Affordability of Property in Singapore
In this chapter, we will focus on an issue that affects every single one of us – the affordability of property in Singapore. Everyone desires to purchase their own homes, and some of us will want to buy more houses as investments. The question is, how many Singaporeans can buy a house? And will this number be negatively or positively affected in the long run? To address these questions and concerns, we will look at Singapore’s household income over the past 15 years, and how it compares to the prices of properties in Singapore.
The book tells of a story of a protagonist growing up with two dads. His first dad—the poor dad—is his biological father, and his second dad—his rich dad—is the father of his best friend. The book then goes on to compare the ways in which both men shaped the protagonist’s thoughts about money and investing.
In its own way, the book shows us the importance of financial literacy, financial independence and building wealth through investing in assets, real estate investing, as well as increasing one’s financial intelligence. Put simply, Rich Dad Poor Dad provides the strong argument that you should use other people’s money and other people’s time as a form of leverage to make your money work for you.
As I went through the pages of the book, I felt that this masterpiece by Kiyosaki and Lechter really spoke to me. The points brought up resonated with me and I truly thought that they were making a lot of sense. And true enough, I began to realise that more and more Singaporeans around me are making crazy amounts of money and retiring at an early stage of their lives. Perhaps all of them read Rich Dad Poor Dad and were equally inspired?
Well, it could all have been a coincidence, but here, we could all agree on one thing from this case study: real estate is a great and safe investment that at the same time warrants a good return of investment.
As Billionaire Andrew Carnegie once famously (and succinctly) said, “90% of millionaires got their wealth by investing in real estate”. Today, we are going to dive deeper into that. Specifically, let me share with you the top 3 reasons why real estate to me is the best form of investment.
#1: Households Monthly Income
To fully understand Singapore’s household income, we will look at the 5 main categories of monthly incomes. The categories will be $10,000 to $12,000, followed by $12,000 to $14,000, and $14,000 to $17,000, and $17,500 to $20,000, and finally above $20,000.
Within these 5 brackets, we can understand how much a given individual can borrow in order to afford a property in Singapore.
1.1 Households with monthly income of 10k to 12k
This chart shows Singapore households with monthly income between 10k to 12k. As you can see, households with monthly income in this bracket has been steadily increasing in the past 15 years. In fact, it has increased from 43 thousand to almost 110 thousand households, an astonishing growth of 142% in just 15 years.
What is the significance of this increase then? This means that there will be an increasing number of Singaporeans that can use the Total Debt Servicing Ratio, or TDSR, framework to take a loan of up to $1.44m and afford up to $1.9m of property price.
1.2 Households with monthly income of 12k to 14k
In this bracket of 12k to 14k monthly household income, there has been an increase of over 200% over the last 15 years, from less than 30,000 to close to 90,000 households! This is almost 3 times the total number of households.
Since these households have a higher monthly income than the previous bracket of 10l to 12k, they are able to enjoy a larger loan benefit and afford a higher-priced property. Specifically, they can take a loan of up to $1.68m, and hence afford up to $2.2m of property price.
1.3 Households with monthly income of 14k to 17.5k
This bracket of 14k to 17.5k monthly household income is where most local Singaporeans fall within. To achieve this monthly household income, it is likely that both parents are working and are University graduates.
There is a significant 326% increase in the number of households in this monthly income bracket across the last 15 years. To be specific, it has grown from below 25,000 to over 110,000. Individuals from this household income bracket are able to take a loan of up to $2.1m and can afford an up to $2.8m house of their choice.
So, what is the importance of this increasing number of households in the 14k to 17.5k bracket? The key take away is that the majority of Singaporeans can now easily purchase a 3-bedroom private development, even up to $2.8m in terms of affordability.
In comparison to the average cost of a 3-bedroom in Singapore (which is between $1.1-1.7m), it is evident that most Singaporeans’ purchasing power is much more than the cost of a 3-bedroom house, hence there is still a lot of room to grow!
1.4 Households with monthly income of 17.5k to 20k
In this second to last income bracket of 17.5k to 20k monthly household income, we can see that there is sharp increase of 436% of households in the past 15 years. In particular, it has increased by almost 5 folds from a mere 10,245 to over 55,000.
They are also given a larger benefit of up to $2.4m loan and hence, can purchase up to $3.2m of property price. Evidently, Singaporeans have really become richer and more affluent compared to a relatively short 15 years ago.
1.5 Households with monthly income of 20k and above
Lastly, for households with monthly income above $20,000, we see an incredible growth of nearly 550%! It has increased from less than 30,000 to close to 200,000 households.
Hence, looking at all the graphs of various monthly income groups, you can see more Singaporeans falling in the higher wealth bracket group. In other words, the rich are getting richer in Singapore, and more Singaporeans are able to afford higher priced properties.
#2: Significance and Conclusion
In part one of this article, we have discussed about the wealth data of the different household income brackets, their respective ability to take loans and their affordability. From the trend of increasingly rich Singaporeans (crazy rich Asians?), we can clearly see how properties now are affordable, and in fact, too cheap.
The fact that the current houses in Singapore are cheap, can be clearly seen from how an average Singaporean can now afford up to $3m in property, while property prices only range between $1m to $2m. This highlights how there is still a lot of headroom to grow.
In fact, in my line of work as a property agent, I have received countless enquiries on the purchase a 2nd or 3rd property as investments. Thus, as seen from my first-hand experience and previous statistics, the average Singapore households are now richer, and can afford 2 to 3 properties. This is in part due to the low property prices in Singapore too!