Home Affordability

According to the previous report on Saturday, homes become more affordable when incomes grow.

With that, a correct comparison should be done.

It is worthless to relate the recent property boom with the developments in 1996 and then assume that things are much better now than the past. This is likely similar to the comparison of the sub-prime financial crisis to the 1930s Great Depression and concluding that these issues aren’t so serious.

Similarly, it is worthless for Citigroup economist Kit Wei Zheng to conclude that today’s developments are much better than in 1996. Though the recent property boom is not seen to be worst, it doesn’t mean that it is not bad.

For a better  understanding of the recent situation, people must take note that condominium prices have increased threefold from 1990 to last year, while, during the same period, the median family income improved by only 2.1 times.

This means that from this period, there were only 50% growths in condominium prices. Therefore, the current situation is truly a worse off as compared to 1990.

Additionally, the affordability computations of Jones Lang LaSalle head of research Chua Yang are also confusing.

Firstly, it is not right to use the per capita gross domestic product (GDP) as only 40% of the current GDP, which is attributable to wages.

Moreover, in absolute terms, the 22% growth in the per capita GDP of the previous year over its 15-year average is just $9,156, while the 38% growth in condominium prices over its 15-year average of about $700,000 totals to $266,000.

Thus, even before looking at the stakes, it will take an additional 29 years for the further income to pay for the growth in condo prices.

The statement of Mr Kit, indicating that the increase in salaries in the past 11 years has outpaced the increase in property prices, is also wrong. Comparing property prices and median income for the past nine years, it took about five years for the property prices to developed income.