Low rates to stay down

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#1
Don't blame me for being cynical - this is the key reason why the property market is so bubbly and everyone is boozing on cheap credit to use as leverage for speculation!

Jun 27, 2011
It's good news for home buyers but bad news for savers
Low rates to stay down

Interest rates to remain rock-bottom for at least another year: Economists
By Robin Chan

HOME owners can rest easy: Interest rates will stay at rock-bottom levels at least for another year, say economists.

But that's just another 12 months of bad news for savers, who will have to keep looking for higher returns.

The possibility that interest rates could be on their way up was raised after the Monetary Authority of Singapore (MAS) proposed a standard factsheet for banks offering home loans. It was meant to highlight how their loan repayments could rise if interest rates go up.

National Development Minister Khaw Boon Wan has also warned that interest rates cannot stay low forever.

Interest rates have fallen to record low levels and stayed there since the United States Federal Reserve slashed its own interest rates to near-zero, to boost growth amid the global recession.

The three-month Singapore dollar Swap Offer Rate, a popular benchmark rate used for home loans, hovers at just 0.2 per cent today, but was more than 3 per cent five years ago, while the three-month Singapore Interbank Offered Rate (Sibor) has stayed at a record low of 0.44 per cent since January.

The low interest rates here are in contrast to higher rates in the rest of Asia, as central bankers have hiked rates to combat the higher prices of food and fuel.

But Singapore has remained the exception. The MAS uses the exchange rate as its monetary policy tool to fight inflation, given the large export dependence of the economy.

As a result, Singapore's interest rates have tended to move closely with the US Fed funds rate.

There appears to be little upward pressure on interest rates here.

A Straits Times check with six banks that offer term deposits and home loans showed that none had raised interest rates or the spreads on its home loans this year.

Citibank said its one-year term deposit rate had even been lowered from 0.3 per cent to 0.25 per cent in January, and it continues to offer mortgage rates at Sibor plus 0.7 per cent.

A sign of uncertainty over interest rates could be evident if more home buyers turned to fixed rates rather than floating packages.

Mr Peng Chun Hsien, head of secured finance solutions at Citibank, said the proportion of applicants requesting fixed rate loans compared with those wanting floating rate loans has actually dipped from about one-third to less than one-tenth, with 'rates looking rather benign'.

The low-interest-rate environment has led to a surge in demand for property.

But buyers know that these low rates will eventually have to rise, said Mr Patrick Liew, chief executive of property agency HSR.

OCBC Bank economist Selena Ling said: 'While the fact is that interest rates will eventually rise, the question has been when.'

The possibility of a Fed rate hike at the end of this year had strengthened as the global recovery appeared to be on solid ground earlier this year, she said.

But a recent spate of disappointing economic data out of the US, an escalation of fears in Europe as Greece heads towards a debt default and the supply disruptions caused by the Japanese earthquake and tsunami have now put paid to that notion.

Ms Ling said: 'We are not looking for a big spike in Singapore interest rates. If anything, cues from the Bank of England and the Fed show that essentially because of a growth slowdown, they will keep monetary policy soft for longer.'

Barclays Capital economist Leong Wai Ho forecasts a Fed rate hike only in July next year.

'The rates rises will be immediate, so it is quite conceivable that by the end of July 2012 we could see mortgage rates in Singapore rise by 75 basis points,' he said.

So a rise in borrowing rates is imminent, but not immediate. And for now, home buyers appear little moved by the looming rate hike, said ERA Realty key executive Eugene Lim.

'Generally, people are aware that interest rates will go up, but because they are very, very low now, it is not a big concern for them. Buyers say: 'How far can it go up?' They believe that they will have time to take evasive action if necessary,' he said.

chanckr@sph.com.sg
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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#2
Musicwhiz,

what are you waiting for? time to get GSS on private property.
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#3
(27-06-2011, 08:47 AM)steven Wrote: Musicwhiz,

what are you waiting for? time to get GSS on private property.

I don't quite understand what you mean.

Care to explain?
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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#4
GSS - Great Singapore Sale

asking you do use leverage and get hocked to your eyeballs deep in debt.
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#5

even in Australia where interest rates on home loans hover at 8%, property prices have been skyrocketing (at least, in the big cities). Another pertinent point is the huge influx of people without sufficient supply.
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#6
Musicwhiz,

You may want to read an article I got from Lucky Tan's blog about "Fed May Buy $300 Billion in Treasuries After QE2" (The link is at the end). The Bloomberg report actually reinforces Robin Chan's article.

http://finance.yahoo.com/news/Fed-May-Bu...set=&ccode=

After reading reports after reports about how the rates will rise/fall, I have become desensitised to all these news. I have learned that no one can ever predict what the future may lie. Despite this, there will always be "analysists" who will predicting the future because these analysist will become famous if they get it right. It is a 50-50 chance. If you get it wrong, who will ever remember your report. But if you get it right, you will become famous. Just like Meredith Whitney, who guessed it right about Citigroup. Too bad, her other predictions are not that accurate.
www.joetojones.com - Helping the average Joe find the winning companies to invest in.
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#7
(28-06-2011, 05:55 AM)natnavi Wrote: After reading reports after reports about how the rates will rise/fall, I have become desensitised to all these news. I have learned that no one can ever predict what the future may lie. Despite this, there will always be "analysists" who will predicting the future because these analysist will become famous if they get it right. It is a 50-50 chance. If you get it wrong, who will ever remember your report. But if you get it right, you will become famous. Just like Meredith Whitney, who guessed it right about Citigroup. Too bad, her other predictions are not that accurate.

Yep thanks have been to Lucky's blog quite often and read what he had to say.

I do agree it's impossible to predict what may come, accurately and consistently. Yet, many keep trying! I guess my point is that if low rates continue to stay, this will further strengthen the already "bubbly" property situation here, and lead more young couples into financial slavery. The Govt seems powerless to stop it and the rich keep flowing in to Singapore, pushing prices even higher. I just feel that this has to stop someday - but I don't know how or when it will happen.
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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#8
SPW#5 - Will interest rates go up soon?

We're happy to send you the fifth issue of our FREE e-magazine, Singapore Property Weekly, through which we hope to bring interesting and pertinent articles on the Singapore property market to you.
Unfortunately the PDF is too large this time to attach to this email, so you should head here to download it from our site.
http://www.propwise.sg/singaporepropertyweekly/

Thanks to all who participated in our reader survey - we've done a write up with the results of the survey in this edition as well. Congratulations to audreylao, lipkoon.teng and fsheng_25 - you've won a copy of the Secrets of Singapore Property Gurus. We'll be contacting you soon about it.
http://www.propwise.sg/secretsofsingaporepropertygurus/

In this week's issue:

* Singapore Property This Week (News summaries of the key property news on a weekly basis)
* Will Interest rates go up soon?
* Survey Results - Who reads the Singapore Property Weekly?

Happy reading!

To wisdom and beyond,

Mr. Propwise

P.S. Do you know someone who would benefit from this article? Forward it to them!
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#9
Steven,

Could I request for you to just copy/paste the relevant info onto the thread?

Copying/pasting wholesale would give the impression of trying to market the Propwise publication.

So please copy/paste selectively, thank you.
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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#10
I agree with you totally Musicwhiz.

It is really frustrating waiting for the Feds to raise their interest rates (I want to buy a home now). From the way things are moving, I really wonder how long will they keep their rates down. Are they not worried about stagflation? The inflation rate is steadily rising in the usa but the Feds denied it couple of months ago saying that it not a "real" inflation.
www.joetojones.com - Helping the average Joe find the winning companies to invest in.
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