On and off I did provide commentary on the rising property prices (when they were rising). The main point is that there is a prevalent ‘analysis’ by the average folks that prices of property in land scarce Singapore should go up and its the main way to build wealth. This works well because, in this world, we tolerate inflation much better than deflation.
The main crux of why I find the growth rate of the recent times challenging is that, HDB, BTO or Resale, have to remain within the affordable range. By that we mean standard metrics such as price to annual income, price to rent, mortgage below the MSR.
For a property to remain as a good retirement asset, you need people to be able to buy from you. For people to buy from you, the average wage have to rise. That have been the latest debate.
15HWW wrote in his latest post Asset Enhancement & Its Negative Consequences on how this asset enhancement have made the kids next generation in a better position than those who failed to take advantage of it:
Therefore, it’s not surprising to see asset prices rising at more than 7% since it’s in line with growth in median wages and GDP. With leverage and historical low inflation rates, many Singaporeans’ wealth increased tremendously just by owning their home.
However, as our economy matures, median wages and GDP have both started to slow in the past 2 decades, and especially so in recent years. Coupled with tighter emigration policies, it’s unrealistic to expect asset prices to increase at rates like 7% in the forseeable future.
I deduced this link on my own, but this is more of a common sense analysis, which sometimes can be very wrong because I may not know a subject well. The link between wages and housing prices can’t be far off, but I always wonder whether there are other factors that changes this equation.
Business Times published this article today talking about banks seen a rise in non performing home loans, as a result of problems with high end properties. What I find more interesting is what Mr Tharman Shanmugaratnam, the finance minister and deputy prime minister, said:
“If we do not get a meaningful reversal after each upswing, property prices will run ahead of the growth of household incomes over the long term, which we should avoid.”
Its one thing to know on a personal finance level, whether average housing is affordable. It is another to determine the signals that the government looks into to observe if housing prices are running ahead. This seems to point that, in order for housing to grow well for your retirement and to be able to take advantage of it, wages have to rise in tandem with housing prices.
Housing prices past 34 years have been rising at 7% per annum, food prices, wages and the rest is around 3-4%. I don’t think wages are slowing down. I think wages are slowing down for those that ‘fail in society’. By this, I meant the folks that didn’t take advantage of the education system to carve a good career later on, or the less enterprising folks who do not work hard to chase after the business opportunities out there.
Housing prices can rise at current rate, when the economy does well, because they will drive the demand for people with the right expertise. Mr 15HWW mentions that in a matured economy, the growth seems to be slowing down. It remains to be seen if this country can generate a second economy miracle.
If they do, I am sure there are more opportunities to build wealth other than housing.
- New 6-Month Singapore T-Bill Yield in Late-September 2023 Should Stick to 3.75% (for the Singaporean Savers) - September 21, 2023
- A Concentrated, High-Quality Fixed Income Financial Independence Income Strategy Has Enough Uncertainty - September 20, 2023
- Why Do We Save Money After We Reached Financial Independent Status? - September 18, 2023