Watch out for these 2 key risk factors in Singapore's property market

Brace for higher interest rates and large supply.

According to DBS, among factors such as a slower economic growth and tighter foreign labour/immigration policies, two key risk factors stand out: higher interest rates and large supply in the pipeline.

Here's more from DBS:

Low real mortgage rates have been a key driver of the property market in Singapore. Risks increase when interest rates start to go up. Our interest rate strategist has recently pointed out that steepening pressures are building up on the USD yield curve.

This could drive longer term interest rates higher across Asia, including Singapore, in the coming quarters. At the moment, markets have the first Fed hike fully priced in in mid-2015.

For most people, investment into property is a long term commitment. Hence, it is important for households and other investors to do the necessary “stress testing” to account for potentially higher interest rates going forward and to determine whether their current properties will still remain affordable under higher rate scenarios.

Secondly, there is a large supply of new housing in the pipeline that comes largely on the back of the increased government land sales (GLS) over the past few years. Some 128,100 new housing units that will hit the market in the coming three years, with a peak likely in 2015.

The combination of rising interest rates and abundant supply by 2015 argue for more than the usual amount of caution and the latest round of property cooling measures should be viewed against this backdrop. Whether more are required remains to be seen.



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