(Bloomberg) -- Singapore's government is warning home buyers to think carefully about purchasing properties as interest rates increase in tandem with those in the U.S., potentially boosting debt servicing costs.
“The risk of rising interest rates is a reminder that everyone should continue to exercise caution in their property purchase decisions,” Monetary Authority of Singapore Chairman and Senior Minister Tharman Shanmugaratnam said. He was speaking in response to a parliamentary question on Monday on the impact of rapidly rising U.S. long-term rates on the city-state.
Rising rates in the U.S. should be seen in the context of a strong economic recovery there, which will add some momentum to Singapore's own rebound, Tharman said. Singapore's economy is expected to grow between 4% and 6% in 2021, after shrinking 5.4% in 2020 due to the Covid-19 pandemic.
While most buyers should continue to be able to service their mortgage loans, a small percentage of households within the private property market could face cash flow strains, he added. MAS analysis showed that the median household's mortgage servicing ratio would remain manageable even under a stress scenario of a 2.5 percentage point increase in mortgage rates and a 10% drop in income.
“Buyers should assume that interest rates will rise, and be sure of their ability to service their loans before making long-term financial commitments,” Tharman said.
The warning comes amid a rapid rebound in Singapore's residential property market. Home prices grew at a faster pace last quarter, adding to speculation that the government could join other nations to introduce another round of curbs to calm the market.
Private property values rose 2.9% in the first three months of 2021, the most since the second quarter of 2018. Singapore last imposed cooling measures in July of that year.
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