Home prices may slide when interest rates rise

Prices of residential properties in Singapore may decline by up to six percent when interest rates start rising, said a senior executive from Cheung Kong (Holdings) in a report by Reuters.

However, the red-hot housing market in Singapore, as well as in China and Hong Kong, are unlikely to see a collapse.

Home prices in these three countries have climbed this year, due to low interest rates and strong economic growth. But this has resulted in growing concern over a property bubble and forced the governments to implement cooling measures to curb prices.

“In Singapore, because the government has always been paying attention to the housing market, I would say the fluctuations would be much smaller, in the single-digit range,” said Justin Chiu, Executive Director at Cheung Kong. “Even if it were to come down, it will probably be five, six percent maximum.”

Chiu saw slowing activity in the overall housing market, with fewer transactions taking place in Singapore.

Sales of new private homes in the country dropped 13 percent in May from the previous month, said the Urban Redevelopment Authority (URA), signalling greater caution among buyers, amid efforts by the government to curb the housing market.

Although property market bubbles in Singapore, China and Hong Kong have raised concerns of a collapse, Chiu does not see this happening, as non-speculative demand for houses has remained firm, buoyed by robust economic growth.

However, the residential market in Hong Kong is more speculative than Singapore’s, as it has more international buyers. Hence, Chiu said it could expect bigger fluctuations than Singapore.

“Hong Kong, Singapore (and) China won’t see a collapse but there’ll be some minor fluctuations, adjustments, correction as a result of government actions and buyer sentiment, but this won’t lead to a major collapse.”

Hong Kong, which is home to the most expensive residential and office properties in the world, has experienced home price increases of 12.5 percent this year. Like its Asian neighbours, it has imposed policies to cool down speculative demand, such as lowering loan-to-value ratios and slapping stamp duties on short-term transactions.

Source : PropertyGuru- 23 Jun 2011

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