Sunday, September 23, 2012

Taken from the Factually website

Published Date: 28 August, 2012
Home Price-Income ratio (HPI) – a figure of four for example, would indicate that the property being purchased is priced at four times the buyer’s current income. However, this is not the best yardstick of affordability, and HDB uses other more comprehensive measures. But we will consider HPI here since it has been cited by many, with numbers higher than warranted by the facts.

There are a lot of factors that contribute to the price you pay for your BTO flat, from the location of your BTO flat, to the size of your desired unit and even where in the spectrum your annual household income falls. All of these contribute in some way, but it is important to remember that BTO flats are priced across a fairly broad range, making it possible for lower income earners to reasonably afford a BTO flat as well.

Let’s take a look at a possible scenario. A Singaporean couple are looking to apply for a BTO flat. They are both working and drawing an assumed constant combined monthly salary of S$7040, which was the median household income for 2011. Assuming that the couple gets a basic salary package (i.e. 12 months’ basic pay), that brings household income to $84,480 for this couple.

So depending on the location and the size of flat that the couple chooses, their chosen BTO flat would cost anywhere between two to five times their annual income (see the table below for some examples), which is a fairly reasonable price for a house that will serve them well for many years. 

(Prices of BTO flats were taken from July 2012’s figures.)

Buying a house together marks the beginning of a new life together with your loved ones.  It is also a long term commitment.  As other needs and commitments may come along later on, couples are always encouraged to be prudent and to buy a home that they is within their means and which they will feel most comfortable paying for. 

Seems like the Singaporean couple chosen for the example are both graduates. But not all Singaporean couples are graduates. Would the chart still hold true for non graduates couples?

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