Aug 13, 2011 - ST Forum
MR GAN Boey Keow's letter ('Adopt Aussie housing rules'; Aug 4)
highlighted an Australian measure to maintain home affordability
for its citizens. Foreign property owners can buy only new
properties, so they can sell their properties only to
Australians.
This rule could certainly be applied to Singapore to help
stabilise home prices, in view of the significant proportion of
foreign buyers here.
But Australian home prices still rose steeply until this year,
due to the huge growth in Australian mortgage financing. With up to
95 per cent total loan financing available for Australian houses,
even overpriced homes seemed achievable to buyers of modest means,
especially when coupled with the 'first home buyer's grant' also
offered in Australia.
So Australia now has one of the worst ratios of housing
affordability among developed countries, with median home prices of
about 7.3 times the median annual income, according to a study.
The same study, by the University of Canberra and a provident
fund, found that 60 per cent of first-time home buyers pay more
than 30 per cent of their after-tax income on housing.
With the post-crisis realisation that big loans carry big risks,
Australians are trying to deleverage their personal balance sheets
and housing prices have stalled in many cities.
How is this relevant to Singapore? According to Monetary
Authority of Singapore statistics, housing loans issued by local
banks have increased almost twenty-fold since June 1991 and over 50
per cent since the 2008 financial crisis alone. Housing and
construction loans now account for about half of local banks' loan
portfolios and more than half of their annual loan growth in 27 of
the past 32 months. It would have been more prudent to stop home
buyers from over-extending themselves by controlling the growth of
housing credit, instead of allowing a bubble where rises in
property prices and housing loans far exceed household income
growth.
According to the Department of Statistics, median monthly
household income from work increased by just 1.1 per cent from 2008
to last year - far less than the 50 per cent growth in housing
loans.
When housing prices fall to reflect the underlying ability of
households to service these loans, or future interest rate
increases, awkward situations may await recent property buyers with
large loans - as well as the banks who lent to them.
Simon Sia