Your search results

Rising Interest Rates : A Cause for Concern?

Posted by Jayson Ang on December 7, 2022

| 0

TLDR

In 2021, the real estate market saw a surge in demand due to low interest rates and supply chain disruptions. The upcoming hike in interest rates may worry some homebuyers, but historical data shows that well-planned property investments can still yield substantial profits despite interest rate fluctuations. Rising interest rates are often linked to inflation, which can actually drive property prices up. Focusing on other key factors besides interest rates when choosing an investment property is crucial for maximizing returns.

We have all seen in 2021, an amazing year for sellers as we saw property prices hitting new peaks. A pent-up buying demand caused by impacts on tourism and uncertainties in the financial markets during the Covid-19 pandemic has steered many to the real estate market. Adding fuel to the hungry fire, delays in construction and rising costs in materials caused by global supply chain disruption and manpower crunch amplified the heat further.

This huge spike in demand against the depleting supplies has forced many homebuyers to sweep up the unsold inventory causing it to hit a record low of 19,409 in 2Q2021.

Homebuyers were further enticed by the increase in their purchasing power with interest rates hitting an all-time low.

Fast-forward to the present, as the economy is moving towards recovery, there are plans by the US Fed to raise interest rates for the first time since 2018. As most of you might know, Singapore’s interest rates are closely pegged to the movements of the US Fed’s interest rate.

So how will the imminent hike in interest rates affect you?

To better understand this, let’s first take a look at the types of interest rates offered here in Singapore.

Total Debt Servicing Ratio (TDSR)

Total Debt Servicing Ratio is a financial safety mechanism introduced by the Singapore Government to ensure that its people are not overleveraging and have the necessary financial capabilities to pay off their loans.

The Impacts Of Rising Interest Rates

Consumers are afraid of raising interest rates because it affects the eventual amount home buyers have to pay after calculating accrued interest from their home loans.

What if I tell you that whether the interest rate is moving upwards or downwards has minimal effects on your home – if you’ve made calculated considerations on buying your home?

Many would think that it’s a bad time to be thinking about buying a home when interest rates are set to hike, but let the statistics and examples below reveal to you the truth about the relationship between the property market and interest rates.

Looking at Figure 1 below, property prices have been on an incline over the past 20 years. In fact, since 2010Q1, interest rates have been relatively flat except for 2015Q1 when they started surging and then slumming again when the pandemic came.

Figure 1: PPI vs Interest rates (2002Q1 to 2021Q3)

Does it mean that people who bought properties between 2015Q1 and the pandemic suffered losses when the interest rates flattened over the last 2 years?

You will be very surprised to find out that not only did they not suffer a loss, but many buyers made extremely lucrative returns.

Just as buyers of Twin Vew in Figure 2 below, who bought their property at one of the peaks for interest rates in 2018, and managed to make close to a whopping half a million dollars when they sold it in 2021.

Interest rates for mortgages may be one of the most important concerns you may have when purchasing a property. However, few realised that it should not be the most important factor to consider when it comes to choosing the right property for reaping good profits. The case study above clearly illustrates that rising interest rates did not hinder the growth of a well-planned and selected property.

Figure 2: Historical profitable transactions for Twin Vew

Here’s another example for you, Treasure @ Tampines in Figure 3 below, the unit that was bought when the interest rates were high in 2019Q2 also managed to make tremendous returns of $416,000 in just less than 3 years.

This could be you if you knew exactly what to buy and when, instead of worrying about interest rates. Ultimately, the growth of property prices greatly overshadows hiking interest rates.

Figure 3: Historical profitable transactions for Treasure @ Tampines

To understand the rationale of why hikes in interest rates are not causing the property market to crumble or stagnate, one has to understand the reason why interest rates are increasing.

In fact, we all know that inflation has caused the increase in prices of almost everything money can buy – that includes property. And in order for the monetary authority to mitigate inflation, increasing the interest rate is one of the most effective tools to do so. So even if there isn’t any growth in the real estate market over the next few years, we will possibly see property prices escalate solely fuelled by inflation.

What does this mean for homebuyers?

Focusing on the wrong thing may incur a heftier opportunity cost. The rising interest rates and other trigger factors* should be an indication for investors or homebuyers to start taking swift action.

It is monumentally tough for anyone to time the market but there is always a way to sift out the ideal investment property that could reap the best possible rewards.

Hit me up and I shall share with you the other factors* to look out for when choosing the ideal investment property.

You May Also Like …

All Blog Posts Buying Tips Opinion

UNCOVERING the Secret to Profitable Small Boutique Condos!

Jayson Ang – November 30, 2024

TLDR Boutique condos, with fewer than 100 units, are known for price fluctuations due to infrequent transactions and higher upkeep...

All Buying Tips Opinion

Discover Affordable Executive Condos in 2024 Starting at $560,000

Jayson Ang – October 23, 2024

TLDR The Executive Condos (ECs) offer affordable options compared to private properties in Singapore. Despite price variations, most ECs remain...

Mandarin Top 5

5 Proven Strategies for Increasing the Value of Your Singapore Property

Jayson Ang – February 27, 2024

In Singapore's competitive real estate market, adding value to your property can be the key to making a profitable investment....

Mandarin Top 5

Top 5 Factors : Singapore Real Estate Investing vs Stocks and Bonds: Which is Better?

Jayson Ang – October 23, 2024

Investing is an essential aspect of wealth creation and financial planning. With a plethora of investment options available, it can...

All Blog Posts Buying Tips

Ready To Make The Jump From HDB To Condo? This Guide Has All The Answers!

Jayson Ang – January 5, 2023

TLDR When upgrading from an HDB flat to a condo, consider factors like location proximity, amenities, and regulations. Decide whether...

All Buying Tips

Downpayment For Condo: How Much Do First-Timers Need In Singapore?

Jayson Ang – March 12, 2024

TLDR The blog post delves into the complexities of condo downpayments in Singapore in light of the impact of Covid-19...

Mandarin Top 5

5 Resources That Can Help You Find Your Dream Home In Singapore

Jayson Ang – March 12, 2024

It's 五新房产, Finding your dream home can be a daunting task, but with the right resources, it can be a...

Mandarin Top 5

5 Most Affordable Areas to Invest in Property in Singapore

Jayson Ang – June 2, 2024

Singapore is known for being one of the most expensive cities in the world, particularly when it comes to property...

Mandarin Top 5

Top 5 Japanese Restaurants in Singapore

Jayson Ang – September 14, 2024

Singapore, a melting pot of diverse cultures and flavors, offers an incredible array of dining experiences for food lovers. Japanese...

All Opinion

Surprising Prediction: Will Singapore Property Prices Drop in 2024?

Jayson Ang – June 8, 2024

TLDR When considering the current real estate market in Singapore, it's crucial to understand the impact of factors such as...

All Reports

Transaction Volumes Remained Subdued Due To The Dearth Of Inventory In Q4 2022

Jayson Ang – March 27, 2023

TLDR The Urban Redevelopment Authority (URA) Flash Estimates for Q4 2022 show a 0.1% increase in non-landed private home prices...

All Blog Posts Opinion

Discover 5 Reasons Executive Condominiums Could Prove To Be A Smart Investment Despite Growing Inflation

Jayson Ang – January 22, 2023

TLDR An overview of the article discussing the benefits of Executive Condominiums (ECs) over private condos in the current real...

Mandarin Top 5

The Top 5 Reasons To Invest In Singapore Property

Jayson Ang – August 13, 2024

Singapore, a small island nation with a thriving economy, has long been considered an attractive destination for property investment. The...

Buying Tips Mandarin Top 5

Singapore Living: 5 Must-Know Factors for Choosing the Perfect Neighborhood

Jayson Ang – June 30, 2023

Singapore Living: 5 Must-Know Factors for Choosing the Perfect Neighborhood When it comes to purchasing a property in Singapore, the...

All Opinion

Why Can’t More People Own Private Property?

Jayson Ang – April 2, 2024

TLDR The blog post discusses the aspirations of individuals like Siti and Mr. Tan regarding property ownership in Singapore. Siti...

All Buying Tips Opinion

The Impact of a Real Estate Agent on Your Property’s Selling Price

Jayson Ang – August 9, 2023

TLDR In the world of real estate, the value of property agents lies in their ability to create competition among...

All Buying Tips

Is 2024 the Perfect Moment to Refinance Your Home Loan? Discover What Homeowners Should Consider!

Jayson Ang – July 20, 2024

TLDR The article covers the shift to SORA for home loan rates, urging consideration of refinancing options amidst rising rates....

All Blog Posts Opinion

Case Study : With Income Of $180K per Annum, Which Options Should I Choose?

Jayson Ang – February 28, 2023

TLDR When making property decisions in Singapore, it's crucial to consider various factors like affordability, loan-to-value ratios, and CPF requirements....