On Housing: Asset Enhancement is an Illusion

The topic of property prices and their impact on both the young and society at large has been talked about recently ('Perils of asset enhancement for younger Singaporeans', 'Perils of asset enhancement for younger Singaporeans', ST Forum Apr 18). I'd like to weigh in on this matter.

A quick calculation in Excel based gives the estimate that a dual-income household with husband and wife beginning with somewhat above the median income ($3000, to simulate the time taken to build up 10% of the home value) would take about 10 years to fully own a $300,000 HDB flat. This is based on a 3% annual salary increment, their use of 30% of their take-home pay to service their loan, and an interest rate of 2.5% (based on POSB Home Ideal). Ten years is a long time. Furthermore, if the trend of property prices rising faster than incomes continues, repayment periods will get even longer. This points to a trend of increasing financial hardship, with families having less of their take-home pay available to them for longer periods.

Furthermore, assuming that a home is a necessity to a family, the family's assets are not really appreciating as other home prices are rising in tandem. Only when the family acquires a second home can it be truly said that their assets are appreciating in value. For those who do not yet own property, "asset enhancement" is a form of inflation -- the vaunted "taxation without legislation" which "greases the wheels of the labour market"; for those who own a single apartment/house, "asset enhancement" matters little; for those who own more than one apartment/house, "asset enhancement" is truly asset enhancement. With this laid out, "asset enhancement" is structurally similar to a regressive tax, which is contrary to the stated intention behind it.