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[SINGAPORE] Investors seeking to buy property in Singapore or Hong Kong this year may be better off listening to US Federal Reserve Chair Janet Yellen than a real estate agent.
The Fed is widely expected to raise interest rates sometime in the second half of 2015 as the US economy improves and inflation remains benign. As interest rates rise, property prices in Hong Kong and Singapore may fall by as much as 5 per cent this year, according to a report on prime residential real estate in the region by property consultant Knight Frank.
In Hong Kong, where the local dollar is pegged to the greenback, a rate hike would lift floating mortgage rates, pressuring property prices. In Singapore, the three-month Singapore Interbank Offered Rate (Sibor), commonly used to set mortgage rates, has already soared ahead of the expected Fed move. In January, Sibor rose to levels not seen since 2010.
"A lot, however, will depend on how the Fed manages this - as inflation doesn't seem to be an issue at the moment - but one could speculate that this could happen around the third quarter this year," Nicholas Holt, head of Asia Pacific research at Knight Frank, told Reuters. He said a fall in real estate prices could spur the governments of Hong Kong and Singapore to ease their stringent property market cooling measures.
In contrast, prices in Sydney - which with Hong Kong and Singapore were the Asia-Pacific locations where foreigners bought the most property in the fourth quarter of 2014 - are likely to rise by up to 5 per cent, buoyed by a weaker Australian dollar.