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 Buying Tips

When to Strike Gold: The Ultimate Guide to Selling Your House in Singapore!

Jayson Ang – June 28, 2024

TLDR When deciding the best time to sell your property, consider various factors such as market trends, financial goals, and...

Mandarin Top 5

Top 5 Factors : What I Wish I Had Known about Singapore Property Market

Jayson Ang – November 13, 2024

Singapore's property market has always been an attractive investment option for both local and foreign investors. With its stable economy,...

All Opinion Selling Tips

Why Selling Your Own HDB Flat May Be More Challenging Than You Anticipate: 7 Hidden Challenges to Prepare For

Jayson Ang – January 29, 2025

TLDR Selling your flat can be a daunting task, not because of the paperwork but due to challenges in marketing...

All Buying Tips

Your Key to a Happy Retirement in Your HDB? Let’s Unveil The Mystery Behind the Lease Buyback Scheme!

Jayson Ang – March 30, 2024

TLDR The Lease Buyback Scheme (LBS) is gaining traction among older Singaporeans looking to boost their retirement income by selling...

All Buying Tips Selling Tips

Unpacking Property Ownership: Joint Tenancy vs. Tenancy-in-Common

Jayson Ang – September 10, 2024

TLDR When a property has multiple owners, the choice of ownership type is crucial to determine how shares are distributed...

All Buying Tips Reports

2024 Residential Property Market Outlook

Jayson Ang – December 22, 2023

TLDR The market outlook for 2024 suggests continued uncertainties affecting housing demand and risk appetite due to geopolitical tensions, macroeconomic...

All Opinion

Why Aren’t Spacious, Wallet-Friendly Homes Our Reality Yet?

Jayson Ang – April 17, 2024

TLDR The article discusses the current housing market in Singapore, focusing on the challenges faced by individuals like Sherlyn Tan...

All Opinion Selling Tips

The Lease Buyback Scheme Is A Strategy That Could Help You Retire Comfortably In Your HDB Flat

Jayson Ang – April 23, 2024

TLDR The Lease Buyback Scheme (LBS) trend among older Singaporeans is slowly gaining momentum, despite initial reluctance. The scheme allows...

Mandarin Top 5

Maximize Your Property Investment: 5 Questions to Ask Your Real Estate Agent in Singapore

Jayson Ang – March 23, 2024

Buying a property in Singapore can be a daunting task, especially for first-time buyers. It is important to have a...

Buying Tips Mandarin Top 5

5 Qualities to Look for in an Agent to Ensure a Smooth Transaction

Jayson Ang – June 23, 2023

5 Qualities to Look for in an Agent to Ensure a Smooth Transaction Here are 5 qualities to look for...

All Buying Tips Opinion

Are Early Bird Discounts At New Launches Genuine Or A Marketing Gimmick?

Jayson Ang – November 20, 2023

TLDR When considering investing in new property projects, understanding developers' pricing strategies is crucial. Early bird discounts are not just...

Mandarin Top 5

Top 5 Reasons : How Can A Reputable Real Estate Agent Help You When Investing In Singapore Property

Jayson Ang – April 5, 2025

Investing in Singapore property can be a lucrative venture, given the country's stable economy, strategic location, and high demand for...

All Blog Posts Buying Tips

What’s The Difference Between An Offer To Purchase And An Option To Purchase?

Jayson Ang – May 29, 2023

TLDR Understanding the crucial difference between an Offer to Purchase and an Option to Purchase (OTP) is vital when buying...

All Blog Posts Buying Tips

6 Myths About Using Your CPF For Housing

Jayson Ang – February 2, 2023

TLDR When it comes to purchasing a house in Singapore using CPF funds, there are several myths that need to...

All Blog Posts Buying Tips

An Essential Guide to Buying a Home in Singapore 2023

Jayson Ang – January 17, 2023

TLDR When navigating the complexities of purchasing a property in Singapore, ensure you meet eligibility criteria, consider affordability factors, and...

All Blog Posts Buying Tips

Will Your HDB Flat Provide For Your Retirement?

Jayson Ang – July 11, 2023

TLDR Singapore's property market presents challenges with high prices, particularly in private housing, while public housing remains relatively more affordable....