Archive for September, 2012

Hand-wring​ing over sky-high prices

September 24, 2012

Dear Straits Times,

I refer to your 6 Sept 2012 report “Hand-wringing over sky-high prices”.

It was reported that the average price of a 600 square feet (55.7 square metres) apartment in Hong Kong is HK$ 4.5 million [1].

The table below shows that the median price of Hong Kong private residential property in 2011 was in the low end of the HK$ 3 million to HK$ 5 million range [2].

Range of Consideration ($ million) Number of Agreements for Sale and Purchase of Residential Building Units 2011 Cumulative Percentage
Less than 1 1,802 2.10%
1 to less than 2 17,075 22.30%
2 to less than 3 21,487 47.80%
3 to less than 5 21,239 72.90%
5 to less than 10 15,438 91.20%
10 or over 7,421 100.00%

So a more representative Hong Kong private property price is HK$ 3.18 million [3] rather than HK$ 4.5 million. With that, Hong Kong’s price-to-income ratio falls to 13.1 instead of 18.6. This is fairly close to the price-to-income ratio of 12.6 given in the 8th Demographia survey [4].

Moreover, these are Hong Kong private property prices. Comparing Hong Kong private property price to the price of our BTO or resale flats is not fair. We should instead compare Hong Kong private property price to Singapore private property price.

Singapore’s median private property price in 2011 was about SG $1,042,440 [5] and our median monthly household income in 2011 was SG $6,307 [6]. Our private property price-to-income ratio was therefore 13.8, which is even higher than Hong Kong’s 12.6.

One might argue that Singapore housing is predominantly public housing. But Hong Kong too has substantial public housing as the table below shows [7].

Type of housing Percentage of population
Public permanent housing 45.8
Private permanent housing 53.4
Private temporary housing 0.8

Furthermore, the bulk of private property purchases are by Singaporeans and residents. DTZ reported foreign buyers as constituting only 16% of private home purchasers in the first quarter of 2011 [8], [9]. It reported foreigners buying 16%, 16%, 19% and 20% of private residential properties in Q1, Q2, Q3 and Q4 of 2011 respectively [10]. There is therefore no reason why Singapore private property prices must be excluded in housing price comparisons.

We can also compare Hong Kong private property price to the price of Singapore’s private property + HDB resale flats. There were 33,109 private property caveats lodged with URA and 24,633 HDB resale transactions [11] in 2011 making it a total of 57,742 transactions, a median transaction of 28,871 and a median price of SG$720,000 [12]. This works out to a price-to-income ratio of 9.5 which is about 75% that of Hong Kong’s 12.6, quite far from the 39% [13] conveyed in your report.

Finally, about the four-room Bukit Panjang BTO flat which supposed takes only three years to pay off [1]. There were BTO flats launched in 2011 that cost as high as SG$444,000 [14] which works out to a price-to-income ratio of 5.9. There is thus, a wide range of BTO flat prices depending on location and size. Furthermore, BTO flat prices have to be compared to new flat prices launched by the Hong Kong government, not Hong Kong private property prices.

In summary, we shouldn’t compare Hong Kong’s private property price to Singapore’s BTO or HDB resale price. We either compare Hong Kong’s private property price to Singapore’s private property price or we compare it to Singapore’s private property + HDB resale price. The former comparison puts Hong Kong prices at 9% lower than ours while the latter comparison puts Hong Kong prices at 33% higher than ours. Hong Kong property prices are thus no more sky high than ours.

[1] Straits Times, 6 Sept 2012, Hand-wringing over sky-high prices

The average price of a standard-sized 600 sq ft apartment is about HK$4.5 million, says Ms Eva Lee, head of Hong Kong and China property research at UBS.
Meanwhile, Hong Kongers’ median monthly incomes increased 15 per cent, from HK$17,500 in 2009 to HK$20,200 last year.
One way of measuring affordability is the price-to-income ratio. Hong Kong weighs in at 18.6. This means that a household has to save 18.6 years of its annual income without consumption to buy a standard flat.
By contrast, a four-room Build-to-Order HDB flat in Bukit Panjang takes the average Singapore household three years to pay off, while a resale five-room flat in Ang Mo Kio takes 7.3 years.
In the United States, anything more than three years is considered unaffordable.

[2] Hong Kong Rating and Valuation Department, Private Domestic Home prices by Class

[3] Estimated using simple proportion of (50%-47.8%) / (72.9% – 47.8%) * 2 million + 3 million

[3] Hong Kong Housing Authority, Housing in Figures 2010

[4] 8th Annual Demographia International Housing Affordability Survey: 2012 (for 2011)

[5] URA private residential property caveats lodged, 2011

[6] Singapore Statistics, Key Household Characteristics and Household Income Trends 2011, page 6, table 5, Median household income among resident households (all households are considered, just as in the case for Hong Kong)

[7] Hong Kong Housing in Figures 2012, Land Domestic Households

[8] Channel News Asia, Singapore news, “16% of private home buyers in S’pore in Q1 are foreigners: DTZ” by Linette Lim

[9] DTZ Research, DTZ Property Times, 25 May 2011

[10] DTZ Research, DTZ Property Times, 28 Aug 2012

[11] HDB website, resale cases registered between 1st quarter and 4th quarter 2011

[12] All caveats lodged with URA in 2011 are combined with HDB transactions lodged with HDB in 2011 to perform the analysis. Since only the past one year’s HDB resale transactions are available, only the transactions for the last quarter of 2011 are available. The Q4 2011 HDB resale transactions are then adjusted by the respective Q3, Q2 and Q1 HDB resale price indices to simulate HDB resale prices for 2011 Q3, Q2 and Q1 respectively.

[13] Since an Ang Mo Kio 5-room resale flat was reported to have a price-to-income ratio of 7.3 while Hong Kong price-to-income ratio was reported as 18.6, the reported Singapore price was therefore 39% that reported for Hong Kong. This grossly understates the reality which should be close to 75% instead.

[14] Straits Times, New BTO launch brings 2011 total to record high, 25 Nov 2011

Flats on offer range from 387.5 sq feet studio apartments with a starting price of about $78,000 in Hougang DewCourt to 1,237.8 sq feet five-room flats in Hougang Capeview, costing about $444,000.

S’pore ‘is richest country per capita’

September 15, 2012

Dear Straits Times,

I refer to your report on Singapore being the richest country per capita in 2010 [1], [2] based on Knight Frank and Citi Private Bank’s Wealth Report 2012.

World Bank ranks Singapore fourth in per capita GDP in 2010 [3]:

Country Name World Bank 2010 per capita GDP PPP (current USD)
Luxembourg 86,132
Qatar 77,466
Macao 63,957
Singapore 57,902
Norway 57,228
Kuwait 50,635
Brunei 50,506
United Arab Emirates 47,006
United States 46,702
Switzerland 46,384
Hong Kong 46,297
Netherlands 42,166
Ireland 40,470
Denmark 40,158
Austria 40,007
Sweden 39,325
Canada 39,050
Australia 38,158
Belgium 37,665
Germany 37,402

Knight Frank and Citi Private Bank must have focused on First World / developed / advanced nations so they skipped Qatar and Macao. But they shouldn’t have skipped Luxembourg which IMF classifies as an advanced economy. Considering only advanced economies, Singapore is 2nd, not 1st.

Our No. 2 ranking is nothing out of the ordinary because Singapore has been ranked 3rd or 4th since 1993 [3]:

Year 1st 2nd 3rd 4th 5th
1993 Luxembourg $36,516 Switzerland $25,699 United States $25,327 Singapore $22,973 Austria $21,638
1994 Luxembourg $38,181 United States $26,578 Switzerland $26,338 Singapore $25,120 Austria $22,505
1995 Luxembourg $38,980 United States $27,559 Switzerland $26,799 Singapore $26,750 Norway $23,612
1996 Luxembourg $40,268 United States $28,772 Singapore $28,133 Switzerland $27,476 Norway $26,065
1997 Luxembourg $40,894 United States $30,282 Singapore $30,088 Switzerland $28,607 Norway $27,983
1998 Luxembourg $43,272 United States $31,687 Switzerland $29,604 Singapore $28,851 Norway $27,429
1999 Luxembourg $49,075 United States $33,332 Singapore $30,841 Switzerland $30,124 Norway $29,801
2000 Luxembourg $53,662 Norway $36,137 United States $35,082 Singapore $33,767 Switzerland $31,737
2001 Luxembourg $53,895 Norway $37,079 United States $35,912 Singapore $33,226 Switzerland $32,343
2002 Luxembourg $57,550 Norway $37,059 United States $36,819 Singapore $34,864 Switzerland $33,658
2003 Luxembourg $60,711 Norway $38,264 United States $38,225 Singapore $37,783 Ireland $34,772
2004 Luxembourg $64,956 Norway $42,471 Singapore $41,875 United States $40,292 Ireland $36,769
2005 Luxembourg $68,320 Norway $47,626 Singapore $45,374 United States $42,516 Ireland $38,896
2006 Luxembourg $78,500 Norway $53,849 Singapore $49,373 United States $44,623 Ireland $42,530
2007 Luxembourg $84,525 Norway $55,837 Singapore $53,048 United States $46,349 Ireland $45,506
2008 Luxembourg $89,056 Norway $61,342 Singapore $52,286 United States $46,760 Switzerland $46,018
2009 Luxembourg $82,892 Norway $54,688 Singapore $50,769 United States $45,192 Switzerland $45,104
2010 Luxembourg $86,132 Singapore $57,902 Norway $57,228 United States $46,702 Switzerland $46,384
2011 Luxembourg $88,787 Singapore $61,103 Norway $57,092 Hong Kong $49,990 United States $48,442

We are thus just one or two positions better than what we have been doing for the past 17 years and this should be seen in the context of the recent Eurozone crisis affecting Eurozone nations more than it affects East Asian nations. We should also ask ourselves whether this one position improvement is worth all the problems we now face by growing at all costs.

Furthermore, we are 2nd only because GDP has been adjusted for purchasing power parity (PPP). If not for purchasing power parity, Singapore’s position is actually 15th [4].

Country Name 2010 per capita GDP PPP (current USD) Country Name 2010 per capita GDP (current USD)
Luxembourg 86,132 Luxembourg 104,512
Singapore 57,902 Norway 85,443
Norway 57,228 Switzerland 67,644
United States 46,702 Denmark 56,278
Switzerland 46,384 Australia 50,746
Hong Kong 46,297 Sweden 49,257
Netherlands 42,166 United States 46,702
Ireland 40,470 Netherlands 46,597
Denmark 40,158 Canada 46,212
Austria 40,007 Ireland 45,873
Sweden 39,325 Austria 44,885
Canada 39,050 Finland 44,091
Australia 38,158 Japan 43,063
Belgium 37,665 Belgium 42,833
Germany 37,402 Singapore 41,987
Finland 36,477 Germany 39,852
United Kingdom 35,687 France 39,170
France 34,107 United Kingdom 36,186
Japan 33,916 Italy 33,788
Italy 31,895 New Zealand 32,620
New Zealand 30,108 Hong Kong 31,758
Korea, Rep. 28,798 Korea, Rep. 20,540

Purchasing power parity estimates for Singapore may need some updating given Singapore’s steep price hike (especially in property) in recent years. World Bank puts Singapore’s purchasing power parity at 1.05 SGD per USD in 2010. In other words, the same basket of goods that cost SGD $1.05 in Singapore costs USD $1 in the US. But there is reason to suspect that this purchasing power parity estimate is too low. The median price of a single family home in US in 2010 is USD $173,100 [5]. If we apply purchasing power parity, the median home price in Singapore should be 1.05 × 173,100 = SGD $181,755. But the reality is far from it. The weighted average resale price index of our HDB flats, the backbone of our mass market homes, is 172 in 4th quarter 2010 [6] which works out to be SGD $418,705. Our weighted average HDB resale price alone is already more than twice that of the median US home price and we haven’t even considered the price of condominiums and landed homes which when included would raise our average / median home price even more. Given that housing is the single most costly purchase item for the average Singaporean family, it is hard to believe that SGD $1.05 can buy the same basket of goods in Singapore as US $1 can in the US.

Not only that, we are ranked 18th in GDP per employed person after adjusting for purchasing power parity [7].

Country Name 2010 GDP per employed person PPP (1990 USD)
United States 68,126
Hong Kong 61,382
Ireland 57,473
France 55,033
Belgium 54,882
Luxembourg 54,449
United Kingdom 51,604
Norway 50,582
Finland 50,278
Australia 50,153
Sweden 49,778
Canada 48,916
Austria 47,474
Netherlands 46,949
Denmark 46,598
Italy 44,855
Japan 44,804
Singapore 44,524
Korea, Rep. 44,278
Germany 43,050
Switzerland 41,504
New Zealand 35,787

If we exclude the GDP of foreigners and foreign owned companies in Singapore, the per capita GDP of Singaporeans and Singapore permanent residents becomes much lower and our position falls to 6th [8]:

Country Name 2010 per capita GDP PPP (USD)
Luxembourg 86,132
Singapore 57,902
Norway 57,228
United States 46,702
Switzerland 46,384
Hong Kong 46,297
Singapore residents 44,702
Netherlands 42,166
Ireland 40,470
Denmark 40,158
Austria 40,007
Sweden 39,325
Canada 39,050
Australia 38,158
Belgium 37,665
Germany 37,402
Finland 36,477
United Kingdom 35,687
France 34,107
Japan 33,916
Italy 31,895
New Zealand 30,108
Korea, Rep. 28,798

In short, we have become No. 1 because nations like Luxembourg have been excluded from the ranking. Our excellent ranking is nothing out of the ordinary considering it is just one, two positions better than what we have been doing since 1993. More importantly, comparing nations using PPP adjusted per capita GDP is marred by PPP itself which for the case of Singapore seem far off the mark. Other ways of comparing like GDP per employed person puts Singapore in a much worse light. Lastly, if we strip away foreigners and foreign owned companies, the per capita GDP (PPP) of Singaporeans and PRs is actually much lower.

[1] Straits Times, 15 Aug 2012, S’pore ‘is richest country per capita’
[2] Straits Times, 15 Aug 2012, Asian economies to top richest list by 2050: study
[3] World Bank per capita GDP PPP data at current USD prices
[4] World Bank per capita GDP data at current USD prices
[5] National Association of Realtors, Housing Affordability Index
[6] HDB resale price index
[7] World Bank 2010 GDP per employed person PPP data at 1990 USD prices
[8] Singstats, National Income and Balance of Payments, Indigenous Gross National Income
Indigenous per capita GDP of SGD $47,148 is 77.2% of our per capita GDP of SGD $61,071. 77.2% of our per capita GDP (ppp) of US $57,902 is US$ 44,702