Housing affordability and accessibility in Singapore

On 14 July 2011, The Straits Times pub­lished the research stud­ies by NUS Singa­pore for Applied and Policy  Eco­nom­ics (Scape) on a dif­fer­ent per­spect­ive of cal­cu­lat­ing the hous­ing afford­ab­il­ity in Singapore.

Tra­di­tion­ally, the pro­por­tion of monthly income that goes into pay­ing the mort­gage, called Debt-Service-Ratio is used to indic­ate the afford­ab­il­ity of a house pur­chase. If the ratio is less than 30%, or 0.3, it is con­sidered as affordable.

In this study, it goes fur­ther by cal­cu­lat­ing the total life-time income of a 30-years-old till age 65 on the afford­ab­il­ity of the home loan. There­fore, if the total mort­gage to be paid is less than 30% of the total life­time income, then the hous­ing is con­sidered afford­able. In this study, it detailed the afford­ab­il­ity based on 3%, 5% and 7% mort­gage interest rate. The con­clu­sion is that only the bot­tom 10th per­cent­ile will not be able to afford­able a 3-room HDB flat. Those house­hold in the 30th per­cent­ile earn­ing house­hold income of $5,250 should be able to afford 5-room HDB flat.

Short-term access­ib­il­ity is also presen­ted to meas­ure the shorter-term meas­ure of afford­ab­il­ity. It is defined by the ratio of the cash a 30-year-old buyer needs to make all the upfront pay­ments for a new home to his house­hold sav­ings at that point in time. Upfront pay­ment includes down pay­ment for a prop­erty and any COV pay­able for resale HDB flats. Sav­ings includes CPF bal­ances. If the ratio is less than 1, mean­ing, sav­ings is more than the upfront pay­ments, then it is access­ible.
The study found that the cur­rent prob­lem with prop­erty prices is access­ib­il­ity and not long-term afford­ab­il­ity. For example, a 3-room HDB resale flat in Yishun and Wood­lands are inac­cess­ible to the bot­tom 20% of the income earners.

Ref­er­ences :
1) The Straits Times, 14 July 2011 Page B4
2) http://www.fas.nus.edu.sg/ecs/scape/housing.html

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