In response to ST journalist Fiona Chan’s article

I refer to the report “Are private homes getting out of reach?” dated 19 Sept 2009 by Ms Fiona Chan (read article here)

Of being upset

Ms Chan reported that I was ‘upset’ with two independent conclusions indicating that private properties are more affordable now.  It goes beyond that.  There were specific statements made especially by Mr Kit Wei Zheng that were outright wrong or simply unreasonable.

For example, Mr Kit stated categorically in both of his letters that 9 out of the past 11 years have seen salaries outgrow property price increases.  We both did the sums for the past 10 years and found this to be wrong.  Mr Kit also insisted in using the bubble year of 1996 as the base year to judge all other years which is unreasonable because when you crash your car going at 240 kmh, you don’t use 240 kmh as your safety speed limit.  So while Ms Chan is right about there being many ways to calculate housing affordability, certain statements are factual in nature and can only be right or wrong.

Shifting base year from 1990 to 1998

Ms Chan wrote that it is not fair to compare current property prices with those 20 years ago because Singapore is such a young nation.  This statement is not valid in and of itself.  Is it meaningless to compare Singapore’s GDP today with our GDP 20 years ago simply because we are so ‘young’?  Is it meaningless to compare our heathcare standards today with those of 20 years ago?  National statistics like birth rate, death rate and home prices are compared right from the very first day.  There is no expiry date so to speak of.

Nevertheless, Ms Chan brought up one seemingly valid point – in 1990, condominium units comprised 39% of total private home transactions, by 1999 it has soared to 51%.  But does this have any material effect on our comparisons?  In the 1970s and 1980s, Singapore is primarily a manufacturing hub.  Now, manufacturing has shrunk to about 1/4 of our GDP.  So we can no longer compare our GDP now with those in the 1970s and 1980s?  So once again, we see the flaw in Ms Chan’s reasoning.

If our issue is how affordable condominiums have become over the years, then yes, the increasing number of condominiums as a share of private properties does affect our comparison.  But the object of our study has always been about private housing.  Even the title of Ms Chan’s report contains “private homes” and not “condominiums” so the increasing share of condominiums matters not.  What matters is still private properties as a whole so 1990 is still valid.

Furthermore, 1990 is more appropriate than 1998 as a base year for comparison because 1990 comes before all the sudden disturbances in Singapores’ property market.  It serves as a good indicator as to what stable property prices were like before.  On the other hand, 1998 is very close to the historic peak of 1996 and carries some remnant exuberance from that bubble year.  So the value that 1998 represents is not a pure, unadulterated value but one that carries some left over froth from 1996.

Compare the whole period, not just two points

Even if we were to agree to 1998 as the base year, it is still not good enough to just look at 1998 and 2008 only.  We should be looking at all the years between 1998 and 2008.  Referring to the graph “Medium” in “Fiona’s figures.xls” which was constructed using Fiona’s figures, we see a red curve representing “home price” and a blue curve representing “income”.  We see that there were only 4 out of 11 years when salary was near to property price.  For the rest of the 7 years, property prices far outgrew income.

So if we had only focused on the two points 1998 and 2008, we would have missed two full stretches during which property prices shot up way past salaries.  In fact, in no year did we ever witness salaries shooting far beyond property prices.

Ng Kok Lim

Source : Temasek Review – 23 Sep 2009