WHILE homebuyers are expected to service higher monthly mortgages on the back of rising interest rates, some consultants believe it is still an opportune time to snap up units amid falling home prices.
Colliers International deputy managing director Grace Ng said that homebuyers have to be even more cautious now when assessing affordability before they commit to a property purchase. But with interest rates still expected to be relatively low compared to the levels seen before the 2008 financial crisis, the impact on homebuyers ability to service monthly mortgages “is not expected to be significant”.
“Rising mortgage costs will reduce housing demand but the decline is not expected to be significant,” Ms Ng said. “Interest rates are expected to remain low given that the US economy has yet to see a full recovery and Europe has just announced a series of stimulus.”
And since the total debt servicing ratio framework kicked in, banks have to factor in a higher interest rate of 3.5 per cent when computing buyers’ loan eligibility, she noted.
Homeowners were caught by surprise last month when the Singapore interbank offer rate (Sibor) and swap offer rate (SOR) – key benchmarks used to price most home loans here – shot up after years of slumber.
Fitch Ratings said in January that in tandem with Singapore’s benchmark rates, mortgage rate indices will also increase slightly this year, albeit still reaching low levels of around 2 per cent.
CIMB regional economist Song Seng Wun noted that the spikes in the SOR and Sibor were due mainly to a flight to safe haven assets denominated in the greenback as fears heightened over a potential exit by Greece from the eurozone.
Following a surprise policy move by Monetary Authority of Singapore last week to slow the appreciation of the Sing dollar, the three-month Sibor – most commonly used to set floating-rate home loans – continued its upswing, hitting a fresh five-year high of 0.679 per cent as at Monday.
“Unless another external shock triggers an economic slowdown, we are of the view that we are seeing the start of a new growth cycle, which means that interest rates will go up,” Mr Song said.
But currently, lower oil prices and easing inflationary pressures suggest that the rise in interest rates will be not be brisk, he added. He expects the Sibor to rise above one per cent by the end of this year and 2 per cent by end-2016.
Chua Yang Liang, JLL head of research for South-east Asia and Singapore, noted that if interest rates continue to spike further, they will have a destabilising effect on the residential market. “Multiple homeowners will feel the pinch, especially with the slower economic growth and rising interest rates,” he said.
With a softening leasing market, owners who have over-committed to high loan quantums or are holding multiple units may face further “cash crunch”, Ms Ng said. Colliers estimates that some 78,402 units are expected to be completed by 2018, of which a significant 20,824 units are due to complete this year.
“If for a prolonged period, these property owners are not able to rent out their properties and service their mortgage loans, the market could see more mortgagee sales this year,” she added. She expects the number of mortgagee sale listings to hit the 200 mark this year, up from close to 160 last year.
But for investors who can manage their cashflows, Ms Ng felt that they may be better off renting the property out at a lower rent to gain some income to service their monthly mortgage payments, rather than to let go of their units at lower prices.
As for owner-occupiers, Ms Ng felt that it is time to commit to their choice property – one that is in their preferred location and within their budget. A further slide in private home prices by another 5-8 per cent and a continued fall in luxury apartment prices by up to 10 per cent this year may provide a window for homebuyers to enter, she said.