housing rental mortgage cost in Singapore
Yes, housing here is expensive, but how does it really compare to other places?

2. Housing: Housing (both renting and owning) is definitely cheaper in the vast majority of places in the US when compared to Singapore, but to get a more even comparison, we have to limit our scope to major metropolitan cities in the US, particularly those with limited land mass, such as New York City, Los Angeles, and San Francisco. In these places, current rental prices and monthly mortgage payments are actually quite comparable to Singapore. The lifestyle in these places are also similar, with more residents living in flats, instead of in landed property, and many flats offering additional amenities (e.g., pools, playgrounds, gyms, etc.). However, as with the previous post on the subject of food, it’s difficult to make a direct comparison without mentioning the various tradeoffs and the difference between public and private housing.

Note: This is a continuation of a previous post, which can be found here. All future references to the US will specifically refer to SF or LA, both of which I have personally lived in.

First, let talk tradeoffs. A home is not just a home. As any real estate agent will tell you, it’s location, location, location. Generally, the closer you are to a CBD or train station (or other major attraction or amenity), the more expensive your housing is going to be. In the US, you have the luxury of less expensive housing that’s further away in the suburbs, but you might have to deal with very long commute times. When I lived in a Bay Area suburb, it was not unusual for my neighbors to have a one- to two-hour long commute if they were unable to make use of the public transport services there. Public transport in the US is not nearly as expansive nor complete as it is here, where nearly all places are accessible via public transport alone. Hence, convenience is a significant tradeoff.

Another factor that may drive home prices down in certain areas in the US is the proximity to an “undesirable” area. An example of such a place is a Superfund site. Though it sounds like a good thing, this is actually a site that has been contaminated with hazardous substances. For example, my secondary school was located next to a landfill, and I remember having a classroom be temporarily relocated because of a “breach”. Another example of an undesirable area is an area with high crime and gang activity. When I lived in the Central Valley, housing was extremely cheap (you can easily buy a landed property at less than US$100 per sqft), but the area in which I lived was a bit shady. It wasn’t that unusual to see gangs, prostitutes, hobos, and drug users, and occasionally you might hear gun shots. There were certainly nicer and safer places in California, but the cost of housing would go up proportionally. Sure, you can say that Singapore has some problems too, but the magnitude and frequency of the problems doesn’t typically cause one to fear walking alone on the streets at night. Safety, therefore, is another major tradeoff.

With that said, I will admit that I miss having a yard and a garage, both of which are quite common to have, even in big cities in the US since land is not as scarce there. But what I don’t miss is waking up to every little noise because of my fear of getting robbed. Prior to leaving the States, one of my childhood friends, who was attending medical school, was robbed at gunpoint. Though these incidences may not happen that frequently, the fear is always present and it can be maddening.

Public housing: Having grown up in the States, the words “public housing” conjures up images of poor minorities living in dilapidated buildings. In the US, public housing is provided for very low-income families with rent calculated on a needs-based formula. Although living conditions have likely gotten better since when I was a child, there are probably still a whole host of disadvantages and issues with living in such places. In Singapore, however, public housing doesn’t have such a bad connotation. The vast majority of people (over 80%) live in public housing, and these buildings are not dilapidated or substandard. In fact, many of them are quite impressive. It’s the opposite case in the US, where the vast majority of the population lives in private housing. Because public housing means completely different things in these two places, you really can’t make direct comparisons.

Private housing: If you compare the cost of private housing in Singapore to housing in SF and LA (as LA is quite large and diverse, we need to narrow it down further to the Westside region), as mentioned earlier, the prices for rent and mortgage payments are quite comparable. However, in the US, you have much more in the way of choices. If you choose to live further away, or in a less desirable area, or in an older home and neighborhood, you will pay significantly less. In Singapore, the price differences are not so great. There are many suburbs in the US, but very few (true) suburbs in Singapore. Because of the choices you have in the US, there are more affordable housing options. (verdict: US wins in terms of choices)

Mortgage interest rates: This is one thing most people fail to mention when making a cost of living comparison. Most people who own their home have a 30-year mortgage. Currently mortgage interest rates in Singapore are very low, typically between 1% and 2% for 30-year mortgages; in the US, rates are somewhere between 4% and 7%. However, this small increase makes a huge difference. For a $500,000 loan on a 30-year mortgage, a 1.5% interest rate results in a monthly payment of $1720 whereas a 5% interest rate gives you a monthly payment of $2670 (a 55% increase). If interest rates remain low, then a S$1 million home in Singapore at 1.5% results in the same monthly payment as a S$644,000 (US$800,000) home in the US at 5%. However, one needs to be cautious when making this comparison because historical rates in Singapore are higher than 1.5%, and 30-year mortgages here typically have adjustable rates unlike the US where they are fixed. (verdict: Singapore wins)

One final caveat: The last thing to consider is that real estate is cyclical, and one location may seem to be much cheaper because it is at a different place in the cycle than another. During the US housing boom, many people were priced out of the market. Year after year there was speculative appreciation, often in the double digits, from the late 1990s until about 2006. The US market then headed for a major correction in 2007. Prices dropped precipitously and remained low for several years. Some places in the US are still at their lows. Currently, Singapore’s market is very heated and some would even say is near the top of the cycle, just like the US was in 2006. If you are comparing today’s heated market to the heated US market in 2006, you’d find a lot more similarities. The same is true if you compare the cost of Singapore’s housing a decade ago to the current US market. (verdict: tied)

I’ll be addressing transportation in my next post.

Leave a Reply