Singapore Housing: Most Expensive and Most Affordable?

Singapore Homes Most Affordable As Rents Climb

“The clincher in Singapore is that monthly installments toward repayment of your loan are lower than what you would pay in rent,” said Anantharaman, a private banker at ICICI Bank Ltd., who took out a S$1.04 million mortgage for his S$1.3 million property late last year. “It’s one of the few countries in the world where that is possible,” because of the low interest rates, he said.

Homebuyers like Anantharaman are taking advantage of mortgage rates at an all-time low in the Southeast Asian island- state, even as prices are almost at a record high and the government introduced measures to cool the property market. Home affordability in Singapore has risen to the highest in a decade because of historically low interest rates and flexible payment options available to buyers, according to Jefferies Group Inc.

It was just the last post where I wrote about policies Singapore is taking to slow the rise of housing prices. Mortgage rates are a huge issue. If Singapore wants to slow the rising prices they should not allow variable rate mortgages. They also should consider eliminating mortgages over 30 years. The price might be what economist pay attention to but those looking to buy a place to live mainly look at their payment (the price is of some concern but not nearly as much as the payment). Super low rates greatly increase the price people can pay while keeping a low payment. 40 year mortgages also decrease the payment (though really not that much at super low rates).

Anantharaman, 29, pays 55 basis points over Sibor on a 40- year mortgage, effectively giving him a home-loan rate of less than 1 percent. By contrast, mortgage rates in India, his home country, are about 11 percent, according to Rajan Tandon, the Singapore-based head of Housing Development Finance Corp., the largest home-loan provider in India.

Mortgage rates in Singapore are the lowest in Asia, followed by Hong Kong, said Sanjay Jain, an analyst at Credit Suisse Group AG in Hong Kong. His analysis does not include Japan.

Hong Kong’s average mortgage rate is about 2.15 percent, while China’s is 7.43 percent, according to Barclays Plc. Indonesian rates range from 8 percent to 10 percent while in South Korea they are about 5 percent, according to the bank.

In New York, the $1.1 million median price of a condominium makes renting a better option, with the median monthly rent of $3,100. The average rate for New York 30-year fixed jumbo mortgage is 4.24 percent this week, according to Bankrate.com. Using those numbers, the monthly payment for a mortgage would be more than $4,500.

It doesn’t seem possible to me that the Singapore rate is a 40 year fixed rate. If it is the lenders are crazy (and likely to have huge problems). Instead it is likely a variable rate in which case the borrowers could be in for some real problems when interest rates increase. Calculating things at 1% gives extremely faulty views of affordability (using a variable rate mortgage).

If you are very certain you will move before 5 years (selling your property) variable rate might make sense. If you plan on owning for the long term, variable rate mortgage do not make sense, in my opinion. The super low rates we have not are only a matter of the governments trying to bail out the bankers and cope with the catastrophic problems created by the banking/credit crisis. The unsustainable rates might well last a couple more year (or might not) but the odds of them being here 5 years from now are vanishingly small.