Real News‎ > ‎2013‎ > ‎July 2013‎ > ‎

25 July 2013

Interest rate rise 'could hurt many households'

Source: Straits Times | Money 

MORE than 9,000 households in Singapore may have trouble paying off their mortgages when interest rates rise, a new report warns.

Analysts from Religare Institutional Research made this calculation based on the statement by the Monetary Authority of Singapore on Tuesday.

MAS had said that 5 to 10 per cent of borrowers here have probably overstretched themselves on their property purchases.

That is, their total debt servicing payments, including those for their home, car and other loans, amount to more than 60 per cent of their income.

If mortgage rates were to rise by 3 percentage points, the proportion of borrowers at risk could reach 10 to 15 per cent, the MAS said.

The central bank had also pointed out that the vast majority of mortgage loans here are on floating-rate packages, so many households will face higher monthly repayments when interest rates rise.

Religare noted in its report yesterday that there are 90,000 new homes coming onto the market from now to 2016.

This "means over 9,000 troubled units could be on the market", it said.

"That is more than half a year of new home supply and over 3 to 4 per cent of total private housing units."

Another worrying statistic, Religare said, is that only 70 per cent of existing property loans are for owner-occupied homes.

This shows that investor demand in private homes is running quite high, the analysts wrote.

"A little wobble in prices, combined with higher interest rates, might shake up a few property investors as well and add to the possible troubled units on the market."

MAS deputy managing director Teo Swee Lian had said at the release of the MAS annual report on Tuesday that there is a much lower chance of a default if a loan is for an owner-occupied home.

Expect aggressive property launches
But Colliers says prices unlikely to fall significantly for rest of the year

Source: Straits Times
By Chia Yan Min

DEVELOPERS may adopt more aggressive strategies when they launch projects over the next six months, although prices are unlikely to fall significantly, said property consultancy Colliers International yesterday.

It noted in a new report that builders that have paid for costly land may be less likely to drop prices due to low profit margins.

They might be better placed to launch sooner rather than later given the latest changes in the market. That in turn could help prop up home demand, said the report.

It also noted that sales began to slow in the second quarter as January's cooling measures worked their way through the market, and buyers became more concerned about the fragile economic outlook.

Monthly figures from the Urban Redevelopment Authority show that 4,447 units were launched in the three months to June 30, down 19.8 per cent from the first quarter, while sales fell 18 per cent to 4,401 units.

"Buying sentiments were also partly affected by the stock market sell-down across the May to June period, exacerbated by fears that the US Federal Reserve would cut back on monetary stimulus amid ongoing global uncertainties," said Ms Chia Siew Chuin, Colliers' director of research and advisory, and the report's author.

Despite this, the private residential property price index reached yet another new peak in the second quarter, rising 0.8 per cent over the previous three months.

Launches in the period picked up at the end of June, with more large-scale projects coming on to the market.

Major mass-market developments released in June included the 738-unit J Gateway and the 616-unit Jewel@Buangkok.

Sentiment in the private residential property market may take a relatively more cautious turn in the months ahead on the back of new debt servicing rules introduced last month, said Ms Chia.

The new rules, which took effect on June 29, impose a Total Debt Servicing Ratio framework on all property loans granted by financial institutions to individuals.

All of a borrower's debt obligations - including loans for cars, renovations and credit cards - must now be taken into consideration when assessing a mortgage application.

Separately, new housing demand may also weaken on the back of potential interest rate hikes due to the looming cutbacks in monetary stimulus by the Federal Reserve in the US, said Ms Chia in the report.

New-home sales, which stood at 9,770 units at the middle of the year, could come in at between 15,000 and 17,000 units for the whole year.

This is down from the initial forecast of 16,000 to 18,000 units, said Ms Chia.


Buying sentiments were also partly affected by the stock market sell-down across the May to June period, exacerbated by fears that the US Federal Reserve would cut back on monetary stimulus amid ongoing global uncertainties.

- Colliers' director of research and advisory Chia Siew Chuin