In its annual Financial Stability Review, the Monetary Authority of Singapore (MAS) says that Singapore households should “carefully consider the impact of interest rate increases and the upcoming supply of new units in the medium term” when considering property purchases.

The central bank notes that that this year, housing loans – the main contributor to household debt - have increased, in tandem with the pick-up in housing demand. Household debt grew 3% y-o-y in the last quarter. Outstanding housing loans increased 3.3% y-o-y in September this year, and accounted for about 16% of total non-bank loans that month.

The value of new housing loans rose by 30% y-o-y as of July this year, and new housing loans rose to an average of $3.8 billion per month in the first seven months of this year, up from $3.4 billion over the same period last year.

Residential property assets grew 7% y-o-y in 3Q2018, as private residential property prices increased sharply, by a cumulative 8.8% between 4Q2017 and 3Q2018, alongside increased transaction activity. MAS cautions households to take into account their ability to service their debt, given “headwinds of rising interest rates”. Rental yields are also expected to remain “weak”, and households should “exercise prudence when considering taking up loans to fund property purchases”, the bank says.

Concerning the recent property cooling measures, MAS says that the “adjustments” were made to avoid large, unmoderated price swings which would have compromised asset prices and the economy’s financial stability, and become especially harmful to home owners. The central bank says that the recent measures have helped temper the upswing in the property market, and “strengthened household balance sheets in the long run”.

Private residential property prices increased a cumulative 9.1% in the four quarters since 3Q2017, reversing the “gradual cumulative decline” of 11.6% over the preceding 15 quarters. Transaction activity has also moderated as total transaction volume moderated to about 6,000 units in the last quarter, 26% and 28% lower compared to 2Q2018 and 3Q2017 respectively.