Jul 27, 2009

Population Demographics and the Property Market

Population demographics are often viewed as one of the most important fundamentals of the property market. The rationale is simple to understand. A growing population increases the demand for housing, and the younger the population, the better for property investors. This is because in the coming years, a relatively higher proportion of people can be expected to grow up, move out, start families and need their own homes.

However, all rules of thumb are only approximately correct. Various factors might eat away at their correctness. What factors might nibble down the "population demographics" property rule? Here are a few suggestions.

(1) An increasing average lifespan. The longer the average citizen lives, the longer the period of time he will require a home (thereby propping up the property market). Suppose for example that in the past the average citizen lived to age 65, but that in the future, the average citizen lives to 85. Then on average, he will contribute to housing demand for an additional 20 years.

(2) Decline of the extended family. In the past, it was very common to find extended families. For example, three or even four generations might share one roof. However, nowadays it is more common for young adults to move out upon getting married, and for their parents to live on their own. This leads directly to additional demand for housing.

(3) More singles living on their own. Nowadays, young people in Singapore may not even wait until they get married, before they move out. For the sake of privacy and independence, they may move out earlier, renting a place of their own if they cannot afford to buy one. This change in lifestyle norms would contribute to greater demand for housing.

(4) Low interest rates. If bank interest rates are perennially low, then more cash-rich individuals will be driven to park their cash in other assets, such as shares, bonds or property. Thus if you have an extra $500,000 to spare, then instead of putting it in a bank, you might well choose to use it to buy an additional apartment and rent it out (consider that DBS pays only 0.45% for a 12-month fixed deposit of $500,000).

(5) Increasing foreign ownership. If the laws of a country are favourable to foreign ownership of property, then foreign ownership of property will increase. The clearer and more transparent those laws are, the stronger that trend will be. Many of those foreigners don't even need to be living in that particular country. They are just high net-worth individuals who hunt around the world looking for places to park their cash.

(6) Divorce rates. According to Wikipedia, divorce rates in Singapore have doubled over the past decade. If this social trend persists and grows, in time we may expect to see, at any given time, a higher proportion of individual adults needing to rent or buy a new place, because they have just separated from their ex-spouse.


Anonymous said...

All points valid. Then it remains a question of supply to meet the demand. Once this has been achieved, it forms an equilibrium and prices won't run away. However the there is a uniqueness locally, it's called HDB. With HDB flats being the 'floor' and with its prices more or less 'fixed' and recently being priced higher and higher, it therefore supports higher property prices. Higher asset values are not bad on its own but seen as a country where there has to be a healthy affordabiity index (income vs price of a house), the current situation is only creating a much larger loan burden on the genuine home purchaser. This can lead to all eggs in a single asset when one retires and in an unfortunate turn of events, there's a calamity in the economy when the owner needs to convert that asset into cash, you can see the picture. Don't forget for citizens, the other parts of CPF is shadow money.
My 2 cents worth.

Anonymous said...

When property prices are high, more CPF is used up to buy it. If HDB flat prices, even new ones are high,it affects a lot of people as the majority will have to buy HDB. Hence majority will have a lot of their CPF used up on property.

That being the case, when the time come when they retire at 55 or at 62 (or 65) for monthly payback of minimum sum, they will have a lot less cash or even none to withdraw or payout.

So in this sense the Gahmen need not worry too much whether the CPF has enough money for people to withdraw or for payout. Much has been tied into property, espcially HDB which is also gahmen linked. Money paid for buying HDB flats end up also with gahmen. And the gahmen also set the floor price for HDB flats, which is also taking into account market to say there is "market subsidy" by pricing a bit lower.

So people may end up with just brick and mortar assets which they cannot eat or spend in their later years. And even if they downgrade, the cash realised may not be much or if at all.

So is high HDB prices desirable even if you are worth a lot on paper?

Anonymous said...

Actually Singapore is probably at the apex of the when it comes to the number of units available vs. population (1 million+ homes, vs. 5 million population)

What is left is the upgrading of the building standards.
Singaporeans are paying a high price for buildings that are merely a one layer paint job on bricks.
I guess this means that the HDB/govt will be able to use its current HDB profits for building HDBs up to modern standards for some time; thus keeping average price stable (I don't see the psf of 21st century HDB increasing, but that of the ones build on 60s standards decreasing).

Mr Wang Says So said...

"Actually Singapore is probably at the apex of the when it comes to the number of units available vs. population (1 million+ homes, vs. 5 million population)"

That assumes that Ah Ma, Gong Gong, Daddy, Mummy and Boy Boy (a family of five) all live under one roof (ie one home)

However, my post highlights trends whereby something like this might happen:

(1) Ah Ma and Gong Gong live in one home by themselves

(2) Daddy, Mummy and Boy Boy live in another home by themselves;

(3) Then after some years, Daddy and Mummy divorce and Daddy needs to go live in yet another home;

(4) Then Boy Boy gets his first paycheck and decides that he shall rent a place of his own

(5) Daddy has spare cash and invests some of it in yet another home, which he rents out to a foreign expat

Therefore in the end, the five people (Ah Ma, Gong Gong, Daddy, Mummy and Boy Boy) end up owning or renting an aggregate of five homes.

Anonymous said...

I hope those looking to do reverse mortgage read the case about the couple sueing NTUC on a botched reverse mortgage.. so mortgager beware !

Anonymous said...

Now Boy Boy would surely think - why should I buy a house when Ah Ma, Gong gong, Daddy & Mummy die I'll inherit quite a number of properties. No need to work so hard, my future is well taken care.

Anonymous said...

Out of the 5 million, 1 million are under work permit and do not have a lodging; removing the maids, these worker can be as many as 20 per home

Out of the 4 million left we have to remove 1 third who are dependent children (I will have to look at the mid 2008 census, to check this figure, because I just made it up)

Then we have to see

Anonymous said...

CPF is a ponzi scheme. You simply have new entrants sustaining the pool. One reason why pap is worried about so-called aging society.

Anonymous said...

I would think that the single most important factor is jobs. All other factors are secondary.

If there are plenty of jobs, there will be net inflow of immigrant workers, and residents will have sufficient cash to buy properties instead of staying with parents.

To have more jobs for everyone, the country has to be attractive to investors. If the cost of living is higher than competing cities, there will be an upside resistance on property prices, though sentiment can often drive up prices above sustainable long term average level.

Mr Wang Says So said...

Boy Boy has a long wait, because who knows, nowadays Gong Gong and Ah Ma might live to 70, or 80 or 85 or 90.

Mr Wang Says So said...

"CPF is a ponzi scheme. You simply have new entrants sustaining the pool."

The CPF isn't a ponzi scheme, or if you prefer, it is a more complex sort of ponzi scheme. Your CPF payout does not rely merely on your own or other entrants' CPF contributions. Ultimately it can be also be supported from taxes, you see.

Anonymous said...

"To have more jobs for everyone, the country has to be attractive to investors."

Use brain think harder please. Don't rely on mainstream media that make flawed pronouncements with logical leaps.
Even the PAP knows this model is not sustainable going forward, but of course they are not saying it.

Anti-Chronic Singapore said...

Mr Wang, I think you are quite right with your hypotheses but i you plot the data points, population increase is still the biggest driver. So is the stock market. With inflation and low interest rates, a lot of liquidity are in stocks and property.

I have been studying the property market for the last few years. Based on empirical data from past booms (check URA property indices for various types of properties), it seemed that when the mass market starts to move up, the property market would correct itself. The mass market is hot now and so I am expecting a correction in the coming months. H/w, I doubt it will not drop 50% or more like 1998.

Its quite common sense. For most buyers who are salaried, their pay cannot rise as fast as the price increase, thus can't afford the initial downpayment and loan approvals from banks.

Anyways, 50,000 to 60,000 dwelling units supply is very business as usual if you care to check URA figures. Demand exceeds supply still.

I ever wonder why HDB allowed flats to be rented out. I think it is largely because of demand (as supply cannot meet fast enough as it takes years to build)and it also allows many to get a return for their largest asset.

One more thing mny of us may drive around town and district 9, 10, 11 and 15 and see many developments and then assumes that everywhere else is developing. This is not completely true. The fact is there are not many developments in suburban Singapore and the heartlands.

What I know is landed property supply for freehold and 999 are fixed and if we plot the supply curve, it is a vertical straight line. Prices are down because it is not easy for foreigners to buy landed (except those 99 year tenure). If I were you, try to buy landed. So, Mr Wang, you made a good decision. :)

There are many data and statistics available for free on URA. Some data on ownership by Nationality can be available for a small fee on Singapore Land Authority website.

I don't agree to many of the Government policies. One example is allowing an influx of foreigners but I hope everyone could check the facts before going down the conspiracy theory route.

Anti-Chronic Singapore said...

Here are more interesting information, which I found on a Discussion forum:-

1) The top 20% of Singapore household earners (i.e. the type of people that usually buy condos) can easily afford the median condo (priced at about 5x earnings).

2) On top of that, Singapore continues to experience a net inflow of migration,

3) Lower transaction costs, lower income taxes, and no capital gains certainly add a significant premium to Singapore property compared to similar investments in the region, as well as Western countries such US, UK, Europe, and Australia.

4) Vacancy rates: Seems to be a reasonable rate and did not rise substantially.

5) Unemployment rate: Although it has risen, it is not as bad as Australia, the US, or Europe. Not even close. 3.2% last time I checked, but even the bearish forecasts indicated that it is unlikely to exceed 4.5% by mid 2010 assuming things stay bad everywhere else.

6) Rental Returns: Considering prime properties have declined 35-40% and rentals only 20-25%, that means that rental returns have INCREASED. It will take another 10-20% fall in rentals to return the yield equation to the same level it was during 2007

7) Sales/Rental Supply: Forecasted completions have dropped by almost 40% over the next 3 years compared to the numbers suggested in 2008. This is due to developers delaying construction so the market will better absorb supply.

8) Sales Demand: Sales Demand is INCREASING. Anything else in terms of predictive future demand is subjective, as there is still no basis in fact to argue that the current pick up is a short term surge or a sustained trend. All the analysts back-paddled and now calling a ‘BUY’ on property stocks based on almost the same data they had several weeks ago, when they called on a ‘SELL’/ In fact, it is more likely to be sustained considering the overall liquidity in the system over the next few years. Many of the demolished enbloc apartments are still far from being replenished. One example is Farrer Road HUDC apartments. Capitalland has yet to do any major construction.

9) Singapore GDP: I believe it is precisely because most people believe that the Singapore economy has passed its worst declines that they have been buying now. Many might disagree but most property investors would buy when it is BAD not AFTER it starts getting better.

11) Global Economic status: Singapore is faring a lot better than the rest of the world. You can look at the statistics, but the reality is GDP and trade are well above 2004 levels and it would take another 2-3 years of -10% growth to really feel the pinch or fully erase the gains of the last 5 years.
One could also argue that comparing Singapore in 2009 to Singapore in 1997 or even 2003, during SARS on a purely statistical basis is a little naive. After all, a country with a population of 2.8 million people is now close to 5 million people. Infrastructure and housing demand are fundamentally different. As a result, it is not likely that the market will react the same way.

Then again, for those who are interested, you could look at prices over the last 60 years (rather than just 15 years) in Singapore, you would see that every cycle's peak was higher than the prior peak and every trough was higher than the prior trough. This is likely a better indication of the development of the country and the long term relationships between GDP, population, and private property values.

alibabaa said...

There are many more factors that can be taken into consideration. For one that is pretty obvious I would say will be the changes in income with respect to inflationary rates and property prices.

If a person's income rises much faster than prices of houses, he would thus be willing AND able to demand for more.

Yes, most singles do have intentions on getting their own apartments and living apart from their parents.

However we can consider that without the actual monetary capability, all intentions on getting houses will come to a naught.

Hence, the changes in income could be another determinant, besides anything else about population.

Chiao said...

Your first factor, increasing lifespan, only affects demand through increasing the population, and hence is a double count of the population effect.

Mr Wang Says So said...


Well, my first factor actually addresses the part of the "population rule" which says that the younger the population the better. This part of the rule is mitigated if the older people keep living longer and longer.

Anonymous said...

@Mr Wang

We are more or less a tax heaven.
Cant raise taxes for the rich.
The poor are .. too poor to be taxed.

Middle Class ... money is tied up in *affordable median condo/HDB* property. most of 'em anyway.

Returns on investment from Temasek\GIC .. dun hold your breathe.

New entrants is and will be the main source of fresh funds.

Anonymous said...

@Anto-Chronic Singapore

Repeat to urself ... *starting price of* $1150psf for AMK Condo is affordable ...

Anonymous said...

Actually longer life expectancy may have a negative effect on property prices too. Just look at Japan.

Having a bigger proportion of people in retirement mode is a drain on the society. So govt has to tax more, which will lower GDP growth rate.

The retirees will likely sell off their prime properties and move to suburbs, which effectively closes the gap of prime and non-prime properties.

Anyway I don't foresee that our life expectancy will dramatically improve from here, unless there is medical breakthrough that slows aging significantly and really cures chronic illness, rather than simply prolonging life in misery.

Anonymous said...

All the PRs we gave out over the years, who have bought a HDB flat, and NOT staying in Singapore will contribute to this.

As long as we give out MORE SPR and allow the PR status to be FIFTEEN years in total, you will find many SPRs buying HDB to RENT OUT, go home when they CANNOT COMPETE IN SINGAPORE, and earn off our misery of EXPENSIVE LAND SPACE.

It also ensures that future Singaporean generations will find it so much HARDER to earn and OWN a home due to these UNCOMPETITIVE SPRs leeching off our efforts while enjoying their lives at home and never ever returning to contribute to SINGAPORE until end of PRship.

Anonymous said...

The retirees will likely sell off their prime properties and move to suburbs

Singapore got no suburbs.

Anti-Chronic Singapore said...

To Anonymous who said, "Repeat to urself ... *starting price of* $1150psf for AMK Condo is affordable"

Exactly my point, income is not rising fast enough and eventually some form of correction would take place. Anyways, I don't know which income band you are are talking about.

H/w, people are indeed buying and this is fact. We have to get used to this. Eventually prices will rise.... and based on past numbers, price floors are always higher than the previous trough and peaks.

According to Department of Statistics 2008 numbers, only 10% lives in condos and and 7% in landed properties. I doubt this is going to increase in the next few years since these properties should have enough just for top 20% of the population.

According to NUS study, "Income Inequality in Singapore," by Ishita Dhamani in 2007(its available on MAS web site), the top 11% of the population have household income of S$15,000 or higher. If you translate that to annual income, it is about S$180,000, so this 11% can still afford the condo housing stock that is still available at 5X their annual income of S$900,000 or higher.

Unfortunately, for those who managed to reach this threshold now, perhaps only AMK and other suburban are available. You could choose not to buy and the market would drop the price, if there are enough people who feel the same way as you.

If you care to search, there are still gems on the East Coast at that price of S$1150psf and they are freehold.

My guess is many who now just managed to reach that income level are beginning to panic and are now buying into these suburban developments. I observed at showflats that many are first-time buyers.

Its one thing to get angry when one miss the boat, but the other thing to find ways to get the income to get what you want. Should we also be angry with the authorities or whoever we feel are responsible when the stock market had gone up so much and we did not participate? Do you have the risk appetite? Did you do your homework and gain insights and then have the guts to make a decision?

I missed the boat myself as I lost my job during the financial crisis and only managed to find a job recently.

Its time to start looking around.

Anti-Chronic Singapore said...

One more thing. Prices of houses, even or HDB should always go up. Increasing prices are a good thing, especially for those who own either a HDB or private properties? Why?

This is because you get positive equity and is ONE way of earning returns for your retirement.

Let's use my parents as an example. They bought their first HDB 3-room in the early 70s for around S$8,000. (BTW, this flat now is worth more than S$200,000 from the most recent caveat lodged).

They sold it in 1989 for S$45,000 and bought and 5-room executive for S$127,000. Now this 5-room executive is worth more than S$500,000.

Now that they are retired, they could choose to move in with my siblings and me and rent out the house or they could sell the house and downgrade to a 3-room. In which case, they get a few hundred thousand dollars in the pocket and with their medical insurance well taken care of, some savings, investments and monthly pocket money from my siblings and me, they could have a comfortable life.

So, if you belong to those people who work so hard all their lives on their properties, I doubt you would want property prices to be too stable.

Like my father says, "Young people these days...." :)

Anonymous said...

Anti-Chronic, HDB prices went up almost 30%? over the last 10 years. Salaries of Singaporeans (take fresh grad as becnhmark) went up at most 3% over the same period. If this continues, 10 years later, you think our future generations can afford even a humble HDB?

If not, then who are you, the current "investor" going to sell your HDB to?

And, with the ever SHRINKING HDB flat size, you seriously think you can move in with your kids 10-20 years later? If not, you can't cash out the value of your "enhanced" property. So what use is it?

Sometimes, economics and maths don't actualize.

Simply because humans have more common sense than numbers, statistics and a straight line graph.

Anonymous said...

eh mr a chronic. do you have statistics how many of those private properties are owned by single person or single family. treat the immediate family (father-mother-kids) as 1 family unit.

once you see that number, you still think this price keep going up is going to benefit 90%? 50? or 1% of the population?

And what is one of gahmen's main role, especially in land scarce singapore? why we keep voting pap? affordability of survival and improve lifestyle. u think what you advocting is improve lif or make things worse?

Anti-Chronic Singapore said...

Hi Everyone, if this continues in the long-term, of course its bad. I believe it has to do with the structure of our economy and I hope things could improve

In the same NUS Study, there is also a big difference in median versus mean income in Singapore. If you check the numbers from Dept of Stats, we would see many people who are 45 and above have only primary education.

As our economy is compelled to restructure, many people of this age group who are lowly skilled have to lose their jobs or take less pay. This is bad as there isn't really much the Government is doing for them in my view. I sometimes feel that all the skills upgrading etc are simply insufficient and this segment is slowly being written off.

Statistics also pointed out that those earning $10,000 and above are also increasing in 2007. Many are younger and in line with the number of graduates or skilled workers we are producing.

So, there is hope for the younger generation, which are better skilled to take up jobs in the new economy.

In the mean time, due to the shortage of skill-sets in some industries (e.g. pharmaceutical and fund-management), foreign talents are required. They are also required here by Government to increase the population and there is simply no way we, Singaporeans are reproducing ourselves. However, the speed of them coming here is something I do not agree. Too many, too fast.

I do hope the Government could do more for those 45 and above who do not have much education. In the past, there were factories but these are gone. Frankly, I do not have an answer to these issues. Perhaps, Government could use some of the returns generated from our reserves to help the aged?

BTW, I am not advocating anything. I do not have statisitcs on how many singles own private properties. H/w, I do observe that many foreign talents who come to become PRs in Singapore and they come with their families. Many units sold developed and sold are at 2 to 3 bed-room.

Price increase is good but it cannot be acute. Otherwise, it becomes a bubble. In any society, not everyone can benefit from assets increase, etc. Even for stock market, how many people do you think could participate?

In my parents' case who bought only HDB flats their entire life, they benefited.

You may also noticed that Government policies are not geared towards helping singles (e.g. HDB flats application). After all, they want us to be married and start producing so why channel resources to help singles?

Having said that, Singles can participate to purchase HDB in sub-sale market after the age of 35.

Many of my peers including myself who are in our 30s can afford to buy a condo/ studio apartments for ourselves and I increasingly see more of such people.

If not, their parents may eventually give them their HDB flat when they pass on. Singapore got no estate duty now.
Can u imagine how much wealth at the macro level could be passed on to the next generation?

All of you could agree to disagree. However, this is how I see it. I have lived in Australia and the US and things are not as rosy.

If you live in a big city like NY or Chicago or Sydney, apartments quality are generally not as good as ours and they are old!

So sometimes I feel that the policies of revising plot ratios by URA as a way to motivate the renewing of properties and our city skyline.

Anti-Chronic Singapore said...

Fresh graduate starting pay...

Where did you get the number that the increase is 3%?

Let's take a fresh grad who started his career in mid 90s. Starting pay was between $1600 to $2000.

Now I believe it is at least S$2400. Do the maths. Its not 3%.

Anti-Chronic Singapore said...

Who knows what things would be like 20 to 30 years down the road? And how flats are getting smaller. Tell them to someone from HK.

In Singapore, I only hear MM Lee always talking about that long into the future and if you care to read his National speeches in the 80s, he got it wrong all the time.

As I have said before, it is important to adapt. And if things don't work out here, consider ourselves global citizens. I know of someone who retired in Yunnan.

Of course, he grumbled about the infrastructure there, no char kway teow, etc. But when he is in his 60s, he care about a quiet life and in proximity to good medical care if he needs it.

So, who knows, when it comes, we adapt and deal with it.

Anti-chronic Singapore said...

For the bachelors and bachelorettes hoping to have your own pad, you could rent.

If you have lived overseas, many fresh graduates would leave the hometown and settle in big cities and they rent for a start as they embarked on their chosen careers.

A fresh MBA graduate in the US would command about USD70,000 to USD100,000 per annum. He/ She pays close to 40% tax (both federal and state)if working in NY and on top of that, about 10% GST. Rental for a small apartment is a few thousand per month. They worked hard, hoping for a big bonus at the end of the year and promotions prospects. If you live further away in New Jersey, its at least an hour or more commute everyday to work door-to-door. Its a similar case in London and city parking charges are outrageous. At some places, USD10 per hour.

So, if you are comparing affordability and more money in the pocket, it seems that Singapore is better off.

It also depends on your lifestyle. Many fresh grads I observed like to go clubbing, fine-dining and live like no tomorrow. For $2400, not difficult to save at least S$500 per month. But many would used the savings on trips overseas at end of year, or that Prada/ LV bag. I also wonder how many give their parents allowance.

So, what is enough? Really depends on what you choose.

SP said...

As a larger group of the population gets older (65) by 2030 and onwards, what are your views on the long term property prices in Singapore? I would think there might be downward pressures since a larger chunk of our wealth is in property. There must be some people who wish to 'liquidate' their assets for retirement purposes.....your views?

Anonymous said...

Anti-chronic Singapore:

some of your posts are too long, and I may not agree with some of the posts.

However, to your credit, you have provided suggestions to individual on how to adept and improve things. Thank you.

Anti-Chronic Singapore said...

Hi SP,

I guess that is why property prices should continue to go up and ideally at a gradual pace.

For so long down the road, its hard to say. It really depends on the economy. As long as we are still relevant and foreigners love to come here, like they love to go HK, (although needs of those who love to come here and those who love HK are somewhat different) I think we should do OK.

Many years ago, people think we would be basket-case and I know many pilots at that time chose to go and work for Malaysian Airlines. At the end of day, pilots that stayed in SIA are much better off.

Therefore, its hard to tell so long into the future. For all we know, Lake Toba could erupt and we would all be wiped out.

I subscribed to the theory of Power Law. 1 extraordinary event make or break something.

Go read MM's national day rally speeches from archives in NLB, etc... (BTW, you would realize that 2 national day rally speeches are missing too. Only available on MM's permission. Incredible. )

More importantly, we must have skills that would enable us to work anywhere in the world. And stay healthy (read my site for free information).

Anonymous said...

Tell them to someone from HK.

HK Chief exec does not get paid $1 million a year. Their scholar directors and senior public servants don't get so much pay until can whole family go Paris to learn cooking for 5 weeks.

Anti-Chronic Singapore said...

Hi SP,

Since we all need a place to live, buying a property as an investment allows you roof over your head in your asset. Something that stocks and funds cannot do. And there is the power of leverage (borrowing). Of course, there is risk but think of it as a place to stay and don't overstretch yourself.


Let's learn not to be bitter. Do u think telling them would make any difference?

Think harder and you will realize that there is nothing one could do but cast your vote wisely in the next election. If you feel that strongly, why don't you join a political party?

Instead of being bitter, etc., why not channel your energy into finding ways to better your life, earn more money, etc.

Life is never fair and as long as the city is well-run, clean, efficient, etc., I wouldn't bother too much because it is way beyond our control.

If you were the one with the million dollar salary, would you complain? Or if you are now invested in a good property, would you feel that prices should be controlled?

All things in life need the right opportunities and timing.

I grew up in a subsistence farm in Lim Chu Kang before moving into a 1room flat in Toa Payoh when I was older. My parents subsequently bought a 3-room flat. I can tell you that things are a lot better of in Singapore, material wise.

There are always new problems.

Think of ways to better your own life for now. Its better and more productive. I used my time to study and understand the property market, learn about health and fitness.

Study hard and develop problem-solving skills.

Ignorance is temporary but watching opportunities pass you by are forever.