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REITData -> TalkStock -> Property -> Interbank Rate
Post Info TOPIC: Interbank Rate
KK


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Interbank Rate
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Extracts fm DBSVickers Report dated 25-Nov-05,

Residential Property

Rising interest rates - Impact not as bad as you think

Contrary to prevailing market views, we are not negative about rising interest rates. Instead, we believe and recognize that rising interest rates are a reflection of improving economic fundamentals. The DBSV Housing Affordability Index, which measures a household’s ability to service annual home loan payments, show that in a rising interest rate environment, there is a corresponding rise in transaction volumes. Interestingly, there is no strong correlation between affordability and level of housing transactions. This can be explained by the absence of variables such as changes in demand sentiment and homeowner ability to upgrade/downgrade. We believe steady GDP growth, low unemployment, rising salaries and foreign participation should sustain the recovery of Singapore’s residential property market in 2006. We expect the property sector to be firm next year, and have a Neutral recommendation as property counters have already outperformed this year, rising 35% YTD. We would recommend buying on weakness. Our top picks for the sector are Capitaland, Allgreen and Wing Tai .


  • Affordability Ratio. We analyzed data from 1Q99 to 3Q05, imputing variables such as median prices of non-landed private property, interest rates to determine interest payments, as well as median average salaries and changes in CPF contribution rates to determine the homeowner’s ability to service the loan.

  • Contrarian picture. From the graph below, interest rates and housing transaction volume had little correlation (-0.09), implying that interest rates mean little in determining housing sales. But note that from 2Q03 to 3Q05, there was rising transaction volumes and rising interest rates.

  • Big picture tells a different story. We expected housing transactions to be positively correlated with affordability, but learned otherwise. For example, 2Q99 and 1Q01 represented the highest units transacted, at 6,500 and 5,498 respectively (vs average of 3,124), although interest rates were 2.3% and 1.8% (mid-points of the respective periods).

  • Summary The house-buying decision includes more variables than we can incorporate into the model, such as ability to afford downpayment, demographic trends, ability to upgrade/downgrade, economic expectations and aggregate salaries (including unemployment). Our view is that Singapore’s steady GDP growth of 4-5%, low unemployment of 3.3% and foreign participation (from China, Malaysia and Indonesia), will result in the continued recovery of the housing market, in terms of both price and transaction volume.


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tfwee


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Interbank rate highest in nearly six years

Home-loan payments set to move up again, as Sibor's rise catches analysts by Surprise

By Erica Tay
Nov 23, 2005
The Straits Times

MORTGAGE borrowers look increasingly likely to face a not-so-merry Christmas this year, as far as paying off their loans is concerned, after a local benchmark interest rate jolted up sharply yesterday.

The key three-month Singapore Interbank Offered Rate (Sibor), which last Friday was just under 3 per cent, shot up to 3.125 per cent yesterday - a level not seen, incidentally, since Christmas Eve six years ago.

Sibor is the interest rate at which banks lend excess deposits to other banks in Singapore, and influences the rates that ordinary borrowers pay on their loans.

Now, analysts are predicting that Sibor could skyrocket to 4 per cent by the end of next year.

The reason: Overwhelming signs point to the United States central bank, the Federal Reserve, continuing its rate-raising spree next year. Sibor inevitably follows Fed rate movements.

The Singapore benchmark rate's rapid climb from only 2.25 per cent last month already had some economists throwing out their previous forecasts for interest-rate rises.

'A lot of people have been caught off guard by this rise,' said United Overseas Bank economist Jimmy Koh.

The historical relationship between US rates and Sibor imply that the Singapore market is expecting the Fed to hike rates to 4.75 per cent next year, up from 4 per cent now, he explained.

Credit Suisse First Boston's (CSFB's) Singapore-based economist, Mr Sailesh Jha, expects the three-month Sibor to reach 3.5 to 4 per cent by the end of next year, up from the 2.9 per cent previously forecast.

'The key factor behind our forecast revision for the three-month Sibor is that inflation expectations may rise over the next six to 12 months,' he said.

CSFB economists therefore expect the Monetary Authority of Singapore to tighten domestic money supply next year to combat inflation expectations.

Meanwhile, OCBC's head of treasury research, Ms Selena Ling, put yesterday's surprise rate jolt down to a shortage of liquidity in the interbank market, corporate hedging activities and, until Monday, Singdollar weakness.

However, where the benchmark rate heads next year will depend mainly on the Fed funds rate, which has climbed from 2.25 per cent to 4 per cent so far this year.

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