According to the Straits Times (Sep 19), median home prices in 2008 were about 16.3 times the median annual income that year.

The article never mentioned if 16.3x is a bearable or even realistic figure for individual households.

Using ST’s median figures for 2008, if a household making \$59,400/year were to buy a \$970,000 condo, it would have to pay \$3,705/mth to service a 30-year loan. (This is assuming the loan is for 80% of the condo price and interest rate is 4%/year.)

This family will be paying \$44,460 a year to service the loan, making its debt-to-service ratio a hefty 75%, which is way beyond the standard recommendation of 35%.

It’s very obvious that any family making median income can’t afford a median-priced condo in Singapore, unless the family is very cash rich.

That’s probably why only about 20% of the population stay in private housing, with the other 80% in HDB flats.

So who can afford a median-priced condo?

According to the Salary.sg Household Income Comparison Tool, the 80th-percentile household makes about \$11,300/mth. Servicing a \$3,705/mth loan is much more reasonable at this income level, as the debt service ratio is now a comfortable 33%.

You can only afford a median-priced condo if you earn an income that’s much higher than the median.

So what can you afford?

Our calculations show: If your home price is 7.6x of your household income, your debt service ratio will be at the recommended 35%. (Again, we assume you take a 30-year loan on 80% of home price, and interest is 4%.)

Using this “7.6x” guideline, you can quickly calculate whether you can afford that condo you’ve been eyeing.

For example, if you and your wife earn a combined \$100k/year, a \$760k condo should be within your reach.

Forget about that 16.3x figure mentioned earlier. It’s more meant for comparing affordability between countries.

However, if you think 7.6x is still too much for comfort, you can use this other Salary.sg guideline that uses the debt to networth ratio (some people may think it’s way too conservative!)

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1. investor_wannabe on

Nice article. I think 7.6 is a very good and fast way to gauge what is affordable for you. Now all I need is the 20% =D.

2. investor_wannabe on

Hmmmm, HDB has an artificial ceiling of 8K household income thus based on that the most expensive public housing can go up to SGD\$790400 (based on 13th month annual package) and also must take into account fixed (low) interest on HDB loan and possible subsidy. Does that mean public housing still have upside solely based on affordability?

4. admin: as always thanks for the good information. understanding that affordable means different things to different people depending on individual tolerable risks – personally i would seriously consider the very important loan period.

5. But according to the poll result, the ratio of home price to household income of vast majority here is only 0~3 times. You guys really earn high salary!

6. Is the 970,000 the median price of all condos?

Another way to assess affordability is to use the household income calculator directly. Assuming 15% owns condo vs landed property in that top 20% private property owners. The median point of condo owners in the top 20% would be at about 87.5th percentile (I checked that to be about 15,400). This would roughly mean that people currently staying at a median price condo now roughly earn \$15,400 as a household.

An even more accurate measure would be taking a snapshot of household income per person, because a household of 5 (married couple with 3 kids) would be likely to spend more than a household of 2.

7. Dear Salary.sg

You seem to be the most knowledgeable person around about salaries in Singapore. Could you help answer a question that has puzzled me since last Sat. According to the ST article that you referenced above, the median income in Singapore did not change from 1998 to 2006(inflation adjusted), moving from \$44,304 to \$48,000 (not adjusted for inflation). However, suddenly in 2007 and 2008, median incomes took a leap upwards to \$59,400. Is this credible???

Paul Ananth

8. Hi Paul,

Thanks for the compliments.

It seems the ST article took the numbers from a Singapore Department of Statistics’ paper, which also specifically stated “average household income from work increased in both nominal and real terms for all income groups in 2008.”

The paper also attempted to explain the leap in incomes: “Strong labour market conditions throughout most of 2008 contributed to the growth in real household income from work in 2008 by attracting more people into the workforce, especially from households living in smaller housing types.”

I personally believe SingStat is a credible source.

9. Don’t forget that the increase could also be an artifact of more people not being able to afford a place of their own. Either married and staying with parents/in-laws, or singles delaying buying or renting on their own.

10. Sunday Times is now lending support to both sides of this issue, saying there’s not enough data. They’re now sitting on the fence! I suggest they look into (1) why the “recession defying” HDB prices managed to set historical record in SG’s worst recession, and (2) why the proportion of PRs buying HDB flats has doubled- are they directly responsible for pushing up the prices? I also learn that HDB rules for PRs are more relaxed than for S’poreans, eg PR singles can more easily buy HDB.

11. thanks for advice admin – my home is 2.6 times my annual income so i’m safe…guess the rule of the thumb is Always to Live Within your Means

if you earn 200K per annum, then instead of buying a 1.5M upper-middle class condo, go for a 800-900K median one. With the additional savings, use it to invest in another condo of relative price (of course, taking into account that this is a sound investment of course (have to be cautious during this second property boom)

still surprised that 970K is median price of singapore condos though….

12. Looking at the paper again, we saw the peak of median resident income in 2001, and it took 4 years (2005) before we hit that same peak again. So I think that explains why there is little growth in 8 years, because for half the time, there was no growth.

Coming to 2009, I wouldn’t be surprise to see the median income going down again for a few years before revisiting the 2008 peak again.

13. 7.6x seems very high and using that I think you would be way overleveraged (as would any business who was 7.6x leveraged). It is pretty universal around the world that a mortgage should not be more than 3x your annual salary, so if you are buying a \$500,000 place and put \$100,000 down and a \$400,000 mortgage you should be earning around \$130,000 per year.

14. My wife and brought our 5 RM Exec (biggest range of new flat at that time) 4 years ago at about \$260k (CCK location) when we almost breach the 8k gap. Instalment is about comfortable \$1k easily covered by CPF. We decided to ROM early so as not to fall into the sandwish gap (8-10k) per month and have to spend a lot to get a decent house.

We breach the gap now and our equivalent flat at 3-4 floors up or down last EV price is about \$420k to \$450k.

So that put us in a good shape to save and perhaps start planning for investment esp now interest is so low.

Since then we have park some of our saving in blue chips and saving up cash to prepare for some investment in the next down turn ðŸ™‚

So I guess buying properties also means a bit of marriage planning and luck.

15. but you can’t sell the place of residence. if you do, where are you going to stay? and even if you sell at a high price, you are going to pay a high price too for a bigger better property to stay in. this is precisely why people people do not include the residence property when they compare wealth.

surely it makes you feel rich, but personally, i will only count the appreciated values of my 2nd and 3rd properties when i sell them and realize the profits. prices can go up and prices can also come down.

i’m also trying to figure when is the best time to sell off all my blue chip stocks. their value has already more than doubled and i’ve been selling on the way up (as opposed to some other strategy of buying on the way up). i’m not greedy. i just want to play safe and make money. in comparison with many other people, i’m already doing quite well using my own strategy, which i think is a rather safe strategy.

16. Hi Question

I totally agree with you. That why we does not intend to sell of this flat. We have a balance CPF loan of approx \$150k left (based on a 15 years loan left) and our current CPF balance has grown back to a healthy amt in ordinary and special account since we last brought the flat. Looking at it, we should be accumulating enough in 3 years time to theoretically clear all our current housing loan if we decide to empty the cpf.

Hence any extra CPF contribution in the next 15 years can go to contribute to the next house (if we intent to get another property) using CPF and cash.

We figure out the whole idea is try to get into a +ve cash flow situation ASAP by taking min HDB loan so that we still have 1 small little roof under the hoot if anything happens ðŸ™‚

The trick is to get the first house cheap so that you have extra liquidity to go for the second one. Many couples nowadays spend close to 350-400k (if you count in the loan)on 1st, which means they will be stuck in a -ve liquidity for a long time (min 10 yrs). The more loan you take, the higher the interest will pile and kill.

That is the same philosophy I use to get a car. Never borrow more than 30k so that the max loan over 7 years is 4-5k only. That is a close to 5k interst saving compare to another one borrowing 50k for 10 years.

Once you have a 1st flat, the 2nd one is easier as you have the rental option to cover the principal installment. So what is left is good timing and lots of cash to down the 1st 20-30% so that the remaining loan is serviceable.

And of course a stable job (for both husband and wife) helps a lot ðŸ™‚