Singapore

Impact on housing, cost of living here

HOUSING

Assuming the Singapore Interbank Offered Rate (Sibor) has a one-to-one correlation with the Fed fund rates, a hike of 25 basis points will have a monthly effect of about $200 in extra payments for a $1 million loan, notes CIMB Securities (Singapore)'s research team.

Its spokesman says: "In actual correlation, the Sibor has only a 50 per cent sensitivity to Fed rates but it is driven by other factors such as currency. In the past year, the Sibor has already moved much without the Fed fund rates moving and that is already reflected in everyone's mortgage rates over 2015.

"You can see the quantum is not big, especially as most people who live in HDB flats don't have a $1 million mortgage. It does affect speculators with multiple properties, as reflected already in rising mortgagee sales."

An increase in interest rates will weigh further on property prices here and reduce the appeal of investment properties, especially given the current weak rental market, says OCBC's Mr Vasu Menon.

"The man on the street may then face the burden of rising mortgage rates... Unless a property owner can rent out his property easily, he may end up owning a property that is vacant for long periods, or he may have to slash rentals."

COST OF LIVING

Rising interest rates will make setting aside cash in a savings account more appealing.

Says Mr Menon: "However, keeping funds idle comes with risk as well, because if the interest rate on idle deposits does not beat inflation, this effectively means that the purchasing power of the savings will depreciate over time, and consumers may not be able to meet their goals like buying a home and paying for their children's education."