The World Can Barely Keep Up With Rising Interest Rates

TimSgProperty

INVESTING

The world can barely keep up with rising interest rates. Yet Singapore is still keeping strong.

Around the world, buyers are pulling back as central banks raise interest rates sending house prices falling. Yet Singapore is still a good place to invest. Here’s why.

Scroll Down

BY TIMOTHY TAN

20.10.2022

Millions of people who borrowed cheaply to purchase homes during the pandemic face higher payments as loans reset. The rapid cooldown in real estate — a leading source of household wealth — threatens to worsen a global economic downturn.

Higher real estate financing costs hit economies in multiple ways. Households with loans tighten their belts, while rising mortgage payments discourage would-be buyers from entering the market, dragging on property prices and development. Many people who paid record prices face loans due to reset higher just as soaring inflation and a potential recession hit— Meaning that people might not be able to keep up with their loans as interest rates shoot up.

In New Zealand, for instance, about 55% of the outstanding value of residential mortgages is either on a floating rate or on a fixed rate that needs to be renewed in the year to July 2023. In New Zealand prices rose close to 30% in 2021 alone, caused by the pandemic housing boom. Thus the central bank has hiked interest rates seven times in the past 10 months, and house prices were down 11% in July from the peak in November last year to slow down inflation.

People with multiple properties, unstable income or single income owners will be the most affected.

According to the Real Estate Institute of New Zealand. Economists predict they may eventually drop as much as 20%. New Zealand, like most developed world economies, is weathering the housing slowdown so far.

Household balance sheets and savings are strong, labor markets are thriving and lending standards have tightened since the mid-2000s boom that sparked the financial crisis— meaning a cascade of defaults is unlikely.

In some countries, governments have already stepped in to help struggling consumers facing rapidly escalating repayments.

In South Korea — one of the first Asia-Pacific economies to start hiking rates — policymakers agreed to outlay more than 400 billion won ($290 million) in funds to help reduce the share of households on variable-rate mortgages.

However in Australia, where home prices in August recorded their largest monthly decline in almost four decades. Cashed-up households have so far shown resilience to rising interest rates, a pinch point will come next year, with billions in mortgage loans fixed at record-low interest rates coming up for refinancing. For now Australians are keeping up with rising interest rates however they might not be able to too with rising costs of living as well as falling housing prices.

So How Does The Singapore Real Estate Industry Fair In The Economy Right Now?

Believe it or not the Singapore Real Estate Industry is doing relatively well compared to other countries.

Year on year, condo rents have surged 27.5 percent from August last year, with the rents in the suburbs up 28.2 per cent. HDB rents are 21.6 percent higher compared with August last year, with 5 room flats notching a 22.9 percent jump.

This shows that the rent market in Singapore is thriving and is expected to grow even further. But why? Why are other countries struggling but Singapore is thriving?

It may be due to the relaxation of borders between Singapore and other countries, the resumption of work in offices, and more foreigners moving closer to the city as they shop for a more permanent home.

Compared to the previous year when work from home was common, and a major demand shifted towards suburban homes due to lower rental expenses.

However it’s not all sunshine and rainbows for Singapore either.

The number of private property transactions in the first 6 months of 2022 has slowed after cooling measures in December last year. 13,311 between January and June this year which is one third of the 34,433 units sold in the whole of last year.

Fall in demand can be attributed to raised additional buyer stamp duty (ABSD) for foreigners buying any residential property from 20 to 30 percent. ABSD rates were also raised from 12 percent to 17 percent for citizens buying their second residential property, and 15 to 25 percent for those buying their third and subsequent properties.

In the first half of this year, Singaporeans accounted for 80.2 percent of the transactions, a slight decrease from the 82.7 percent for the whole of last year. Shockingly even with the cooling measures implemented in December. The proportion of permanent residents (PR) who bought property increased from 13.7 percent in the whole of last year to 16 percent in the first 6 months of this year, while that of foreigners increased from 3 to 3.3 percent.

Guocoland has sold 508 units – or 84 per cent – of its Lentor Modern project’s 605 units over 2 days during its launch weekend at prices ranging from S$1,856 to S$2,538 per square foot (psf).

This shocking result can be due to the US rising interest rates.

How US Rising Interest Rates Affect Singapore.

I’m sure you’re wondering “if the US is rising interest rates shouldnt demand decrease?”

The Sing dollar has held relatively well against the persistent gains the US dollar has made this year, suffering a loss of about 3.2 percent vs the US dollar so far.

In comparison, the Japanese Yen dropped by about 22 percent versus the US dollar in the year to date, the South Korean Won has lost about 14 per cent, and the Taiwan dollar lost about 11 percent. Malaysia and China have lost around 8 percent each.

Many people have praised and cited the Singapore dollar as a safe haven for investors compared to other Asian currencies. Because the Singapore dollar is strong and stable due to its secure and reliable economy that continues to grow at a steady rate.

That’s why many foreign investors invest in Singapore as they have trust and feel safer when investing in Singapore properties.

Conclusion

Although Singapore implemented cooling measures in December last year.

In addition to the constant raising of interest rates by the feds to slow down inflation, increments of property prices in Singapore may start to slow down but might not be within 2022-2023. Only time will tell when the interest rate hikes will take a toll on property prices in Singapore.

Regardless, due to its strong economy that is outperforming other countries even being regarded as a safe haven for investors.

Singapore properties prices will remain buoyant and profitable and are still a viable option to invest in.

Sales Consult

Let's have a chat!

Have a specific question or just want to find out more?

Our friendly team will be in touch!

Keep Updated

Subscribe to my newsletter to get the latest news about Singapore’s property market.

TimSgProperty

Buying Service

Selling Service

Client Testimonials

Homes Tours

Real Estate Knowledge

INVESTING