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Dream Home Locator, Singapore (2026)

05/05/2019

What rising interest rates mean for Singapore property

As the era of ultra-low interest rates fades, Singaporeans with mortgage payments are feeling the pinch. But is it homeowners or investors who are most at risk of getting their fingers burned?

When she first took out the S$1.1 million (US$800,000) home loan with her husband in June last year, the interest rate had been an even more attractive 1.3 per cent.
Their mortgage is pegged to a floating interest rate that fluctuates according to the rise and fall of the Singapore Interbank Offered Rate (SIBOR), the benchmark rate at which banks borrow from one another.

The SIBOR, in turn, is closely correlated to interest rates in the United States, which have been on the rise since late 2016, and are likely to continue on an upwards trajectory.
But for Koh, 28, a legal counsel, the rate increases on her home loan – all in under two years – still came as a rude shock.

“My mortgage repayment used to be S$3,800 each month (at a rate of 1.5 per cent), but now it’s about S$4,000. The S$200 mark-up may not seem a lot, but it all adds up,” she said, adding that next year – when the couple are due to refinance their loan – the rate will be raised further to 2.4 per cent.

“We just have to watch our spending and make do within our means.”

For Koh, and other Singaporeans like her, the pinch of mortgage payments is likely to hurt even more as the era of ultra-low interest rates starts to fade.

STILL HIGHER TO GO
In the US, a strengthening economy and rising inflation has led the US Federal Reserve to raise interest rates, which are now at their highest level since 2008.

The impact has trickled down to Singapore, where interest rates on home loans have followed suit.
The latest fixed rates on mortgages offered by banks today can be as high as 2.5 per cent – well above the 1.65 per cent from earlier in the year, said Alfred Chia, chief executive of financial advisory firm SingCapital.

More rate increases are on the horizon. Song Seng Wun, an economist with regional banking group CIMB, expects SIBOR rates to climb from current levels of about 2 per cent to 3 per cent by the end of 2019, in tandem with more US Fed rate increases set to take place over the next year.
That said, Chia believes that the impact for homeowners will still be “manageable”, and that they should review their mortgages and refinance their loans to better manage interest costs where possible.

In the same vein, property expert Ku Swee Yong said that while owner-occupiers would be affected by higher interest rates, the impact was unlikely to be huge.

This is because they have “a real need for the home, and they can simply reduce other expenses to take care of their mortgage payments”.

It is the real estate investors who could get their fingers burned, he said.

“Investors who are getting rental returns of about 3 per cent are unlikely to be able to break even on their monthly cash flows, and those who have overstretched their investments may find it difficult to keep up with mortgage payments,” said Ku, who is CEO of property consultancy International Property Adviser.

“Over-leveraged households could also see a rapid deterioration in their balance sheet indicators if there is a sharp correction in property prices.”
During the third quarter, household debt rose 3 per cent year-on-year, mainly driven by a 3.4 per cent increase in housing loans over the same period, according to the MAS.

As of July, however, the value of new housing loans surged 30 per cent year-on-year as market appetite for residential property grew.

For now, there are no real danger signs. The MAS said Singapore’s household balance sheets remain healthy, with liquid assets such as cash and deposits exceeding total household liabilities.

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