The hot topic has been on the rising interest rates as the Fed just hiked another 75 bps. Is there a connection between interest rates and property prices? The answer is without a doubt that higher costs of financing will dampen the demand for properties. Singapore’s interest rates follow the general direction of the Fed Funds Rate but not at the same level of variance. Just a year ago, home loan rates were as low as 1.12% fixed for 3 years or 1.50% fixed for 5 years and today fixed rates have doubled.
As variable rates approach the 3% mark and new launch OCR prices crossing $2,100 psf, are these signals that a slowdown in property activities is imminent? Let’s approach the question from the supply side angle, the GLS tenders for 99-year OCR sites that closed recently namely 2 private housing sites near Lentor MRT station and an executive condominium (EC) site along Bukit Batok West Avenue 5 – pulled in fewer bids that had been forecast by most property consultants. The EC plot fetched 4 bids, while there were 3 bids for the Lentor Central site and 2 bids for the Lentor Hills Parcel B site.
Judging from the response, it is almost certain that developers are taking a cautious stance as global markets are fearful due to the higher risks of a recession. Most of the home owners have a significant portion of their net worth locked up in their properties, hence a decline in property prices will inevitably cause a reduction in discretionary spending and result in a cascading effect to related businesses.