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.

Related: Iskandar (Singapore Suburb, in Malyasia) Housing blog – Ignorance of Many Mortgage Holders – Home Values and Rental Rates

Singapore ‘Shoebox’ Condo Sales May Prompt Extra Taxes

Singapore has been attempting to rein in prices since 2009, when the government barred interest-only loans for some housing projects and stopped allowing developers to absorb interest payments for apartments still being built.
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Sales have risen as developers offer smaller units, according to CBRE Group Inc. The median size of apartments declined 24 percent to 667 square feet in the quarter ended March from the previous three months while the median price slid 18 percent to S$786,340, it said.

Foreigners and corporate entities have to pay an additional 10 percent stamp duty following measures introduced in December. The extra levy is 3 percent for permanent residents purchasing a second home and for citizens buying their third residential property.

The next round of cooling measures will be targeted at curbing investment demand from Singaporeans, CLSA, a unit of Credit Agricole SA, said in a report dated April 17. The evidence of strong investor demand can be seen in the overwhelming response to “shoebox developments,” according to the CLSA report.

“We believe the government could potentially introduce further cooling measures should the positive trend persist,” analysts Melinda Baxter and Xin Yan Low at Merrill Lynch said in a note to clients dated April 16.

The measure Singapore is taking are fairly strong. It is sensible to try and prevent extremely high prices. Singapore is already on of the most expensive places to live. It seems to me these measure are wise. And taxing foreigners is always a nice thing to do if you can get away with it (and Singapore can).

Another way to cope with the real estate demands in Singapore is to make it more possible to move into Johor Bahru, Malaysia. Singapore and Malaysia have been working on strengthening ties and economic cooperation. There is even talk of extending the Singapore MRT into Johor Bahru before the end of the decade. Those talks are still pretty speculative (though senior members of both governments have expressed support for the goal).

Related: Transportation from Singapore to Johor Bahru Malaysia – Singapore Trourist Attractions