The Singapore’s central bank or the Monetary Authority of Singapore warns city-state’s banks about the growing perilous loans due to the protracted economic slowdown. Although the country’s financial system noted that it remains capable of withstanding a severe stress event.
“Before investing in property, investors should be aware that rising vacancy rates, declining rentals, and impending interest rate increases mean that they may not always be able to rely on rental income to service their investment property loans,” The MAS reported on Tuesday. The MAS also disclosed its stress tests that show the Singapore’s financial institutions, corporates and households are capable of handling the present challenging environment.
The country’s property sales had a rapid growth from 509 in September to 1,252 in October of new home sold, it’s the highest ever since the sale last July 2015. But according to the Singaporean government, prices haven’t followed suit, with private residential property prices dropping 1.5 percent on-quarter in the third quarter. The recent decline is also recorded as the largest one-quarter ever since the global financial crisis last 2009, the recent drop is a mark on 12 straight quarters of decline.
“Transaction activity has held firm, perhaps buoyed by the low-interest rate environment and better matching of price expectations between buyers and sellers. Resale activity has increased and take-up at some newly-launched projects has been strong,” the MAS said. Also according to the MAS, the further demand in the market cannot be discounted because of the upside that risks the current low global interests.
Singapore’s GDP Stabilizes
The MAS recent reports revealed that all banks would remain solvent with their capital adequacy ratios (CARs) remaining well above Basel regulatory requirements under the stress scenarios. While the corporate sector leverage remained stable, with the corporate debt-to-gross domestic product (GDP) ratio having a more stabilized and round percent of 150 since 2015 Singapore’s central bank added. But despite the growths, a dwelling risk from heightened corporate leverage amid the declining earnings and the country’s central bank advises the firms should take steps to deleverage where possible and to refinance existing debt at favorable interest rates.
The low global interest rates, however, continues to juice the financial institution’s’ interest and investment income and perpetuate financial distortion. On the other side of the globe, U.S.A. could drive capital flow and currency volatility due to their faster-than-expected interest-rates.
“Currency fluctuations and shifting monetary policies in foreign economies could also affect the cost of debt obligations and rental returns for overseas properties. It is important for households to make investment decisions prudently and with a longer-term perspective,” the MAS on recent reports.
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