Monday, April 25, 2011

Are HDB flats really too expensive?

With the election fever running high, it is probably apt to re-visit the property topic, a boiling hot button issue that is on everybody's mind. While various statistics had been throw around by the media, nobody actually believes them. So here is an independent analysis of whether HDB flats are really too expensive.

We shall look at a few measures:

1. Price to Income
2. Rental Yield
3. Absolute Prices
4. Housing Debt to Income

Price to Income is one of the most widely used affordability measure. Basically it is just median housing price divided median income. (info from HDB and Singstat). For Singapore, I am using the the 4 room HDB median price of $385,000 dividing the median household income of $60,000 which gives 6.4x. If we use 3 room, the ratio becomes 5x. Globally, this ratio ranges from 3-20x. Anything close to high teens is usually considered bubblish while anything below 5x would be consider cheap. In developed Asia, most cities are at a high single digit or low double digits.

Tokyo 9x
Guangzhou 8x
HK 11x
Shanghai 10x
Beijing 12x
Taipei 11x

Hence strictly speaking, HDB prices are not that expensive, but we cannot really say it's cheap though bcos 3-5x price to income is relatively common in other parts of the world, esp in sub-urban areas.

However, if we add in condo prices, Singapore is then close to 20x ie higher than most Asian cities, read: bubblish levels.

Rental yield of HDB is calculated using info on HDB's website. Basically using annual rental divided by the median price.


Median prices

The rental yield comes up to around 5-6% for 4-Rm, 5-Rm and Exec and *pause for effect* an amazing 7% for 3-Rm HDB. Again global rental yield ranges from 1-9% with 1% yield during bubbles and 7-9% during crisis. The average yield being closer to 3-4%. So again, HDB rental yield at 5-6% are not exactly indicating that they are overly expensive.

However we must also understand that the HDB rental market has its own idiosyncratic issues and also the no.s quoted are gross yield. With the Singapore RE market, there are various charges that come in such as agent fees, ridiculous renovation fees, down periods and fickle tenants. Esp with HDB, you can expect more problems and hence fees/downtime to take a bigger chunk out of gross yield bcos the absolute rent is not high to begin with. We are talking about S$1300-2000 per month. Tenants also tend to be very price-sensitive and picky, bcos if they aren't, they would have chosen condos. So a 5% yield might be just 4% in reality.

In terms of absolute prices per psf, well I guess most avid Singapore property followers would be more updated than me. HDB psf prices are roughly S$500-800, as compared to Sg condos which can be S$1000-3000. In comparison with global cities, the average is probably S$1200-1500. So again, HDB prices are not that expensive. However if we compare sub-urban areas, then prices are way below our HDB prices.

As for housing debt to income, HDB minister Marlboro Tan quoted that we are about 30%, which is not different from global standards. Granted, most Asian cities are higher, at 35-40%. But again, in US, 28% is what credit agencies would recommend, so we are just a bit higher than that.

Just to summarize, let's look at how HDB flats fare on these four measures

1. Price to income: fair to slightly expensive
2. Rental yield: Cheap in gross terms, maybe fair in reality
3. Absolute prices: Fair in total, cheap compared to cities
4. Housing debt to income: Fair

So on four counts, HDB is probably expensive on only 1 count: Price to income. This is however the most important measure out of those four as it directly determines how the buyers' incomes relate to home prices. Then again, bcos HDB is actually fair or cheap on various other measures, it makes sense as investors to buy HDB flats.

So we established that HDB flats are not way over-the-top expensive, esp so when compared to other Asian cities. In fact it gives a decent yield if we gauge them as investments.

Why then are Singaporeans so angry with our beloved Govt?

Next post, we shall examine the red-hot button holes and threads in detail!

See also Solutions to the HDB Conumdrum.


  1. The price to income ratio is calculated based on mean income. This maybe the definition of the ratio and what commonly use in other country. However Singaporean income distribution may be not that even. One report i'm reading show half the people earn only two thirds of the average wage. So, the actual P/I ratio might be much higher..

  2. If we use mean household income, the P/I ratio actually goes down. Which supports my argument. Bcos the mean household income is much higher than the median. Median is S$5000 per month but mean is S$7200 per month (fr Singstats).

    I think the issue with HDB prices is that we probably shouldn't compare it with global cities bcos it will look cheap given its different dynamics, like only Sg buyers, limited rental demand, the Govt public housing discount etc.

    Next post I will actually discuss some of the real issues posed by HDB.

  3. I mean limited rental supply - which causes rental yield to go up

  4. If you boil down to the bare bones, it is a political issue. And in politics, everything is perception.

    In this case, this is the unwritten and unspoken contract Singaporeans have with the PAP - in exchange for prosperity for most of us, you can do whatever you want, give yourself millions of dollar in wages, sue political opposition into bankruptcy, wield the ISA against political opposition.

    For many, I guess this simply translates to a HDB flat set up a family in or rent out, CPF pension in old age and a livelihood.

  5. i like the price to income ratio, but how about add in more details like flat size etc

  6. That's on my latest post "What's Wrong with HDB Prices" :)

  7. This is one of the most informative and objective posts I've read so far on the issue. Thanks!

  8. Thanks, maybe you should read by other post as well

  9. bcoz at 6X (similar to london levels) is inconsistent with a govt who has been saying they are doing a very good job and earning a paycheck consistent with that as well.......

  10. I am no property expert but feel that comparing the HDB prices to avg prices is not an apple to apple comparison as there are not that many 'public housing' in cities like Shanghai and Beijing and even Tokyo and HK for that matter. And the data is often only on the private housing. Moreover, the 'owner' of a HDB flat never actually owns the flat, just read the contract.

    Obviously comparing public housing to private housing will make HDB look 'fair'? However, the whole objective of HDB is to allow every Singapore a roof over their heads. So it should always be 'cheap' and not fair.

    Just my bigoted view!

  11. That is quite true, public housing prices are not comparable with private.

    On private housing in Singapore, we are way over the top, much more ex than even Tokyo, NY etc.

    Do take a look at my related post on this! Link below: What's Wrong with HDB prices

  12. You should be comparing subsidised housing with subsidised housing in other country. Not HDB housing with private housing oversea.