Interest rates are through the roof, so why haven't we seen a property slowdown?

Textbooks say that when interest rates rise, we should expect a downturn in the property market. With it being strongly sensitive to changes in interest rates, when rates go up, it gets more expensive to service your mortgage. Thus, you may be tempted to sell your investment property and perhaps even choose a smaller home for purchase.

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In fact, many bank loan rates are higher than HDB’s loan rate of 2.6% p.a which is a rare phenomenon since the global financial crisis in ‘08. This then drives prices down as demand falls and supply increases.

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However, if you’ve been paying attention, this hasn’t translated to real world Singapore. Surprisingly, prices are steadily climbing this whole year with record prices being set almost every other week.

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So what gives?

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Inflation — and the fact that there’s nothing else to buy.

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We always hear that property is usually a great hedge against inflation. Property prices rise with inflation making it a steady growth asset with little chance of losing money.

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Typically, if people aren’t buying property, they would be buying other investments.

There’s just no point in keeping cash, as inflation is still higher than the bank’s savings rate or fixed deposit is going to give you.

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For instance, Stocks, Bonds, Gold, and now even Cryptocurrencies are alternative options to a property purchase.

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But with the downtrend of these assets, everyone’s worried about making future losses on market uncertainty, especially with a looming recession.

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The post-pandemic era is making many tread lightly on eggshells and no one wants to take big bets on the future.

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Property seems to be the safest option.

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As a matter of fact, higher interest rates may seem like just an inconvenience instead of a real detractor in the market.