Home prices set to drop as interest rates rise

Home prices set to drop as interest rates rise

SINGAPORE - No surprise that the European Central Bank and the Bank of England are keeping interest rates low, as the region grapples with debt.

No surprise too, that what's happening there is unlikely to spark a free fall here, with analysts expecting housing prices in Singapore to dip by up to 10 per cent.

CIMB Research economist Song Seng Wun said: "Europe plays a very minor role. The primary driving force on the Singapore Interbank Offered Rate (Sibor), which determines interest rates in Singapore, is interest rates in the US."

And signs are pointing to a rate increase here, as the US prepares to end quantitative easing and China tightens credit.

The result: less money available.

For home owners and those shopping for property, that means paying more for their mortgages.

Fluctuates

Associate professor Sing Tien Foo, deputy head of real estate at the National University of Singapore, said: "Home loans are pegged to a floating rate, which fluctuates.

"As interest rates rise by, say, 1 per cent, current home owners would have to fork out more cash to cover their monthly mortgages."

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