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[h=2]Hand-wringing over sky-high prices[/h]
September 24th, 2012 |
Author: Ng Kok Lim
With reference to Straits Times’s 6th 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].
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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].
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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.
.
Ng Kok Lim
.
[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 $444,000.
With reference to Straits Times’s 6th Sept 2012 report “Hand-wringing over sky-high prices”.
It was reported that the average price of a 600 square feet (55.7 square metres) apartment in Hong Kong is HK$ 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% |
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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 |
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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.
.
Ng Kok Lim
.
[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.
