Inflation is at its highest in the last 10 years and coupled with rising interest rates, we have received concerns from some clients if they should purchase real estate in this climate. It is fully understandable to be fearful at this point in time, however, we believe real estate is a great hedge against inflation and with the right dose of knowledge, our clients will be empowered to make the right decision.
Price Support of New Launches
In a land scarce city like Singapore, developers obtain land to develop mainly through land sales through the government or en-bloc of existing and with rising labor, material and land costs due to inflation, these new launches will undoubtedly be priced at a “premium”. With this price gap, existing developments will now seem undervalued and hence, prices will move in tandem with the new developments.
Another reason to lock-in on a property in the current market is also to leverage on existing rates. For the majority, real estate purchases are financed using a mortgage loan. In a rising inflationary environment, the actual value of the Sing dollar during the time of borrowing will be more when compared to the real value during the loan repayment. This is due to the fact that loan amounts are not adjusted for inflation and the mortgagor is ultimately the beneficiary.
With regards to rising interest rates, we shall not delve too much into the numbers which had been covered in an earlier post. Ultimately, a 1% increment in interest rates will not be significant enough to turn our markets into a tail-spin. Furthermore, the Singapore government has been far-sighted and has encouraged prudent real estate ownership with fiscal policies over the years, creating a very stable environment for real estate prices to appreciate.
Hope this post has provided some clarity for the real estate situation. If you like what you have read, do follow and give us a like.
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