Paul Wee, vice president of finance at PropertyGuru, a local property sales platform, was quoted by CNA, the English-language news site of MediaCorp, as saying that the 5.1 percent forecast is not too different from the market's expectation that interest rates will reach 5 percent by 2023.
Based on current conditions, the three-month Singapore Overnight Rate Average (SORA), is expected to reach 3.3 percent to 3.5 percent in the first quarter of 2023, he said.
As of Thursday (15), the three-month SORA stood at 3.0910, compared to 0.1949 at the start of the year.
In Singapore, the variable home loan rate is usually linked to the SORA. Throughout the loan period, the interest rate is adjusted according to economic and market conditions.
Right now, the interest rate is at a level not seen in the past 15 years. It will still go higher, but probably not as much as before.
This is because there is a resistance level when it comes to SORA issues, he said. Looking at past history, when the Fed rate climbs above 5%, it doesn't mean that SORA will follow suit.
Alfred Chia, Singcapital's chief executive, pointed out that there is no escaping that local mortgage rates will rise in tandem with U.S. rates anyway.
What should existing and future homeowners expect?
Dr. Tan Tee Khoon, PropertyGuru's Singapore Country Manager, said first-time homebuyers are likely to be the most affected given the potential rise in mortgage rates, as this is not the last wave of interest rate hikes by the U.S. Federal Reserve.
Tan Tee Khoon said, "Those who have time and are not in urgent need of a home can try waiting for a pre-buy HDB (BTO) if they qualify."
Following the real estate cooling measures in September, Dr. Tan noted that the resale market has seen a decline in transactions. However, prices in popular locations remain resilient amidst a lack of demand and supply.
MortgageWise.sg's Sean Wu noted that rising interest rates have an impact on potential homeowners, whose ability to borrow money will be limited by higher interest rates; at the same time, they are concerned about losing their jobs if a recession hits.
He said this will definitely create some resistance to demand. The advice he gives is to be cautious and avoid overcommitting to the home loan packages you sign, especially those with lock-in periods, especially fixed packages.
For existing homeowners, they should look for opportunities to readjust their loans, ask their existing finance companies for lower interest rates or switch to a new finance company for a new loan, Wu said.
Will residential rents rise next year?
Savills' report on the outlook for the local real estate market in 2023 suggests that residential rents and home prices will rise amid geopolitical tensions and rising interest rates.
The report notes that private off-site residential rents are likely to rise by 5% to 10% year-on-year in 2023 compared to an estimated 25% in 2022, meaning that the rate of increase will be much slower than this year.
Savills expects that it may take another 18 months for the market to begin to cool or correct, as the inventory of delayed completions caused by the pandemic (crown disease) will have been cleared by this time.
