Singapore, ranked Asia’s second-most expensive luxury housing market, is witnessing a surge of property prices over 60 percent since 2009, propelled by rock-bottom global interest rates and quantitative easing in developed economies. Singapore’s famously efficient government is facing a challenge that has stymied many countries before: safely guiding its toppish property market to a soft landing as interest rates rise.
But the prospect of rising interest rates as the US Federal Reserve begins tapering its asset purchases has spurred fears that Singapore’s property market could be headed for a crash as higher mortgage payments could spur forced selling and defaults.
This week, Singapore indicated the specter of forced selling remains a serious concern, with the central bank, the Monetary Authority of Singapore (MAS), relaxing one of its cooling measures, the Total Debt Servicing Ratio, or TDSR. The measure aimed to ensure that buyers` monthly payments do not exceed 60 percent of their income, so they wouldn`t be caught out by a spike in interest rates. Most mortgages in Singapore have adjustable, rather than fixed, rates.
However, Michael Zink, who heads Citigroup’s operations in Southeast Asia, said in an interview in Singapore on Feb. 20. “Ninety percent of households live in a home that they own, so where’s the bubble?” Zink added that Singapore’s housing market is unique because the majority of citizens live in government-built homes, where many families have already paid off their mortgages. About 82 percent of Singaporeans live in these so-called Housing & Development Board apartments, according to the housing authority’s website.
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2 Comments
Regardless of whether people live in the homes they own if interest rates rise and HH had bought houses just within their income PPF speculating on increased valuations on their home or simply because all housing is more expensive then the increase in interest rates would leave those homeowners unable to pay costlier mortgage payments. However, in Singapore’s situation with a majority of government owned housing residents already having paid off their debts this is not really a concern. In fact the rise in property prices simply makes people richer and expands their purchasing power. One worry of rising property prices of course is crowding out of young people from being able to purchase a first home.
I am not sure how much Singapore plays in the global economy. I doubt that it will have a big impact when something happens to its economy. However, it is still a big concern for Asia.
I am not sure if the situation in Singapore will lead to the crisis. As you mentioned above, if 90 percent of households live in a home that they own, then how can there be a bubble?
If the government owned housing residents had to borrow money to live there, then it can be a big problem, which can lead to a financial crisis. However, as Paul said, I do not think that is what is happening in Singapore.
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