As the fourth most expensive city for real estate, owning a home in Singapore isn’t easy. Yet, many Singaporeans are still chasing the homeownership dream. And if you are one of them, here are three macroeconomic events you need to know as a homeowner.
1. Fed’s interest rate decision
Have you ever wondered why does the US Federal Reserve (The Fed) command so much attention from people and markets around the world? Why is it that markets get impacted whenever any member of The Fed speaks about the economy? This would be clear to you if you have a finance background. But for those of you who aren’t, here’s why.
Everyone looks towards The Fed as a beacon of truth for the “right” interest rate to charge. The Fed controls the short-term interest rate curve by voting on the short-term interest rate. This is done through the monetary policy arm, i.e. Federal Open Market Committee (FOMC).
The Fed raises or lowers interest rates through its regularly scheduled FOMC meeting, which happens eight times a year. During the meeting, the FOMC reviews the current economic data and sets a target for the Fed funds rate. This is the interest rate that banks charge each other for overnight loans, similar to the Singapore Interbank Offer Rate (SIBOR).
Once the Fed funds rate is set, every banking activity builds on that rate to price its other products. This includes loans such as property loan and unsecured loans (e.g. credit card). Thus, whenever the Fed makes any changes to its desired interest rate, banks will adjust their loan interest rates accordingly. Some of you might ask, “So what does this have to do with Singapore? It’s in the US, right?”.
Unfortunately, that’s not true. SIBOR and Swap Offer Rate (SOR) moves in tandem with the Fed’s fund rates.
Whenever Fed decides to raise interest rates (like it did a few times in 2017), the interest rate on your home loan will follow suit. Even other interest rate benchmarks like DBS’ Fixed Deposit Home Rate (FHR) and OCBC’s Fixed Deposit Mortgage Rate (FDMR) are also affected. So, as a homeowner, keep a lookout for anything related to the Fed the next time you are reading the news.
2. Economic growth
In PM Lee Hsien Loong’s new year message, he announced to Singaporeans and the world that Singapore’s economy expanded. To be exact, our gross domestic product (GDP) grew by 3.5% in 2017, more than double the initial forecast. GDP growth might not sound like it has a lot of impact on you as a homeowner. But in reality, it does.
GDP growth affects a few things. In particular, it affects income and unemployment rate. When the economy is growing, companies will continue to do well. This would potentially translate to higher income for you and me. It would also lead to more job opportunities as companies expand to capture all the business opportunities.
With higher income and the lower unemployment rate, it would naturally lead to higher demand for housing. You could witness your home price rising as demand for housing surge. If your home loan is eligible for refinancing, you might see your interest get reduced as your home price rise. For private property owners, you can even do a cash-out refinancing.
3. Singapore’s Budget
Singapore’s Budget statement is another macroeconomic event that you need to look out for if you are a homeowner, especially a potential homeowner.
One key section that you need to watch out for is the Finance Minister’s announcement on Central Provident Fund (CPF) Housing Grant. First-timer couples who purchase flats from Build-To-Order (BTO) schemes or resale market are entitled to housing grants.
In 2016’s Budget, housing grants were extended to couples comprising of one first-timer and one second-timer public housing applicant. While the grant amount is lower compared to a first-timer couple, it was still welcomed by Singaporeans.
In 2017’s Budget, CPF Housing Grant for first-timer couples purchasing flats from the resale market was increased from S$30,000 to S40,000/S$50,000. First-timer couples who are buying four-room or smaller flats from the resale market are entitled to an enhanced S$50,000 CPF Housing Grant. For those purchasing larger flats, they were entitled to S$40,000 CPF Housing Grant.