I was chatting in a pub yesterday with a bunch of German colleagues while in Munich, and the topic came up about mortgages. We were gossiping about another colleague of ours who has a large property and expensive living standards (not the vice kind) in Seattle, and it befell one of the guys at the table to remark that they would never love to live as dangerously as that.
That being an interesting comment, I obviously asked what she meant. And she said that in Germany, she could pay off her mortgage without really thinking about it, even if she had lost her job. She felt that it was a dangerous way of living to have a mortgage that was so high to upkeep, that you have to keep on working and be more and more ambitious (ie. aim for compensation increases, promotions etc.) just to support the way you live.
Today again, over lunch, we were chatting about the costs of having a wedding, and I shocked the table with the estimate that it would cost on average around £150-£300 per head, I mean table, [Ed: I think the more discerning readers would have picked this up already] for a wedding dinner in Singapore. And that 120 guests at a wedding was pretty small in Singapore standards, and pretty huge in Europe.
Cultural diversities aside, it did make me think that in comparison to Europe, it is a fallacy in Singapore that prices are low, things are cheap and living is easy. And vice versa in contrast, with the British pound at an approximate 1 to 3 conversion rate, and the Euro at 1 to 2, prices are exhorbitant, costs are prohibitive and you live like plebes in Europe.
I suppose it all boils down to the basket of goods we're talking about here. What do we compare our prices against? A can of Coke? A pint of beer? A glass of wine, or a house, a car, a wedding? It honestly shocked me that one could live, work, and be able to have a mortgage on a place to live that doesn't cost the earth or your whole lifetime to repay.
Let's say the average price of an apartment or HDB flat in Singapore is about $450,000. For a two income household earning averagely $3,000 per month or $36,000 a year, on standard interest rates, it would take about 58 years to repay the mortgage if it is 20% of income, 39 years if it's 30%, 29 at 40% and 23 years if it's 50% of income. No wonder average loan terms are 25 years or so, which implies that most people's housing costs take about half their monthly salaries. And that's not counting the CPF of 20% which goes towards it monthly and contributes to a house.
At those terms that I'm used to, how was it imaginable that one's mortgage could be a mere nothing that one could afford to repay without a thought if one suddenly lost a job? With about half of income paying towards the bricks and windows and roofs over our heads, losing a job is not an option in Singapore.
Sure, the hawker food, clothes, and other superficials are cheaper and more readily available in Singapore. But when it comes down to the basics, the house, the car, the doctor's fees and job security, the costs of living start stacking up higher in Singapore. Perhaps we are surrounded by these things we take for granted each day that they start turning invisible - we assume we'll always have a job (because the government says the unemployment rate is low), we assume we'll always have a place to stay (because HDB flats are subsidized), we take public transport (because tickets are cheaper than in Europe).
But we work 10 hour work days and Saturdays to stay ahead. We stay in, eat out, try to keep healthy. Essentially we try to make up for the basics by filling as much superficials as possible. I guess at the end of the day, the cost of living doesn't depend so much on where you are, but what you value, what your basket of goods are. What you want depend on what you value. Apparently, what you pay for depends on what you value, but I think part of that goes the other way round as well.
I believe we can condition ourselves to think that we must pay high prices for certain things which other cultures have the luxury of taking for granted. We pay high prices to live in that little island we call home - they pay high prices to take holidays to go to that little island we cram high prices on.
1 comment:
It was an interesting article that you have written and certainly touch me quite a bit, for many reasons. I have been to Munich, I lived in Singapore and that, once upon a time, I also have a mortgage. Let me just tell my side of the story that “outsiders” don’t know. I must admit that I may also be guilty,l if I comment on others and so I am making it clear that you are not wrong in any approach, just that we all live in our little comfortable cocoon.
In Singapore, you will find plenty of people that lives dangerously like your friend in Seattle. Two facets comes into my mind. One is the car and the other is the ownership of real estate, be it government subsidized apartments or condominium. Let me start with cars. Well, it is relatively expensive to own a car per se, but then, do note that any adult can walk into a car showroom and drive a brand new car away, literally, without paying a single cent. Let me qualify my statement, lest you disregard all the other words that follows. The car salesmen, would have known that you are employed in some reasonable and stable job, which probably is true for 90% of the working population and that the monthly repayment won’t eat up, anything more than 20% of your salary.
The consequence will come after the purchase of the car. The repayment may be as long as 10 years, but usually it is at 7 years and the interest may be at 7% or more. The reality, is that the car repossession is busy all years long. You see, many people don’t make repayment for whatever reason and so lose the car, eventually. Is it living dangerously, since, public transportation, is almost as good as in Munich, which you have the U-Bahn and S-Bahn and all the in between. So, living dangerously, happens everywhere and maybe, it is much easier in Germany.
Mortgage is another area that the people are in trouble. Flip any newspapers and you will have the banks acutioning the properties. There is also a novel way to cheat money in this sector. Say, you have a clean credit, not a bankrupt and wanted to have 50 thousands dollars in your pocket within three months. You just have to buy a property and tell the seller to hike the price by 50 thousands and “presto”, you have in your pocket that sum of money, because, you have a verbal agreement with the seller to pass back the money. Of course, in all probabilities, the buyer will be made a bankrupt, as he has no intention of actually owning the property. Is this also living dangerously. BTW, the government has got wind of this modus operandi and the nonsense stopped. Interest rate for mortgage is less than 5% for residential properties in Singapore.
Cost of a wedding table in Singapore at a hotel is about S$ 400-00 and 90% of the married couple actually make money, when they hold a wedding. Let me go through with you some simple arithmetic. A table seats ten person and cost per person, is actually S$ 40-00. Assuming that you have a small wedding and it is for 60 tables. Generally, everyone that attends a wedding dinner pays in excess of S$120-00. Technically, you will earn S$ 800-00 per table and if you have 60 tables, you get S$ 48,000-00. Not bad isn’t it, since, the bridal suite, the car and a host of freebies will be provided by the hotel. Other expenditure is almost zero. As an exchange rate comparison, one US dollar = 1.55 Singapore dollar. As for the number of guests, it varies, but generally it can be large, simply, because, in addition to the friends of the married couple, the friends and relatives of the parents of the married couple would also attend.
HDB flat in Singapore don’t cost S$ 450,000-00. It cost about S$ 200,000-00 or less. Young people combined contribution to a compulsort saving scheme is at 40% and if the combine salary is S$30,000( lower end jobs ), then they are saving at least S$156,000-00 per year. So, I don’t see any problem of an average person buying a HDB. Certainly nobody takes 58 years to pay up a HDB flat, unless you abuse yourself along the way, which you cannot blame anybody.
I do not know, where you pluck the number of S$450,000-00 for a HDB flat. It is probably a secondary market price. In saying so, then, ask yourself, the buyer must have a previous house, which he had sold and what happened to that money. Note that all frst time buyer can buy subsidized HDB flat. Just check with the website http://www.hdb.gov.sg/
The problems that you have in Singapore is similar to that elsewhere in the world and like you say, it all depends on one key word – expectation. The world, is getting smaller, thanks to the Internet and people don’t believe in hardwork and saving. Everything, must be instanteous and of course, if that is not achieved, stuffs like cheating, prostitution, robbery and other social will creep in.
In all, Singapore, is cheap, in term of the cost of living. I have travelled around and just take the price of a hambuger, and you will have a comparison. If a person, don't abuse himself, through indulgence, there is no reason, that he or she will not succeed.
Cheers
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