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Singapore Private Property Price to Income Shows Valuation Not Running Away

Private housing prices are not cheap but we have been in a 4 year consolidation. Those that did well have increased their income and private properties are affordable for them.

Bernard Tong, CEO of EdgeProp has a guest post out in Channel News Asia. In it, he explore the topic of whether the Singapore Private Housing scene is in a bubble.

I thought its a piece with some quantitative data that we can snapshot in our mind.

To help everyone, here is the points I can distill:

  1. Bernard starts off explaining what are lemmings and explores whether Singapore property investors are like lemmings that are near the edge of the cliff, inadvertently jumping off the cliff
  2. It is worthwhile for him to discuss this because we are seeing more and more enbloc sale. So are we on the crisp of another property run that we last saw in the 2005 to 2013?
  3. Bernard goes through 2 metrics. The first metric is the price to income. Notably if we compare between 2007, 2010 and 2017, price to income have come down. This indicates better affordability compare to those periods
  4. The second metric is more of a valuation based on cash flow. Bernard compares the gross rental yield for 3 different regions over the same time period. The gross rental yield have come down. This indicates the landlords getting less rents if the purpose of the property is to generate rental cash flow.
  5. Bernard believe that there are a few reasons why property prices in the future will be controlled. The first is that if we observe the sub-sale caveats, which is an indicator of speculative purchases, it has dropped drastically over time. One reason he cited was the introduction of seller stamp duty
  6. Purchases by foreigners, often cited to blame for escalating prices here and in other gateway cities, are a fraction of what it was
  7. This is being balance by the limited amount of new land release by the government. Less release, lower supply, higher prices
  8. Investors are tired of waiting. Many investors was awaiting 1997 and 2008 drop in prices and they got tired of waiting
  9. Factoring all this, price appreciation should be controlled.

Bernard’s first data shows the improvement in affordability. The income used is average monthly household income. This tend to be higher than median income, which takes the middle person income if we all line up in a straight line.

This is acceptable as I expect only above average income people to be the targeted group to purchase private property.

While we know that property prices at most came down 10%, this narrowing of price to household income may indicate the average Singaporeans getting more affluent.

You might not feel it but those good performers may be doing better than those that are below them.

If we carry on this trajectory that wages keeps going up for those that are doing better, it supports a property market where the government holds the reins to speculation.

Ultimately, when you sell your property, you want to sell at a profit.

To sell at a profit, you need an environment where there are a lot of demand of people that can afford to buy from you at a profit.

To have this demand, the future price to income needs to stay the same.

Price and Wages need to go up in tandem.

The second data point is in stark contrast to the first one. Price to income looks favorable but gross rental yield have narrowed in all categories except core central region.

This points to either rents are declining, or that property prices are running away from “reality”.

I have friends who are renting, so I am aware the rental market is not picking up. You can rent a Yishun 2 bedroom condo for $2,200/mth which is what you used to pay for a 4 room HDB. And the latest transected price for the condo seems to be lower at $2,100.

The rental yield tracks very closely with the yield on SGS Bonds (you can refer to my latest Singapore Savings Bonds yield graph to compare it against these gross rental yields)

In many premium cities, often referred to as global gateway cities such as Beijing, Boston, Chicago, Frankfurt, Hong Kong, London, Los Angeles, Madrid, Milan, Munich, New York, Paris, San Francisco, Shanghai, Singapore, Sydney, Tokyo, Toronto, Vancouver and Washington, D.C.

Their prime property is seen more as a hard asset, a store of value then to provide cash flow.

And thus to me, the rental yield might not always be the best measure of things.

If you purchase a property with the intention to generate residual cash flow, you do not overpay for it by valuing it based on cash flow.

However, if you are using it as a store of value, then its a different matter.

The only game here is capital appreciation.

My parting comment is that for the property market to be sustainable, we require a conducive environment where business can be developed and average income can gradually go up over time. Cost of living needs to be controlled as well so that above average income earners can channel excess cash flow to private properties.

Related: Here are some rolling 20 year data of price changes year by year of HDB, private housing that I did in the past

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Sunday 15th of October 2017

Using the price to income to measure is flawed as it takes the median transacted house price / household income.

This price to income is capped by TDSR since people can only buy up to roughly 10 times their income based on TDSR. What is happening is that sizes have become smaller over the years instead.

Rental Yield is a better reflection imo of the whole picture. Since properties in gateway countries are considered very safe like AAA bonds, their rental yield should also reflect that. When interest rate rises, private properties prices will be affected.


Sunday 15th of October 2017

Hi LH, thanks for sharing your thoughts. I disagree on the TDSR being a factor. I think price to income is somewhat of a valuation metric but also an affordability metric. For user TDSR assures us the couple is not overly leveraged, but price to income of 5 times gives us an idea that the properties are affordable. a 8 times price to income is not really close to affordable (5 times) that i agree.

It worked pretty well without TDSR.

You are the second person that explains the yield and government bonds. Thanks for that.


Saturday 14th of October 2017

I will take what that guy says with a 3-tonner load of salt. He's vested in the property sector above his eyeballs.

For price-to-income, anything above 4.0 is seriously unaffordable .... anything above 5.0 is extremely unaffordable.

The ratio may be saying that now is much more affordable .... on a RELATIVE basis, but not on absolute basis.

It's still a game of greater fool & sentiment. Not value.

Hence to have peace of mind with wide moat of safety margins, should only buy during deep recessions. Of course this will kill the salaries & bonuses of people like him vested in property industry. Just the last 4 years of very mild property slowdown has killed or hibernated the jobs of 10s of thousands in this sector.

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