50% Property may no longer be best investment: DBS study

New properties smaller, more expensive; prices unsustainable unless salaries rise at faster pace

Property has long been seen as a pot of gold for Singapore investors, but a new DBS study that was released yesterday shows that in the future, it might not be so.

This is especially as new properties are smaller and more expensive as property price growth outpaces income growth.

Property analyst Derek Tan from DBS Group Research told reporters in a media briefing that the property price-to-income ratio is projected to hit a multi-year high as properties will cost 15 times the annual pay of a median-income family.

This means that a family wanting to upgrade to a similar sized or bigger private property has to pay 15 times what it is earning in a year, based on current prices.

Mr Tan said: "This figure is the highest we have seen in 20 years. It means that current prices are not sustainable unless we see salaries increase at a faster rate, and it also implies that households increasingly need to have dual sources of income."

Historically, the price-to-income ratio - which measures property prices over annual income, including Central Provident Fund (CPF) contributions - has been between nine to one and 12 to one.

The DBS report also showed that the average property price per square foot (psf) has jumped 50 per cent since 2010, an increase which has grown more significant in new property launches.

The psf price has risen from around $1,200 in 2015 to $1,800 in the first half of this year.

Yet, homes have been getting smaller instead of larger, even with the higher prices, Mr Tan noted.

Three-bedroom flats are now 900 sq ft to 1,000 sq ft on average, and median home sizes for new launches have shrunk by some 20 per cent over the last 10 years.

But with new work-from-home norms and children doing home-based learning due to Covid-19, families might want bigger homes, which will stretch their budget.

Data from DBS on nearly 1.2 million mortgages found that the average Singaporean can spend 20 per cent of his income servicing his home loan. This can even go up to half the income for some.

Middle-aged earners stretch their income the most to service their mortgage while having a lower propensity to invest in other assets.

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  • Jump in the average property price per square foot since 2010, an increase which has grown more significant in new property launches, according to the DBS report.

Mr Tan also observed that properties might not be as in demand in the future as investors hope, with Singapore's population expected to peak by 2045 if it continues on its current trajectory.

With tight immigration policies, it might also be difficult for property buyers to find tenants who want to meet their rental prices.

Other assets can bring higher returns and offer more liquidity as compared with property, he said.

"Property yield is close to 2 per cent or slightly lower," he added.

"But a portfolio with real estate investment trusts (Reits) that is professionally managed can have more diversity and higher yields of 5 to 6 per cent on average, tax-free."

He noted that the best-performing investment in the last two decades is the S&P 500, a stock market index of the 500 largest publicly traded firms in the United States. This is followed by Singapore Reits, then private property and Housing Board flats.

Ms Lorna Tan, DBS head of financial planning literacy, said: "We can consider assets like equities, bonds, Reits, exchange-traded funds, alternatives and definitely CPF savings to maximise the risk-reward from all investments.

"This will alleviate the undesirable situation of being too weighted in property in our portfolio, with little left over for other investments that can offer better returns and liquidity."

Jump in the average property price per square foot since 2010, an increase which has grown more significant in new property launches, according to the DBS report.

A version of this article appeared in the print edition of The Straits Times on October 13, 2021, with the headline '50% Property may no longer be best investment: DBS study'. Subscribe