If you have been following my recent posts you’d be wondering why I’ve been reporting mostly downbeat news on the Singapore property market over the last few months. The fact is there is no running away from the storm the market is facing. And sad to say we can’t seem to shake off more bad news.
This time it is about interest rates. Although this has been on everyone’s radar for a while, pressure has just nudged up for some serious rate hikes this year.
We had been enjoying low rates for the last 6 years as you can see from the chart below. With a recovering and growing economy the rock bottom rates fueled the boom in property prices from 2009.
In the thick of currency wars happening around the world, the Monetary Authority of Singapore (MAS) in a surprise monetary policy announcement last week said that it will let the Singapore dollar appreciate at a slower pace. This weakened the SingDollar substantially and caused the 3-month Singapore Interbank Offered Rate (SIBOR) to surge. Notice the up-tick at the right of the chart. The US Federal Reserve is also poised to raise rates in the middle of the year as their economy showed signs of further improvement.
This puts the final nail in the coffin for housing loan rates to go up in the not too distant future. And from past experience, when interest rates start to rise it will do so relentlessly for a substantial period of time.
The SIBOR rate is used by Singapore banks as a reference interest rate for funds they lend to other financial institutions and it also determines the interest rate of housing loans.
This certainly does not bode well for those saddled with huge loans. Property prices may even see an accelerated decline if rates become more volatile.
Buying a property is a long term investment and you should make sure that you are able to weather all storms over the course of the loan tenure. Also do not assume that you will always be able to sell your property at a profit. So on the advice of more prudence, do your sums carefully before investing in a property. For your monthly installment payments do take into account a higher interest rate than what is being offered by the bank currently. I suggest an interest rate calculation of at least 4% to 6% for a comfortable buffer.