Is Singapore Property Over-priced?
Welcome to the 102th Issue of Weekly e-newsletter by www.HousingLoanSG.com This week I like to share with you "Is Singapore Property Over-priced?"
Is Singapore Property Over-priced?
According to some statistics, the average Household income in Singapore is about S$6,000. According to prudent Financial Planning guidelines, a person's monthly Housing Loan instalment should not exceed 35% of one's monthly income.
Thus, assuming a person borrow 80% Loan compared to purchase price, taking a 25 years loan, assuming average interest rates of 4%, maximum Housing Loan a person with Monthly Household income of S$6,000 should take is about S$400,000, or work out to maximum purchase price of S$500,000.
I am informed that a new (99 year leasehold) condo at Ang Mo Kio is selling at S$1,150 psf, which means that a person buying a 900 sf unit at this Ang Mo Kio condo pays about S$1,035,000 for this house. And according to prudent Financial Planning principles, this person should have Monthly Household Income of AT LEAST S$12,000.
Are there many people in Singapore with Household income of over S$12,000 a month, I reckon might be less than 10% of all Singapore households.
Thus, if we analyse from this angle, I would reckon that selling a condo in Ang Mo Kio for S$1,150 psf is over-priced. History does not bode well for things that are over-priced, likelihood is for the price to be adjustd downwards to normalcy when euphoria is over.
Other information to take note:
1. Singapore unemployment rate is 4.8% and expected to exceed 5%.
2. Rental rates for condos are still falling, not rising.
3. According to URA statistics, there are about over 40,000 units of condos to be completed in the next 3 years.
4. Current prices of New condo launch at Ang Mo Kio is even higher than at peak in year 2007.
I should probably be the last person in Singapore that you expect to say anything negative about Property in Singapore, since by now you should know that I own the leading Mortgage Consultancy firm in Singapore http://www.HousingLoanSG.com and our business is helping people to compare ALL Housing Loan packages from ALL banks to help them find the best deal. I cannot complain, becos the last 2 months, we are doing a roaring business, and the more excited and euphoric people get, the more properties are sold, and the better is my business.
However, I cannot help but write this newsletter to voice the concern I have for home buyers who are jumping into the property market as if there is NO tomorrow, that they are willing to pay for any price for their "Home Sweet Home". If you need to stretch yourself financially to buy a house, then you're in danger of making it become "Home Sweat Home" instead of Home Sweet Home".
I seem to be the lone voice in this current market of euphoria and excitement and I hope you don't call me a doomsayer as some people called me that in year 2007 when I warned that stock prices were over-priced then.
Please take note that I don't have a crystal ball and I don't claim to be able to predict the future. In year 2007, i said that stock markets were over-priced becos back then China Stock Market was trading at Price Earning ratio of 50 times, which means that the annual returns of investing into China Stock Market is 2% (too low) or another way to look at it is it takes 50 years for you to recover your principal if you invest in China Stock market. The China Stock Market looked over-priced then.
Thereafter, China stock market peaked at 6,100 points (I warned when it was 5,000 points, I'm never good at timing) and crashed to 1,700 points. Now, with the recovery in last 6 months, it is trading at about 3,400 points (almost 100% up from its low, but if you had invested at its high of 6,100 points, you're still staring at 44% Loss).
Note: above is just my personal opinion. This e-newsletter is not giving you advice.
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Cheers!
Dennis Ng on behalf of
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