SOPHIE LAU LIVES with her son and daughter in a public-housing flat in Hong Kong East. It measures just 300 sq ft. She would like to move to a bigger apartment but, with a monthly household income of about HK$20,000 ($3,600), her options are limited.
On Hong Kong Island, even a small flat under the government’s Home Ownership Scheme (HOS) currently costs more than HK$2 million. “How can I afford that?” Lau told the South China Morning Post. Worse, HOS flats are in short supply since the government halted the scheme in 2002.
For more space, Lau could move to Tsuen Wan in the New Territories — if she doesn’t mind the 30-minute metro ride into the city or a view of a graveyard. Even then, a 600 sq ft private apartment would cost about HK$2 million.
Prices of mass-market residential property in Hong Kong have risen more than 20% this year while luxury-property prices have soared more than 40%. New world records have been set. In October, a duplex in the Mid-Levels went for a staggering HK$439 million or HK$88,000 psf, making it the most expensive apartment in the world.
Of course, these headline-grabbing numbers don’t tell the whole story. The Hong Kong government contends that a luxury-housing boom doesn’t necessarily mean mass-market properties have spiralled out of reach. Plenty of flats are available at HK$4,000 psf. And, Hong Kong’s home purchase affordability ratio stood at an unalarming 34% between April and June. That’s well below the 20-year average of 53% and the 93% at the peak of the property boom in 1997. The ratio measures how much of the gross household income is taken up by mortgage payments.
HOW AFFORDABLE, REALLY?
Likewise, this number doesn’t tell the whole story. It only captures people who can afford to buy flats. With home ownership in Hong Kong at just over 50%, that’s a lot of people who aren’t represented in this statistic. These people may have opted to rent or they may have been priced out of the market. For many ordinary people, wages over the last year or two have been stagnant — or worse, declining.
The more revealing statistic is that the supply of new flats in Hong Kong has dropped to a five-year low. That has prompted warnings that Hong Kong could see a repeat of the 1997 property bubble. That has also prompted calls for the government to step up its land auctions and restart the public-housing scheme. In the past two years, the government has sold only two of the residential sites on its land application list.
A similar situation has cropped up in Singapore, although the housing boom this year has been very different from Hong Kong’s. Private home prices rose 15.8% in 3Q, the fastest in 28 years. Much of that inflation was seen in the mass market. Notably, buyers with HDB addresses accounted for more than half of new home purchasers.
However, because of lower interest rates, the affordability of mass-market resale condominiums has improved, compared with the peak in 4Q2007, says DTZ Research. Based on the average price of $605 psf for a threebedroom unit in 3Q, a household in the 71st to 80th decile would need to spend 26% to 29% of its monthly gross household income on mortgage instalments, should it take up an 80% loan.
SMALLER AND SMALLER
But here’s the thing: Affordability has been hurt. That’s because a property boom spurs developers to test the waters by launching new homes at higher psf prices. We’ve seen that in the well-received Trevista (median price of $943 psf), Meadows @ Peirce (around $900 psf) and Optima @ Tanah Merah ($830 psf). During 2Q and 3Q2009, prices of new massmarket units actually rose faster than prices in the secondary market. So, taking an average price of $900 psf for a new three-bedroom mass-market unit, DTZ calculates that a household in the 71st to 80th decile would need to spend 38% to 43% of its monthly income on mortgage payments. That’s steep by most yardsticks.
The authorities are trying to cool things down. In September, Singapore removed the interest absorption scheme and interest-only housing loans for unlaunched projects. On Oct 23, the Hong Kong Monetary Authority cut the mortgage limit from 70% of a property’s value to 60% — for properties worth HK$20 million or more. For properties below that price, the HKMA has capped the maximum loan amount at HK$12 million. “We do not want to see a huge property bubble developing in Hong Kong,” chief executive Donald Tsang said last Monday.
The frenzy in both markets has started to ease. But, already, new homes have begun to shrink. A wave of “shoebox” units has emerged in Singapore; examples are units under 500 sq ft at The Lenox in Kembangan and those at a miniscule 258 sq ft at Suites@Guillemard.
On a psf basis, these shoeboxes cost in excess of $1,000. But, buyers lap them up because the overall price is “affordable”. These shoeboxes won’t skew affordability ratios either but, then again, the affordability ratio doesn’t tell the whole story, especially when it comes to living standards.
Source: The Edge, 7 Nov 2009
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