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!)
[Poll added 25 Sep:]
What’s the ratio of your home price to your family’s income?