Thursday, August 21, 2008

The Singapore Property Market: Personal Take II

This is a continuation of the last post.

Ok, so the bulls will say expats can pay. Now I do not know what is the average expat pay, but let's just assume the average expat gets the same salary of the top 10% of our population ie $12k per mth. If you are an expat earning $12k per mth, will you fork out 33% of your salary for rent? For me, if I were an expat, I know I am not going to be in Singapore forever, I would rather stay somewhere cheap, save the extra $1-2k on rental and spend it on touring Angkok Wat or something right? Of course that just me lah.

Btw the rule of thumb is roughly 20% of your salary on rental/mortgage. So going by this rule only expats earning $20k or above can afford this place. How many expats in Singapore earn $20k per mth, ie $240k per yr? Given that only 2,000 people earns more than $1mn in Singapore, my guess is roughly 7,000-8,000 people (including expats and Singaporeans).

How many rentalable condos in Singapore? About 300,000. So, sorry, charging $4,000 per mth for rental, it's a once in a lifetime chance, it won't last. Yes some hot locations can command this kind of rental today, but you cannot expect to charge this kind of rental for the next 20 yrs. At least not until Singapore GDP per capita further improves from here.

The other argument is that the company pays for the rent, not the expat himself. Now if you are the HR and you have your budget to work with, essentially the rental of $50k restrict your capacity to hire pple bcos you can only pay someone $50k less than what he should get. ie this expat suppose to get total package of $300k you can only give $250k bcos the other $50k goes to his rental. So this means less expats will choose to come to Singapore over time.

So the bottom line is this, $50k annual rental (which works out to be rental of $4 psf per mth) is not sustainable in Singapore today. It may be sustainable 10 yrs from now when our GDP per capita increases and our expat population increases tremendously. But not now. Our salary levels are too low compared to property prices today. Note that expat salary is also a function of our GDP per capita and our salaries, so as of now, $4 psf per mth is too expensive. That's my personal view.

So this translates to the fact that a $1000 psf for property price is to expensive. We are not even talking about those $3k psf yet... Ppty prices have to come down. FYI Singapore is now more expensive than Tokyo, New York and maybe Shanghai. We are only behind Hong Kong, London and a few whacky cities where psf is like 5 digits and above (in USD) like Moscow and Mumbai.

The time to look at property will be the time when prices are falling to $600-700psf in prime areas. ie pple who bought at $2,000-3,000 psf lose more than 70% of their property value and the whole world gets totally digusted with Singapore ppty as with in 1998. It may take some time, but now is the time for us to prepare and have to guts to buy when the time comes.


  1. We must have the guts when the time come, this also applies to stock market..

    I feel that the HDB's rental is also killing people..^^

  2. yes that is very true. Also would you kindly elaborate about the HDB rental? Thanks!

  3. HDB rental (From what i know, i didn't carry out research on it)
    The smallest room at Tiong Bahru would cost S$600 per month. A 3-room flat can rent out at S$ 1500 - S$ 1800 per month in this area.

    Even at Boon Lay, a room will cost at least S$ 500 ++per month.

    As i know, not much foreigner earn more than $3000 a month (Singaporean's median income), most of those graduates only earn around S$ 2000 ( I have a lot of friends fall under this category).
    S$ 600 a room is a big chunk of their salary.

    However, i couldn't say that such level of rental is not sustainable because we always face Flat-shortage..

    From house owners' point of view, a four room flat at Tiong Bahru cost around $350k +, the annual return will undoubtedly higher than the 5% return on condo as suggested by Mr 8percent.
    (S$ 1800x12)/350,000 = 6.17%

    Correct me if i am wrong, thanks.

  4. Hi Sechai, this is the sad truth. Salaries have not kept up with rental/property price growth. In fact the gap has widen significantly. I think the way out for most foreign grads could be sharing the rental cost. ie maybe 2 person per room or something. Which is kind of sad.

    However rental cost will come down as the property bubble collapsed and hopefully things will get better.

    Could the govt do more to help? Now HDB is trying to increase subsidized rental flats, but knowing HDB, I guess it is always a case of too little too late.

    As for the high rental yield for HDB flats, well that is true if you compare it to cost price. But then again, this kind of rental will not last 20 years. In 2003, the same Tiong Bahru 4 rm could only fetch a rental of $1,000 per mth.

  5. I just read your blog recently. Do you think property price will come down?