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How will the recent Fed rate hike affect Singapore's property sector?
It could bring about an uptick in mortgage rates.
The United States Federal Reserve raised the Fed funds rate by 25bps to 1% and sounded off two more this year, in line with consensus expectations.
According to DBS Vickers Securities, the rising Fed funds rate will exert upward pressure on the SIBOR/SOR that will bring about a rise in mortgage rates. In turn, for a $1m loan with a 25-year tenure, a 1% mortgage rate increase will bring about a $500 mortgage increase.
"This can have a negative impact on the physical property market," said DBS Vickers Securities. However, it noted that the impact of rising mortgage rates will be mitigated by hopes that the Singapore government has started a gradual process to unwind property measures.
Meanwhile, JLL explained that the government has significant capacity to loosen property market policies to offset the gradual rise in interest rates, with the reduced seller stamp duties and relaxed rules on total debt servicing ratio caps.
"We expect more policy relaxation in the next two-three years as interest rates normalise. Singapore developers and REITs continue to have the capacity to invest as they have very conservative balance sheets and low gearing ratios," noted JLL.
DBS Vickers Securities shares the same sentiment, stating that the relaxation is a clear message from the Singapore government that they stand ready to support the property market and prevent an unintended crash in prices if the market outlook turns.
“Our property team thinks this signals the start of a multi-year relaxation trend of the current property curbs. This can lead to continued sector-wide rerating opportunities that will maintain investors’ positive sentiment amongst the developers,” it furthered.
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