The interest rate impact may be more keenly felt when rates move above 3.5 per cent, the interest rate used for the TDSR calculation. Buyers’ housing affordability may also be affected when the TDSR computation is revised. When interest rates inch towards 3.5 per cent, the TDSR computation may be tightened, which will adversely impact the purchasing power of all borrowers.
For instance, if the TDSR calculation uses a 4% interest rate, the maximum loan for borrowers with a $10,000 household income on a 30-year loan tenure will be reduced from $1.23 million to $1.15 million. Therefore, a buyer can purchase a property only up to a value of $1.53 million instead of $1.63 million without an additional cash outlay.
If the rates are revised to 4.5 per cent, the maximum loan quantum will drop to $1.09 million, and the maximum purchase price will be $1.45 million. Therefore, with lower borrowing power, buyers will have to settle for a smaller unit or incur greater cash outlay if the TDSR is tightened.
Which in turn will reduce the property prices of Singapore over time due to lesser people being able to afford pricier properties.
But won’t this affect the potential gains of property as an investment?That’s where the next factor comes in to add security and boost the growth for the real estate market in Singapore.
Interest in setting up family offices in Singapore has soared in recent years, driven by increasing global uncertainty and geopolitical risks. Thanks to Singapore’s reputation as a safe haven for wealth and attractive tax incentives.
The number of family offices here jumped fivefold between 2017 and 2019, and almost doubled from 400 at the end of 2020 to 700 a year later. A small family office costs anywhere from $1 million up to $2 million to operate annually to very large family offices with an operating budget of $14 million to $20 million.
So why is this important?
It’s because family offices tend to do impact investing which includes investing into real estate in Singapore. This ensures that the Singapore property market is stable and secure because of the large amount of capital. About 44 percent of all family offices respondents reported that over 25 percent of their portfolio was assigned to direct investments. This will increase the incentive of investing in property in Singapore as it is secure and has a high chance of appreciating.
But I’m sure you’re thinking “won’t that mean property prices will stay high?” Luckily, the next factor may have a big impact on the supply of the property industry for years to come, reducing the price of real estate.
