Ok so yesterday, well I got a few people upset when I started speaking about wages, working conditions and where Australians sit in the world rankings for hard work?
Please be clear I DID NOT question whether you are working hard or not, I merely asked are you working hard enough on the RIGHT things?
There is a difference between being busy and being effective.
In case you missed here is the link to yesterday’s article: http://www.thepropertymentors.com.au/do-we-really-work-hard-here-in-australia/
So, given that I managed to upset a number of people yesterday (without really trying I might add) I expect we will probably upset quite a few more in today’s article all about housing affordability.
In fact, housing affordability is a very emotional and often a generationally divisive issue in Australia right now. A large part of the recent political election was indirectly centred around housing affordability, with Labor’s failed policy to remove Negative Gearing (NG) and halve the Capital Gains Tax (CGT) exemptions. I say indirectly, because as we have pointed out before, NG, if it would work at all, would work through demand-side drivers whereas the real problem in Australian housing has been supply-side drivers. That is the availability & release by governments of developable land (something no side of Politics seems keen to talk about).
The problem for most people commenting on the issue of housing affordability, and for all those Millennials (those up to 36 years old) that are complaining that Rich Baby Boomers have priced them out of the market, are usually talking about the fact that median house prices relative to median incomes having risen over time.
Sure with the median wage sitting at close enough to $80,000 p.a and the median house price in Melbourne sitting at $725,000 according to the REIV (see below) the median house price to median income multiple are sitting at a bit over 9 times.
But so what? Sure it’s a measurement for politicians or economists to carry on about, but unless you invent the next Google, win the Lotto, or you fall into a large inheritance, you shouldn’t be thinking about buying a $1.27M inner Melbourne house as your first home anyway.
And just for a bit of a reality check, most of the Builders, Baby Boomers or Gen-X didn’t start out buying median priced properties as their first purchase either.
They bought what they could afford, in areas they could afford, and then traded up if and when they could afford it. And for a bit of perspective, many homes were bought in times when interest rates were as high as 18% p.a (unlike now where we can show you how to get a rate as low as 2.00%… Ask us how if you are paying more than this), the unemployment rate was at 11.0%, or during some major events like World Wars, Oil Crisis, Asian Currency Crisis, DotCom Crashes, GFC etc.
Let me be crystal clear – at no stage will we ever say that buying a home is easy. Not when my grandparents purchased their first home, not when my parents bought their first house, nor when I purchased my first property (I actually started by buying investment properties before even thinking about buying my first home), and not now. But that is the point. If it were easy then everybody would do it, and there would be no need for anyone to own an investment property.
And yes we know that the real house prices have most certainly disconnected from wages, rents and construction costs since the late 1980’s.
According to the 12th Annual Demographia International Housing Affordability Survey: 2016 Rating Middle-Income Housing Affordability “…the real culprit [of poor housing affordability in Australia], the real source of the problem, was the refusal of local and state governments and their land management agencies to provide an adequate and affordable supply of land for new housing stock to meet demand.”
Where are all the politicians now we are having a real discussion on housing affordability????
The only question you really need to ask yourself is do you think property prices are going to come down, or is it only going to get harder to get your foot on the property ladder in the future if you continue to wait?
Now, what I am going to say here is not meant to be offensive to those saving hard to get their foot on the property ladder, but please understand if you are trying to buy your first home, you probably will not be in a position to be buying a median-priced property. And certainly, that first property is unlikely to be found within the inner ring premium suburbs in an Australian major CBD. No more than likely, you will be buying a small unit or an outer area house. And yes that will mean you may have to make some sacrifices, (e.g. stay at home longer, buy an investment property first, give up your lattes, &/or accept something less than ideal) to be able to afford to live where you want and in what you want over time. So yes you might need to live in a 1 BR unit to start with or in a house that is not brand new and does not have all the bells and whistles that you might ultimately desire.
But as with all investment decisions (yes buying your own home is also an investment decision), it pays to have a strong education, a thorough plan, and a great team around you.
Anyhow, the whole reason I was inspired to write this email series was because of my recent travels through Asia. So back to that!
First off let’s be clear that whilst it might be the great Aussie dream to own your own home, home ownership rates vary greatly around the world.
For example, according to statistics, 96% of Romanians owned their own home (compared to approximately 67% in Australia) and a whopping 99% of them had no outstanding housing debt. Meanwhile, in Germany, only 53% of households are considered homeowners, and only about 50% of these homeowners do not have housing debt. In other words, the other 50% of homeowners had a mortgage.
It is challenging to find accurate home ownership data for Thailand or Indonesia, so for this article let’s focus on Singapore housing for the purposes of illustration.
First off Singapore has a much higher rate of homeownership than Australia at approximately 91% VS 67% respectively.
So What is An Average Property in Singapore Worth & What Does it Look Like?
First off we probably need to understand a little bit about Singapore and it’s history before we try and understand it’s property market.
Singapore is a small, heavily urbanised, island city-state with a total land area of just 719.1 square kilometres and a population of almost 5.7M people. To put some context onto this Tasmania is an island state of 68,401 km2 and a population of 516,900. Going even smaller, we see that the city of Hobart is 1696km2 but only has a population of roughly 217,973.
In other words, the city of Hobart is more than twice as large as Singapore but Singapore has 26 times more people living on it.
Modern Singapore was founded by Sir Stamford Raffles, who worked for the British East India Company. He realised that Singapore could be made into a useful port. Effectively The British East India Company was given Singapore in return for an annual payment in 1824.
The British established a new trading post at Singapore and it grew very rapidly. As well as Europeans, Malays, Chinese, Indians and Arabs came to live and work there. In 1867 Singapore became a Crown Colony ruled directly by the British government rather than the East India Company.
When the Suez canal was built in 1869 Singapore became even more important as a ‘gateway’ between Europe and eastern Asia.
By 1870 the population of Singapore had risen to 100,000. (remember it is now at 5.7M)
In the early 20th century Singapore continued to prosper. Huge amounts of rubber and tin from the region were exported from Singapore. Meanwhile, Chinese immigrants continued to arrive. Then in January 1942 the Japanese conquered Malaysia and on 15 February 1942 Singapore was forced to surrender to the Japanese.
However, Japan itself also surrendered Singapore in August 1945 and on 5 September 1945 the British re-occupied Singapore.
In 1963 Singapore joined with Malaysia. However, the union was short-lived. Singapore left in 1965 and became completely independent.
From 1965 to the 1990s Singapore enjoyed rapid population & economic growth.
By 1972, one-quarter of Singapore’s manufacturing firms were either foreign-owned or joint-venture companies, and both USA and Japan were major investors. As a result of Singapore’s steady political climate, favourable investment conditions, and the rapid expansion of the world economy from 1965 to 1973, the country’s Gross Domestic Product (GDP) experienced annual double-digit growth.
With the economic boom of the late 1960s and 1970s, new jobs were created in the private sector. This is where Singapore’s history gets interesting for me because the government then stepped up by providing subsidised housing, education, health services and public transportation generated new jobs in the public sector. The Central Provident Fund (CPP), the country’s comprehensive social security scheme (a bit like our Superannuation system) sustained by compulsory contributions by employer and employee, provided the necessary capital for government projects and financial security for the country’s workers in their old age.
In short, Singapore has basically 3 types of housing;
Public Housing, or HDB Housing.
Non-landed Private Housing (Basically more upmarket versions of the Public Housing largely condominiums, apartments & smaller walk-ups unit developments)
Landed Private Housing ( Landed Property is by many Singaporeans viewed as the housing equivalent of reaching the top tiers of the society’s social ladder).
Additionally, there are generally two types of tenure in Singapore: Ninety-nine-year leasehold and freehold with most new developments being leasehold properties.
I want to just talk about Public (HDB) Housing in Singapore for one moment.
In February 1960, the Housing and Development Board (HDB) was established to develop public housing and improve the quality of living environment for its residents. It’s first priority during formation was to build as many low-cost housing units as possible, and the Five-Year Building Programme(from 1960 to 1965) was introduced. The housing that was initially built was mostly meant for rental by the low-income group.
In 1964, the Home Ownership Scheme (HOS) was also introduced to help citizens to buy instead of renting their flats.
Four years later in 1968, the government decided to allow people to use their Central Provident Fund ( The CPP is equivalent to the Superannuation system here in Australia) savings as the down payment (deposit). Between 1960 and 1965, the HDB built 54,430 housing units. Due to land constraints, high-rise and high-density flats were chosen. By 1965, HDB was able to overcome the worst of the housing shortage by providing low-cost housing to the lower-income group within the planned period of five years. Can you Imagine any Australian Government doing so much for low-income housing so quickly?
Subsidised and regulated by the Housing and Development Boards (HDB), the flats were hugely popular and today more than 80% of Singaporeans live in public housing. Relatively cheaper housing does, of course, come with some strings attached, the most notable of which is that to be eligible for HDB property your household income cannot be above a certain threshold. The thresholds are about $6,000 p.a at the low end and up to $168,000 p.a for an Executive Condominium (EC).
HDB housing options range from 36 m2 Studio Apartments to up to 150m2 Executive Flats.
In addition, there is a public housing hybrid-like option called DBSS Flats. In the spirit of offering greater choice and wider variety to meet the housing aspirations of higher income flat buyers, HDB introduced the Design, Build and Sell Scheme in 2005. While put under review in 2011, a total of 13 DBSS sites were launched. The DBSS falls somewhere in between the larger HDB flats and an Executive Condominium. In terms of class, it caters to the segment of society that is affluent enough to buy or rent the better HDB flats, yet are not ready to make the jump into the private market space.
According to Savills Global Research, the property market in Singapore has cooled somewhat with the Average prices of private high-end, non-landed homes falling by a marginal 0.2% QoQ to SGD$24,105 per m2*. That compares to an average of less than AUD$10,000 per m2 for most well-appointed units in the capital cities of Australia.
So if you want to buy a new 2 bedroom private condominium of 130m2, for example, you are looking at around $3.13M in Singapore (compared to an equivalent unit in Australia of under $1.3M). How are you feeling about the affordability of Australian properties now?
And as an expat, if you want to rent in Singapore you had better be prepared to shell out a pretty penny too. According to www.numbeo.com, you will be paying approximately somewhere between AUD$2,000 and $3,000 per month for even a basic 1 BR unit.
And it’s not just houses…
Want to know how much things cost in Singapore then click here.
There are some things in Singapore that are just ridiculously expensive.
Take cars for example.
In Australia, you can pick up a Suzuki Swift for under $21,990 drive away.
The exact same car in Singapore will set you back closer to $100,000.
Or a BMW M4 which you can pick up here in Australia for around $165,000 will set you back over $400,000 in Singapore.
I won’t get into the specifics of why in this article but if you are interested in why cars are so expensive click here.
* FYI at the time of writing the AUD:SGD is near parity at 1.01.
So sorry if I hopped up on my soapbox there but I trust you are getting some value out of this series. Stay tuned for tomorrow’s article as we ask the question:
What Does Asia Think About Australia (and Australians)?… And should we care?
Matt has successfully transitioned from establishing and operating a string a successful health & wellness businesses, to being a full-time property investor & developer. Matt has been involved in the development of well over $100M worth of residential real estate. Matt is a sought after presenter and educator covering all areas of real estate & regularly wows audiences across Australasia with his knowledge and passion.
Matt’s Special Asia Feature:
Thursday 1 September: What Does Asia Think About Australia (and Australians)?
Friday 2 September: What Can We Do To Benefit From The “Asian Century”?