The rising interest rates are having a detrimental effect on Singaporeans, more so for investors than home owners, according to an editorial published by Hong Kong’s South China Morning Post.
The interest rates of home loans have been rising steadily since the beginning of 2018 due to the United States Federal raising interest rates.
The fixed rates on mortgages offered by banks today can be as high as 2.5 percent, more than a 50 percent increase from the 1.65 percent earlier in the year.
Floating interest rates which that fluctuates according to the rise and fall of the Singapore Interbank Offered Rate (SIBOR) are also rising as it is closely correlated to interest rates in the United States, which have been on the rise since late 2016, and are likely to continue on an upwards trajectory.
File Photo: Private properties in Singapore
Song Seng Wun, an economist with regional banking group CIMB, told the daily he expects SIBOR rates to climb from current levels of about 2 per cent to 3 per cent by the end of 2019, in tandem with more US Fed rate increases set to take place over the next year.
Property expert Ku Swee Yong opined that the impact of rising interest rates is likely to be bigger on real estate investors who could get their fingers burned.
“Investors who are getting rental returns of about 3 per cent are unlikely to be able to break even on their monthly cash flows, and those who have overstretched their investments may find it difficult to keep up with mortgage payments,” said Ku, who is CEO of property consultancy International Property Adviser.
The Monetary Authority of Singapore (MAS) has urged caution when looking to buy property in view of the rising interest rates:
“Households considering property purchases should carefully consider the impact of interest rate increases and the upcoming supply of new units in the medium term. Over-leveraged households could also see a rapid deterioration in their balance sheet indicators if there is a sharp correction in property prices.”