29 April (Tuesday)
as published in My Paper
WITH interest rates sliding, now could be a good time to move out of that rental apartment and get your own home.
Taking a home loan at a lower interest rate could translate into paying less than what you fork out in rent now, and getting the property under your name too, said consumer moneylender GE Money, which offers a range of consumer finance products such as personal and car loans, but not home loans.
Speaking to my paper on responsible borrowing in a climate of low interest rates and a strong Singapore dollar, GE Money's chief marketing officer, Mr Alok Kumar, said: 'It does make sense to buy property now because interest rates are low.
'If you haven't considered taking a housing loan, now is the time to consider that, because cash flow will make better sense today due to the lower interest rate and lower outflow.'
This is an option because the Singapore Inter-bank Offered Rate (Sibor) is on a downward trend, he said. Sibor, the rate at which banks lend to one another, is a key component used in setting home loan rates. It tends to track the United States Federal Reserve funds rate, which has been slashed in recent weeks.
The three-month Sibor has declined by more than one percentage point, from 2.38 per cent at the start of the year to 1.31 per cent at end-March. It dipped even further to just 1.25 per cent last week. Said Dr Chua Hak Bin, a strategist at Deutsche Bank's Private Wealth Management: 'It's an attractive time to borrow. There is still a chance that the interbank rates might move lower because the market expects the Fed to continue cutting rates.'
But GE Money's Mr Kumar said that consumers should also take a long-term view and understand the long-term risks.
He said: 'You can afford a loan today but, if the interest rate goes up four years later, do you see your earnings also going up' Will you be able to service the loan then?'
A DBS spokesman said that with lower interest rates now, customers would benefit from home loan packages that are pegged to benchmarks like Sibor, where it truly reflects the movements in interbank rates.
'However, one would also need to consider the purpose of the purchase,' said the spokesman.
'For example, if the property is meant for owner occupation, then the consumer should take a longer- term view on the housing loan.'
Besides, one does not buy a property just because of low interest rates, said UOB economist Ho Woei Chen.
'You also have to consider other things like housing prices now, and what you think the property market will be like going forward,' she said.
Mrs Lynn Ong, 32, who lives with her husband and three children in a rented house in Upper Thomson, is hoping to buy a house within the next six months, as her rent has just gone up from $3,000 to $5,000 a month.
'Lower interest rates mean I can get the most out of my money. Instead of paying rent, you service a mortgage,' said Mrs Ong, a contract adviser.
'It makes more sense that you put money into something that belongs to you.'
On the stronger Singapore dollar, Mr Kumar believes that investment in shares and funds traded in US dollars would provide higher returns.
'There are no clear low-hanging fruits that you can grab unless it's US dollar-denominated investments,' he said.
'But general prudence about spending and borrowing still prevails even in this environment.'