Chart of the Day: Singaporeans’ tight wallets have shrunk new homes in size by almost 50%

It’s a huge trade-off.

In recent years, the government has introduced a slew of residential property cooling measures to curb escalating prices, restrain speculative activities and encourage prudent investments. Among these measures, the TDSR framework, which was implemented in June 2013, has proven to be the most impactful. The total number of new units sold in the period of H2 2013 - H1 2014 has nearly halved to 9,407 units, from 20,219 units in H2 2012 - H1 2013.

According to a report by CBRE, the majority of buyers in the new sale market continue to adhere to the threshold of $1.25 million, largely because of their constrained finances. According to SingStat, the median monthly household income from employment (per person) stood at $3,862 in 2013.

At this median income, a household of two working adults between 30 and 45 years old, with a monthly saving of 15% of their income, would take four to five years to accumulate $50,000 for housing, equivalent to the 5% cash down payment for a $1.00 mil new sale unit. Looking at the addresses of buyers of new sale units with price tags below $1.25 mil, it was observed that since 2008 about 50% -70% of them were HDB occupiers.

Here's more from CBRE:

These buyers could be HDB upgraders or singles and new couples looking for their first homes. However, should housing cost rises above$1.25 mil, they would be priced out of the market.

In order to meet this threshold and still remain profitable, developers reduced the size of units for sale. The median size of new sale units has shrunk from 1,270 sf in 2007 to 743 sf in H1 2014, reflecting a 41.5% decrease.
In other words, as buyers’ affordability maintains, a pattern of adaptability has emerged. 

Developers adapt by producing homes of smaller formats; while buyers adapt by making a trade-off between size and total quantum. Going forward, unless there is a shift in land prices and constructions costs, smaller homes will continue to be a preferred choice for both developers and home buyers.