20130707 Mortgage rates – does the govt plan ahead or simply reacting?

From: phillip ang
Sent: Sunday, July 07, 2013 1:38 PM
To: THEREALSINGAPORE ; <a title="theonlinecitizen ; TRE
Subject: 20130707 Mortgage rates – does the govt plan ahead or simply reacting?

I refer to CNA’s article ‘New home loan rules a “structural measure”: Khaw’ dated 30 June. (link)

To better understand what Minister Khaw was saying, let’s take a look at 10 year government bond rate (yield).
Singapore’s interest rates move in tandem with US rates (see US and Singapore 10 year bond yield charts below). US 10 year govt bond yield hit bottom about 1 year ago and from end April 2013, it spiked from a low of about 1. 6 per cent to hit 2.7 per cent in late June.

US 10 year bond yield (5 year chart)

Singapore 10 year bond yield (5 year chart) moves in tandem with US rates.

(On May 22, the Fed had already hinted at tapering its $85 billion monthly bond buying program)
In Singapore, the 10 year government bond yield also spiked from a low of 1.38 per cent on April 30 to hit 2.77 per cent on 24 June. https://secure.sgs.gov.sg/fdanet/BenchmarkPricesAndYields.aspx
Lo and behold, almost 1 week later, the government announced its “structural measure”!

Minister Khaw also said today’s low mortgage rate of 1.5 per cent will not stay forever. Again, why not advice Singaporeans during the last 1 year but only after witnessing long term interest rates spiking worldwide during the last 2 months?


The 3.5 per cent rate that banks must use in their mortgage computation is also a lagging indicator. It appears to be based on a 3.5 to 4 per cent band within the last 10 years. (see Singapore 10 year bond chart, 1998 to 2013)
In trading, this is known as the resistance level.

The government should cease extrapolating from historical data alone because this could be an inflection point.
Are there any contingency plans should rates go through the roof?

On the issue of reining in housing prices, the government has performed abysmally at best. The 7 rounds of cooling measures should have brought down property prices but had instead achieved the opposite intended effects.
The cooling measures were implemented since 14 September 2009, almost 4 years ago. (http://www.ura.gov.sg/pr/graphics/2013/pr13-40a.pdf) Since then, the property index continued north, from 130 to currently above 210.
Cooling or heating measure?

Minister Khaw also said “those people buying for home ownership is not an issue”. With 1100 sq ft condominiums (equivalent to a 5-rm HDB flat) going for $1 million and above, there are many dual income families with huge loans amounting to $800,000 and above.
What about new, uncompleted, DBSS 4 and 5-room HDB flats priced above 600k to above 700k?

Singaporeans have a culture of overextending themselves with property purchases ‘to look good’. In the event of another crisis, job security is also not guaranteed and logic ceases to exist in financial markets. In the 1997 financial crisis, we have already witnessed the speed of property going into negative equity. Is Minister Khaw very sure that property purchases not made for investments carry little or no risk?


Property cooling measures become a big joke when they achieved the opposite intended effects. The problems must have already been acknowledged by the government in 2009 and compounding during the last four years since every measure has been ineffective.

The government has to anticipate issues instead of being reactive. .

Phillip Ang

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