Thursday, July 28, 2011

Singapore housing affordability reloaded

No I will not write about the general housing affordability in Singapore, it is already well covered everywhere. I will write about a specific case I have read today:

“John (not his real name), had bought a DBSS unit for $660,000 in 2008 from a developer under the Fiancé/Fiancée Scheme. John was supposed to submit his marriage certificate by 20 April 2011. However, due to unforeseen circumstances, he is now unable to continue with the purchase as he has since broken up with his fiancée, who is a foreigner. With the marriage now cancelled, he is ineligible for the scheme. In addition, he will now have to pay a penalty of 20 percent of the purchase price. The amount works out to $132,000.”

His story is here in yahoo sg.

This is really bad situation and a topic on its own. But what caught my eye is our dear John’s salary. He makes 2,500 SGD per month! A reader put it very straight forward:

"Bought the DBSS because he and his girlfriend fell in love with the location? But he is earning only $2,500. I'm sorry, but that's not quite enough to service the loan for a $660K flat."

I do not want to hit more to someone who is already in trouble but there are some lessons to take from our dear John’s case:

  1. John is a high risk taker. The house he bought is extremely unaffordable for him, it worth’s 22 times his yearly income. If his fiancé earned same amount, it is 11 times their yearly income (I am assuming his ex-girlfriend was not a high earner). I know people making at least 3 times he makes but would not dare to go into that deal.
  2. With this affordability level twice the internationally recognized “severely unaffordable” limit, many many things would go wrong during his struggle to pay his loan for the next decades. How he was thinking to pay when his wife was on maternal leave? What would happen if he loses his job in the next 30 years?
  3. I really wonder how he secured a loan at the first place. What was the bank thinking when giving a loan to him? Well just joking we well know now after financial crisis what those bankers  think when they give you a loan beyond your limits: their bonuses.
  4. And most important of all, it is not very realistic to "believe" that all of those people out there who buy a Singapore property with those high price tags for owner occupation or long term investment are more reasonable investors than flippers. And whatever our dear real estate agents and companies tells, their demand is not that “healthy”.

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