Housing 'more affordable' now if measured against income growth

Many may find this hard to believe but property prices in Singapore are more affordable today than 10 years ago, when measured against income growth, said an economist from DBS.

While property prices in the city state are up 55 per cent since March 2009 - when the global crisis ended - income has grown much faster, said DBS managing director and economic and currency research head David Carbon.

"Based on simple averages, that makes housing more affordable, not more expensive," Mr Carbon said at a media briefing yesterday.

In Singapore, home prices have risen in tandem with income over the past five years. In addition, home prices are now 15 per cent lower compared with 2000.

In contrast, Hong Kong has seen home prices relative to income surging 78 per cent since 2000, which signals an asset bubble, he said.

In Asia, property prices are now as high as they were in the United States just before the eruption of the sub-prime mortgage crisis. The rise in real estate prices in the region has been fuelled by low interest rates spurring capital inflows and strong income growth.

In terms of the rise in regional property prices, Singapore and Hong Kong topped the list.

But even if income levels are rising in parity with property prices, Mr Carbon highlighted a potential red flag - growing debt loads.

Household debt in Singapore has risen significantly in recent years and this could pose a challenge when interest rates start to go up, Mr Carbon said. This is because real estate is the most interest rate-sensitive asset class, he added.

Analysts have projected that the US Federal Reserve could start to raise rates as early as late 2014 from near-zero levels now.

"If that happens, some people may not be able to make payment. It's a short-term difficulty but I doubt it'll turn into a systemic risk as income is still rising," he added.

Currently, housing debt levels in Singapore and Hong Kong, at about 45 per cent of gross domestic product, look manageable and are relatively low compared to the high debt levels in the US, which subsequently led to the housing meltdown in the world's largest economy, Mr Carbon said.

He expects housing payments in Singapore to rise 15 per cent to 20 per cent if mortgage rates return to "normal" pre-crisis levels.

But the impact will be cushioned by rising per capita income of homeowners, he said.

anitag@sph.com.sg