Is The Time Right?
For home owners and investors who wish to refinance their loan, do assess the situation and seek advice if in doubt. There could be a penalty that might cost them more than the savings they conserve from the low interest rate.
Chart 2
1997 Property Boom: During the 1997 Property Boom, investors and home buyers alike flocked to purchase real estate. The Property Market being a sentiment driven industry further increased in activity with the advent of such buying and as a result, 1997 saw the largest spike in Sibor rates in the illustrated 16-year period as the government increased interest rates in an attempt to cool the rapidly overheating market which drove Sibor rates up as a a consequence.
Asian Financial Crisis: The Asian Financial Crisis in 1998 caused interest rates to plummet from record highs to new lows as the government struggled to inject liquidity into the markets in order to boost consumer spending and stimulate the economy. This drop was reflected in the Sibor rates which were lowered drastically to encourage home buying and investing.
Dot.com Bubble Burst: The Dot.com Bubble finally burst after approximately 3 years of rapid expansion which led to many “paper millionaires” or investors who were overnight millionaires when their dotcom companies who often paid them in preferred shares went public. The speculative bubble finally burst and even though an estimated $5 trillion was lost during the fiasco, the effect was not really felt in Asia though the impacts on a rocked US economy was reflected in a small but distinct enough drop in Sibor rates as the shockwaves rippled worldwide.
2007 Property Boom: In the 2007 Property Boom, a similar scenario to the 1997 Boom occurred but on a smaller scale as consumers and investors were more cautious in a post-9/11 era. Nevertheless, speculative investors and home buyers took advantage of the low Sibor rates in 2004 to start buying property, once again driving up interest and Sibor rates as the government tried to curb a property bubble from forming.
US Subprime Crisis: The US Subprime Crisis, unlike the Dotcom Bubble, has had a major impact globally as nations around the world struggle to cope with the impact of the world superpower’s ailing financial system which has collapsed under its own weight and resulted in lower than ever consumer confidence and spending. Governments around the world are slashing interest rates to near 0% in a desperate attempt to inject liquidity and get cash flow moving again in order to revive their stagnant and dying economies. As of January 2009, the steady Sibor rate of 0.69% has reflected the global outlook of bleak economic movement and sentiment.
Ultimately, we advise borrowers to be prudent, and not to be too focused on the short-term gains. With reference to Chart 2, interest rates may be at a level that is advantageous to you now, but it may not last for long. You must be absolutely sure that you will still be able to manage the mortgage even if the interest increases by 1-1.5%.
As investment guru Warren Buffet once said, “Our favorite holding period is forever.” The strategy for the current market climate would be to use ‘cheap money’ to buy an undervalued property, rent it out, and wait for the value to appreciate when the market recovers.
Remember, as long as your rental covers all your expenses (e.g. mortgage cost, maintenance fee), it is an asset that you should keep for the long haul.
