In the realm of Singapore’s real estate market, the interplay between interest rates and property dynamics is a crucial factor for both prospective homebuyers and savvy property investors.

A comprehensive understanding of the interest rate climate, including the determinants of these rates, the distinctions between fixed and floating interest rates, the influence on housing prices, historical trends, current rates from multiple banks, and the future outlook, is paramount for making informed decisions in this ever-evolving landscape.

What are the main factors influencing the interest rates?

On a macro level, interest rates are intricately tied to factors such as global economic conditions, central bank policies, inflation expectations, and market liquidity.

Fret not if you are not an economist! By keeping track of the interest rate determinations made by the U.S. Federal Reserve, you can effectively monitor the rates since its decisions have an impact on the broader global interest rate patterns, including Singapore’s. From the graph below it is evident that the interest rates in Singapore (SORA in this case) is highly correlated to the US FED rates.

Table 1: Data from FED rates and SORA for period 2021-23. You can follow the US Fed Rates and get historical data from sites like Trading Economics.

Having gained an understanding of the macro factors influencing interest rates, continue reading to discover the implications it has on your home purchase price, mortgage loan and other important considerations to keep in mind.

Are there any impact of interest rates on housing prices?

Economics 101: When interest rates are low, borrowing costs decrease, thereby increasing affordability and stimulating demand for properties. This heightened demand often leads to upward pressure on housing prices. Conversely, rising interest can dampen affordability, reducing demand and potentially causing a downward shift in property prices.

Interestingly, in Singapore’s real estate market, rising interest rates often have a bullish effect on home prices, contrary to other real estate markets. This suggests that as a potential homebuyer, there may be an opportunity to benefit from this exceptional trend. The resilience of the Singapore economy and property market is evident in the fact that even when interest increase, it fails to dampen the interest in real estate, with home prices typically rising alongside higher rates.

The graph below clearly illustrates the upward trend of the Residential Property Price Index from 2021 to 2023, coinciding with the previously mentioned rise in interest rates (table 1).

Table 2: Residential Property Price Index by Region, credits to Globalpropertyguide

One of the consequences of high interest rates is that it can discourage first-time buyers and individuals looking to downsize, leading them to opt for the rental market instead. When interest rates are elevated, mortgage loans become more expensive, prompting landlords to make adjustments to accommodate the changes in rates.

Table 3: Residential Rent Index Annual Change %, credits to Globalpropertyguide

What are the differences between Fixed and Floating interest rates?

For many individuals, choosing between fixed and floating interest rates can be a tough decision to make. In my view, neither option inherently outweighs the other, as the decision ultimately relies on your personal risk tolerance and financial stability.

i. Fixed Interest Rate:
With a fixed interest rate, the rate remains unchanged throughout a specific period, typically ranging from two to five years. This offers stability and predictability in monthly mortgage payments, shielding you from market fluctuations.

ii. Floating Interest Rate:
A floating interest rate, also known as a variable interest rate, can fluctuate based on market conditions. Floating rate housing loan is usually pegged to the Singapore Overnight Rate Average (SORA) or a Fixed Deposit Based Rate (FDR). Floating rates offer the potential for lower rates during periods of market decline but come with the risk of increased rates when the market rises.

Consider the following when choosing between these 2 options

• Is it crucial for you to have the assurance of consistent monthly payments? If so, a fixed-rate loan could be a more appropriate choice as it eliminates any unexpected surprises.
• What is your risk tolerance & financial stability to maintain the monthly housing loan payment?
• What is the market outlook? Consider the possibility of interest decreasing within the next 1 to 2 years, borrowers may prefer opting for a shorter lock-in period for their housing loan.

Also read up on the latest round of property cooling measure where there is an increase of 0.5% to the interest rate floor across HDB and Bank loans.

What are the current interest rates from multiple banks?

Let us provide you with a glimpse of the prevailing interest rates from various banks in Singapore:

Cheapest Fixed Interest Rates (as of 13th July 2023)

• CIMB                  – 2 Years Fixed – 3.5%
• Bank of China   – 3 Years Fixed – 3.4%
• Bank of China   – 3 Years Fixed – 3.5%

Cheapest Floating Interest Rates (as of 13th July 2023):

• Hong Leong Finance – PPR- 2.15% (Lock-in 2 years), net 4.0%
• Bank of China             – 3M SORA + 0.50% (Lock-in 2 years), net 4.19%
• Bank of China             – 3M SORA + 0.55% (Lock-in 2 years), net 4.24%

You can find out the latest mortgage rates from portals like Propertyguru.

What can I anticipate regarding the future outlook of interest rates?

Looking forward, the trajectory of interest rates hinges upon various factors, including global economic conditions, inflation trends, and central bank policies. Interest rates in Singapore have seen significant hikes in recent times and buyers need to be mentally prepared for any potential rise.

Earlier we spoke about The U.S. Federal Reserve’s interest rate decisions having an impact on Singapore’s. In recent times, the U.S. Federal Reserve has been gradually increasing interest to manage economic growth and maintain stability. However, the pace of rate hikes has been slowing down since Feb 2023.

From the Fed Reserve table below we can observe that during Sep-Nov 2022, the interest rate hike peaked at +0.75% compared to recent period Feb-Jun 2023 where the interest rate hike averaged to only +0.25%. 

Image credit: tradingeconomics

The outlook for interest rates suggests that we may be approaching a potential plateau or inflection point, indicating a potential stabilization or slower pace of increase in the near future.

Buyers need to be cognizant of this shift in interest rates and understand that the current level may become the new norm for a while. It is crucial to evaluate the affordability of mortgage rates based on this expectation. Consulting with financial advisors and mortgage specialists will provide buyers with insights into the potential impact of interest rate increases on their financial planning.

Staying well-informed, closely monitoring market trends, and seeking guidance from industry professionals are crucial when navigating Singapore’s dynamic real estate market.

Read more about the property market outlook for H2 2023 – Is now the right time to buy or sell

Conclusion

To navigate Singapore’s real estate market like an expert, you need to stay well-informed about all macro and micro factors such as market trends, property cooling measures, interest rates, new housing supply, etc. It is definitely not an easy task to be able to monitor all these and it is always advisable to seek guidance from industry professionals.

When deciding between fixed and floating rates, consider your personal risk tolerance and financial stability. Being prepared and having a thorough understanding of the situation will enable you to make informed decisions aligned with your own preferences.

For many individuals and families in Singapore, owning a home is a significant milestone. As property prices continue to rise, securing a housing loan becomes essential for many prospective homeowners. In this article, we will provide you with a comprehensive guide to housing loans in Singapore, covering key aspects such as eligibility criteria, loan types, interest rates and other important considerations.

(For HDB buyers) HDB Housing Loan or Bank Loan? 

Whether you choose an HDB housing loan or a bank loan depends on your financial capabilities and risk profile:

i. HDB Housing Loan: HDB offers a fixed-rate loan, currently at 2.6% which is pegged at 0.10% above the prevailing CPF Ordinary Account (OA) interest rate. It is suitable for individuals seeking lower risk and stable monthly payments. However, it comes with certain limitations and eligibility criteria.

ii. Bank Loan: Bank loans offer more options and flexibility, including fixed and floating rates. If you are comfortable with some financial risks, have the discipline to review and refinance periodically, and meet the eligibility criteria, a bank loan may be a viable option.

Evaluate your financial capacity, risk tolerance, and the pros and cons of each option to make an informed decision. Now, lets begin with the steps to getting your housing loan!

Step 1. Calculating Your Maximum Loan Amount:

Before you begin the loan application process, it’s essential to determine your maximum loan amount. Banks in Singapore use two main ratios to assess your borrowing capacity:

i. Total Debt Servicing Ratio (TDSR): 

The TDSR is a calculation that determines the percentage of your gross monthly income that can be allocated towards servicing all your debts, including the housing loan. The TDSR threshold for property loans is set at a maximum of 55% of the borrower’s monthly income– meaning your total monthly debt obligations, including the new housing loan, should not exceed 55% of your income.

ii. Mortgage Servicing Ratio (MSR):

The MSR calculates the percentage of your gross monthly income that can be used to service your housing loan installments. The MSR threshold is set at 30% of your income. In other words, a maximum of 30% of your gross monthly income can be used for your monthly housing loan repayment. 

*Do note that the MSR applies only to housing loans for a HDB flat, or an executive condominium (EC) where the minimum occupation period (MOP) of the EC has not expired.

To ensure that you’re not taking up too much debt, a good rule of thumb is to keep this ratio within 25% to 30% of your gross monthly income instead

30 Sept 2022–
Measures to Promote Sustainable Conditions in the Property Market by Ensuring Prudent Borrowing and Moderating Demand

1. Increase in TDSR and MSR calculation by 0.5 percentage point

• There will be an increase of 0.5% point in the interest rate floor used to calculate the Total Debt Servicing Ratio (TDSR) and the mortgage servicing ratio (MSR).
• An interest rate floor of 3% has been implemented for determining the eligible loan amount for loans granted by HDB.
  

2. HDB LTV Limit Reduced to 80%

• Loan-to-Value (LTV) limit for HDB housing loans will reduce from 85% to 80%.
• The lower LTV limit will apply to new flat applications for sales exercises launched and complete resale applications which are received by HDB on or after 30 September 2022
• The revised LTV limit does not apply to loans granted by private financial institutions, for which the LTV limit remains at 75%

Why these cooling measures?

Due to a substantial increase in market interest rates, there is a growing likelihood of further increases in the future. And as such these measures aim to regulate the amount of money that can be borrowed for property purchases, ensuring that borrowers do not overextend themselves financially. By setting stricter limits on loan quantum, the government intends to protect home buyers from potential difficulties that may arise as a result of uncertain economic conditions and the anticipated rise in interest rates.

It is essential for property buyers and owners to carefully evaluate their financial circumstances and take into account the potential impact of rising interest rates on their borrowing costs. Engaging with financial institutions and seeking professional advice will be crucial to navigating these changes effectively.

If you are unsure of the entire resale process, do read: HDB resale payment timeline: How to plan your cashflow 

3. 15-Month Wait-out Period for Private Home Owners Buying HDB Flats

• Private residential property owners (PPOs) and former PPOs will need to wait for a duration of 15 months before they can purchase a non-subsidized HDB resale flat.
• The wait-out period will not apply to seniors aged 55 and above who are moving from their private property to a 4-room or smaller resale flat.
• HDB may grant exceptions on a case-by-case basis for those facing genuine housing needs or extenuating circumstances, regardless of their age.
• This new measure will take effect from 30 September 2022. It is a temporary measure which will be reviewed in future depending on overall market conditions and housing demand.

Why this cooling measure?

Very simple- the government wants to maintain affordable housing options, particularly for first-time home buyers. This measure aims to moderate demand and prevent private property owners, who generally have greater financial means, from outbidding other potential buyers.

Before 30 Sept 2022– PPOs and ex-PPOs are currently allowed to buy a non-subsidised HDB resale flat on the open market, with the requirement that they dispose of their private properties within six months of the HDB flat purchase.

Conclusion:

The recent round of cooling measures, aims to address signs of overheating in both the HDB resale and private home markets. By reviewing and adapting measures in response to market dynamics, the government aims to maintain a stable and sustainable property market that aligns with economic fundamentals.

Possible overflow of demand into the rental market

The measures are likely to make it challenging for potential home buyers to obtain loans or afford properties. As a result, individuals who are unable to meet the stricter criteria or afford the higher costs of purchasing a property may shift their focus towards the rental market. This increase in demand for rental properties can lead to a surge in rental prices and a decrease in rental vacancy rates. Landlords and property investors may benefit from this shift in demand, capitalizing on the growing number of tenants seeking rental accommodations.

Expecting the market to cool down as a result of these measures

The increase in interest rate floors for Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR) calculations, along with the reduction in the Housing Development Board (HDB) loan-to-value (LTV) limit, will limit the amount of money borrowers can access for property purchases.

These measures aim to prevent over-borrowing and speculative activities, ensuring a more sustainable and stable property market. As a result, potential buyers may be deterred from entering the market or may need more time to accumulate sufficient funds for a purchase. This decrease in demand for properties can lead to a stabilization or even a decrease in property prices. Overall, the cooling measures aim to create a balanced and sustainable property market in the long run.

Freehold condos are a popular choice among discerning buyers, especially those who see property as assets to be passed down to the next generation.

But besides the usual “walking distance to MRTs” or proximity to local eateries, sometimes there’s not much that distinguishes one condo from the next.

We’ll highlight 6 freehold properties with unique characteristics that are worth a second look. Whether it’s a park connector at your doorstep or the rare development with dual-key units, there’s something for everyone.

Freesia Woods (Sunset Way)

Think of Freesia Woods as a green sanctuary amidst a well-developed district not far from the city centre. In its backyard is the Ulu Pandan Park Connector, which connects the Pandan Gardens Leisure Park along the Pandan River all the way to Buona Vista MRT.

It offers a doorstep connection to both Dover MRT and one of the ‘greenest’ running tracks – or a flat terrain for amateur skaters – between District 11 and 21.

Freesia Woods encompasses four blocks, all with direct paths to the pool and other amenities at the centre. Just next door (2-min walk, or 180m), you’ll find Clementi Arcade, where you can pick up groceries at Cold Storage or perhaps a pint of ice cream from Daily Scoop.

• Developer: Keppel Land Limited
• TOP: 2004
• Total Units: 129
• Total Floors: 5
• Bedrooms: 1 – 4
• Amenities: Swimming & wading pool, jacuzzi, playground, fitness corner & gym, jogging track and reflexology path, tennis court, clubhouse, and barbeque area.

Clementi Park Condo (Sunset Way)

If we had to choose one word to describe Clementi Park Condo, it would be spacious. Their 3- and 4-bedroom configurations start at 1,625 sqft and go all the way up to 6,727 sqft – plenty of room for a growing family or a homeowner who values having plenty of room.

This does come at a higher quantum though: the last transacted unit in March went for $2.91 million for a 1,959 sqft 3-bedder ($1,485 psf).

As a large, older development, Clementi Park also features full resort-style amenities like a badminton hall with hardwood floors, mini-marts, a sauna, and both squash and tennis courts.

• Developer: City Development Limited
• TOP: 1985
• Total Units: 489
• Total Floors: 10
• Bedrooms: 1 – 5
• Amenities: Swimming & wading pool, sauna, playground,  squash & tennis courts, clubhouse and barbeque area, and a mini-mart.

Kensington Square (Jln Lokam, near Bartley MRT)

For those who enjoy the bustle of an urban lifestyle without foregoing the option to retreat into serenity, this freehold integrated development may be just the ‘gem’ for you.

Kensington Square is a small development with just 141 residential units, which sits atop a lively environment of 57 commercial units. Retailers, F&B establishments, and plenty of personal service providers are just a lift ride from your doorstep.

This is also one of the few developments with 2- and 3-bedroom dual-key units, if you’re looking to rent out part of the space but still retain a bit more privacy. Kensington Square is also newer (TOP 2017) so units run smaller than those in older developments: 3-bedders range from 915 to 1,206 sqft.

• Developer: Fragrance Group & World Class Land
• TOP: 2017
• Total Units: 141
• Total Floors: 5
• Bedrooms: 1 – 3
• Amenities: Swimming/spa pool, kids’ water park, indoor & outdoor gym, and barbeque area.

Signature Park (Toh Tuck Road)

Situated near the Bukit Timah Nature Reserve, Signature Park offers a full suite of amenities including squash and tennis courts, sauna, clubhouse, and a small putting green.

At 928 units, this is a large development. Still, it doesn’t feel too crowded since the units only go up to 10 floors and are spread out over a massive gross floor area of 124,288 m2. The unusual shape of the swimming pool in the centre means the blocks are spaced a good distance apart, so residents get privacy while still enjoying the many conveniences.

A plus side here is that maintenance fees are low – between $256 to $340 – but the downside is that certain parts may feel a little run-down at times. The main amenities (like the pool) are well-maintained, however.

• Developer: City Development Limited
• TOP: 1998
• Total Units: 928
• Total Floors: 10
• Bedrooms: 2 – 4
• Amenities: Swimming & wading pools, sauna, playground, indoor gym & outdoor fitness area, squash and tennis courts, putting green, function room, and clubhouse.

Country Park Condo (Bedok Road)

Country Park Condo is a development that mirrors the quaint, homely feel of the East. It’s low density with only 160 units on a land size of 14,797 m2, giving off a bit of a small-town vibe.

Units here get a private lift, though the exclusivity and privacy also come with higher maintenance fees of about $500 a month.

There’s plenty of food and open space for leisure activities: East Coast Park is a 10-minute bus ride away, while Bedok Food Centre is a 3-min walk (220m). The nearest MRT (Tanah Merah) is a 15-20 min walk away though (1.4km), so this location is best for those who drive.

• Developer: UOL Development Pte. Ltd.
• TOP: 2003
• Total Units: 160
• Total Floors: 5
• Bedrooms: 2 – 3
• Amenities: Swimming pool, jogging track, jacuzzi, playground, gym, and clubhouse.

Landbay Condo (Jalan Hajijah)

A boutique development of only 122 units, Landbay Condo was designed to feel like a Balinese-concept resort.  Tucked away in Jln Hajijah, the rectangular compound completely encloses the swimming pool while overlooking a row of landed properties.

The great thing about this place is that it really does feel like a retreat from the hustle and bustle from the city. The trade-off is a bit of convenience, though: the nearest MRT is Bedok, which is a good 25-30 min walk (2.1km) away.

That said, East Coast Park is just a 12-min walk (950m) away, and you won’t lack food options with Bedok South Market (1.2km) and all the restaurants along Upper East Coast Road.

• Developer: Landbay Development Pte. Ltd.
• TOP: 1999
• Total Units: 122
• Total Floors: 6
• Bedrooms: 2 – 5
• Amenities: Swimming & wading pools, sauna, steam room, jacuzzi, playground, barbeque pits, gym, tennis court, and clubhouse.