Fitch: Singapore’s Housing Market Continues to Fall

According to recent Fitch ratings, Singapore’s home prices for both public and private sectors appear to fall by 3% per annum. Singapore’s property prices have taken a huge turn from its high housing prices and mortgage financing rates three years ago.

Cause of price decline in housing market

The decline on housing prices is mainly due to the increase of new homes developed each year. The supply of available homes for purchasing and repurchasing has caused huge drop, not only in costs but also in the demand for rentals.

To recall, housing prices were at its high with the costs soaring at 40% in 2013. This was coupled with low interest rates offered for the payment of homes and the demand from foreign buyers. As a result of this increase, buyers have suffered mortgage financing problems leading them to default in payments and banks to auction hundreds of homes for repossession.

The government resolved this issue by cooling off the market. By limiting monthly debt repayments at only 60% of their gross monthly income, home prices have shrunk.  Home prices fell in 2014, it falls further in 2015 by 3%, and probably even up to 10% based on predictions for 2016.

Despite it, however, Singaporeans still suffer much difficulty in terms of mortgage financing because it becomes rather difficult to apply for a loan. Experts believe this government curb is a little too restrictive on borrowers, but it does the job in terms of curbing default rates.

Mortgage rates have started to climb

Slowly, the rates on mortgages have started to increase. It started at a very low 1 percent three years ago, and has now increased to nearly double at 1.5%. The risks of default on mortgage financing remains low for home buyers but they are starting to feel its impact. This is mainly due to the fact that because costs of homes were low at the time of purchase, most home buyers opt to choose floating rates rather than fixed, making them more susceptible to sudden changes in mortgage rates in the market.

However, It is really those owners of multiple properties that are most affected by the change, as they would have to concern themselves with paying higher mortgages on several properties.

Most financial analysts believe that despite these changes, mortgage rates would stay low for now since banks are already at an advantage by benefiting from the loan curbs imposed by the government since it limits the chances of defaulting mortgages.

As mortgage financing rates increase, so too do delinquency rates increase – a result that’s undesirable for banks and home buyers alike but is unlikely to happen in the near future.

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