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