One of the main causes of the “property fever” is attributable to the policies set by the US Federal Reserve during the period following the global financial crisis. In order to stimulate economic recovery, the Fed kept interest rates low and initiated several rounds of Quantitative Easing (QE) – an exercise where the Fed purchases bonds and other financial instruments from private financial institutions to increase money supply.
As a result of cheap money available on capital markets, home loan rates from local banks fell to record lows and were in the range of 1.7% per annum in 2012. The historical interest rate for Singapore home loans is between 3% to 4%. This environment of inexpensive loans contributed significantly to the buying frenzy by local and foreign speculators.
The rapid, upward price spiral alarmed the Singaporean government. There were concerns that a property bubble was forming, with a large number of property owners over-leveraging and facing an increased risk of default in the eventuality that interest rates rose.
Constant news of high property prices also caused a degree of social unrest as Singaporeans worried about the affordability of housing. At the property peak in 2013, the grumbling took on xenophobic tones as locals lay the blame of a heated property market on an influx of affluent foreign buyers.
The Singapore Government stepped in and implemented several rounds of cooling measures (eight in total), which included raising stamp duties and imposing tighter loan restrictions. The cooling measures resulted in its desired effect of stabilising prices. As of Q2 this year, housing prices declined for seven straight quarters.
This may lead some to ponder if now is the right time to enter the property market. Here are some factors to consider: