These days, speculative investments — especially in crypto trading and innovative technologies — have been rising. In a recent article reported by The Straits Times, Tharman made a statement to warn home buyers about rising interest rates and the risks that come with speculative investments.
Why are speculative investments affecting properties? And what has that got anything to do with home buyers?
In this article, we’ll discuss how the current economic situation could impact properties and what home buyers should be prepared for.
Rising interest rates affect all assets
Interest rate returns are factors most of us tend to ignore because it’s simply way too low.
In fact, figures of interest rate returns aren’t even enough to beat inflation rates. That’s why many are finding alternative avenues to park their funds to earn higher returns, or at least to beat inflation.
However, the trend in low-interest rates seems to have taken a turn recently. Due to policy changes in the US, interest rates have been rising.
As Singapore’s economy is closely tied with the US, any movements in US interest rates will bound to affect our economy.
One point to keep in mind is that although our economy will be impacted as a whole, different assets will be affected to a different extent.
What does this mean for the property market?
So what does the US’ rising interest rate have anything to do with Singapore’s property market? More than you might expect!
As interest rates rise and our economy responds to these changes, it could lead to rising debt servicing costs. This means that the cost of repaying your debts is expected to go up.
According to The Straits Times, most buyers should have the financial capacity to service their mortgage loans.
However, some households may face cash flow strains as their debt servicing becomes more expensive.
Unexpected rising home prices in Singapore
Despite poor economic performance and the COVID-19 pandemic, property prices have been steadily rising since last year.
In fact, private property values have risen 2.9% in the first quarter of 2021. In response to increasing prices, the Singapore government is looking to further tweak and implement other property cooling measures to prevent further price hikes.
In view of rising property prices in Singapore, coupled with rising interest rates, home buyers will need to practice caution when making their purchase.
Since properties require long term financial commitment, buyers need to ensure that they have the ability to service their loans.
Instead of only considering their current financial circumstances, buyers need to remember that interest rates are set to rise, and servicing their loans will be increasingly expensive.
Added caution on speculative investments
As more and more people are interested in higher-risk investments, Tharman also cautioned against investments related to cryptocurrencies.
At the moment, bonds and shares remain a large portion of our investments.
Crypto-trading is still not a major asset that most investors are investing in, but it accounts for 2% of the average daily trading volume in 2020.
Globally, the market value of cryptocurrencies has surpassed the US$2 trillion mark as investors are using crypto investments to boost returns.
This trend will likely continue to rise, with many prominent billionaires like Elon Musk and Mark Cuban endorsing cryptocurrencies.
There are still many uncertainties in how the crypto space will evolve, and Tharman mentioned that “MAS has been closely monitoring developments… to ensure that regulation remains effective”.
Any form of movement and changes in the economy will cause a ripple effect on other markets in Singapore.
Crypto and the property market may not seem to share any common ground on the surface, but changes in one could very well affect the other.
Just this year, 100 police reports were lodged regarding Torque, an online crypto trading platform run by Singaporean businessman Bernard Ong. About 14,000 accounts were suspended without warning on the platform, many of which were Singaporeans who lost significant portions of their life savings.
While the government puts in place necessary measures to prevent fraud and tighten security in the crypto trading space, investors should also practice caution on their part.
At FinanceGuru, we seek to help homeowners find the best home loan and help them achieve their financial goals. Learn more about how you can optimise your home loan and uncover potential ways to save you money and time. Get a non-obligatory assessment and loan product recommendations today.