purchasers are blindly "daft", their faults ... just call it market forces.

    This is where MBT makes easy money for the state coffers through limited land supply. Indirectly, it joins the speculation fray. But still can easily push away the blame.

    I think it is fairer if Govt concentrates on BTO and DBSS and let private sector handle mass market condo. EC came up before DBSS and had actually "hanged" ... it is because property prices sky-rocketed now that EC mkt becomes active again. But they are not cheap, I will comment on the recent launch by NTUC Choice Home in my next posting.

    Govt has no obligations to help HDB flat owners upgrade to private pty. The political captial and price is also not "heavy". The bigger "interest" is easy money for the state coffer.

    And with BTO, supply for both new BTO as well as future supply of HDB-resale flats is restricted too. So with more FTs coming in and PR given, more buy HDB flats. Hence the HDB resale index was able to defy a correction in 2007~2008 and continued climbing while the PPPI had a drastic correction and rebounded strongly.

    But on simple terms, as I explained to one query to me via email, which will take a harder knock next - HDB resale or private property? Maybe another miracle will come, HDB RPI will defy a correction again and not bust … MBT asking all to “Seek truths from facts” …. We shall see.

    The problem was compounded and got complex. You may argue the vibrant HDB resale mkt had propped up the private property mkt and so it was able to rebound so fast in 2008~2009 to "skyrocket" and reached current 2010 high ... but in essence it is a Bubble.

    I have readers writing to me for advice ... those who are caught because they are in a "1-to-1 swap to upgrade" investment trap....some timed wrongly the sale while uncertain whether to buy now at high or wait for a correction.

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  12. Q2 : Why use 5 years earnings to calculate property price a couple can afford?

    You are asking me to venture into Mr Tan Kin Lian’s area of expertise. Anyway, I know him well and you may visit his blog for an FA version. . Let me explain it in another way.

    It is a “rule-of-thumb” to gauge affordability and perhaps even a self-test if the bank will lend you so much. I say it as a “safety measure and test” for borrowers and their family.

    You may have read my posting about the “$10K” income issue in relation to an foreign newspaper article. Coincidentally PM Lee announced soon after in N-day rally the lowering of the $10K salary ceiling to $8K to permit Singaporeans to buy DBSS.

    I will use combined monthly $10K as illustration. 5 years salary x $10K per month = $600 K. This is the maximum value of property you can afford. Mr Tan Kin Lian would advise “deduct” maid and car expenses as well. And use only 25% of monthly $10K for mortgage repayment - $2500 per mth to service mortgage. Some even overstretched to 30% or even higher. But in practical terms it is very tough even for a terrific saver and contingency of job unemployment.

    The $10K used by HDB as a gauge is practical. I personally like to earn $10K a month as basic salary alone, so if my wife is unemployed, I am safe to service mortgage alone. Anything in excess goes to savings and more money to spend for the family. And earning this salary alone means you are at the bottom of the top 20% earners in Singapore. Splitting into 2, means you and wife is earning about $5K each. Very practical rule of thumb – easy for most professionals to earn this basic from $5K and possible to climb to $10K, although it is getting tougher to climb and sustain the employment in today’s context. I had wanted to write more about this point in my blog….

    Also simply why 5 years of salary, it will make sure you will not over-stretched loans to 20~30 years. Personally, I think re-paying all loans in 10~15 years is more ideal considering you commit such a big loan from say early 30+. I tend to agree with the FA approach that stretching loans beyond that from say 20~30 years is actually not “affordable”. Our politicians say it is “investment on asset” even stretching so long, I say they can’t promise you the “employment”. And MBT is asking all to “Seek truths from facts” …. We shall see. LOL. The point is who is “committing” to the purchase and mortgage? – You and your family. He still walks off with his Golden Parachute the minute you vote him out. LOL.

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