THEEDGE SINGAPORE | JANUARY 11, 2016 • EP3

THEEDGE P R O P E R T Y PROPERTY TAKE

Mortgage interest rates in Singapore for 2016 and beyond

We have established that the Sin-gapore interbank offered rate (Sibor) seems to be highly corre-lated to the US Federal Reserve funds rate target. Hence, we

tend to watch the Fed to find clues to where the mortgage interest rates in Singapore are moving towards.

In August 2015, we forecast that “at a rate of 0.1% drop in unemployment a month, by November, it should fall below 5% at current trajectory and the Fed may be tempted to raise the funds rate target by 0.25% to 0.5% as a precautionary measure”.

In December, US unemployment rate dropped to 5% and the Fed raised the overnight funds rate from 0.25% to 0.5%.

The unemployment rate looks to be on a downward trend, while disposable incomes are rising. Economic and political pressures are building up for wage growth in 2016. Thirteen US states are raising minimum wages.

The Fed would watch keen-ly whether the economy is over-heating and causing inflation and raise interest rate to cool it down.

Labour tightness contrib-utes to inflation, while import price drops are disinflationary. However, personal consump-tion was at 68.83% of GDP as at November. Hence, rising dis-posable incomes would likely lead to infla-tion. Oil price may recover in 2016, raising the inflation figure.

The rest of the world was largely in a de-flationary environment. This caused the US import prices to dip, further aided by the strengthening US dollar. The drop in oil im-port price played a large part in the drop in US import prices, leading to low inflation in the US in 2015.

Interest rates in major economiesIs the world headed for recession? We can look at the respective regions’ interest rates as an indicator.

Interest rate in the euro area is flat at 0.05% — the lowest ever. China’s one-year benchmark lending rate broke a new low at 4.35% and Japan’s interest rate is 0%. This indicates weakness in the economic outlook for Europe, China and Japan. In the case of the euro area and Japan, the interest rates cannot drop further. Hence, monetary eas-ing is implemented to try to create inflation.

The euro area, China, Japan and the US make up about 65% of the world’s economy at US$18 trillion ($26 trillion), US$10 trillion, US$4.6 trillion and US$17 trillion respective-ly. The US picks up pace in recovery, while the rest of the world struggles with a slow-ing economic growth.

What is Singapore’s nominal effective exchange rate?Singapore’s nominal effective exchange rate (NEER) is a composite index of a trade-weighted basket of currencies (gen-erally thought of as 15) of Singapore’s top trading partners. Hundred is the average, while above 100 means appreciation against the trade-weighted basket of currencies and below 100 means depreciation against the basket of currencies. The reason for this is to maintain price stability for sustained eco-nomic growth.

What is price stability?Price stability means minimum volatility and low core inflation — generally in the range of 0% to 3%. This is so that businesses can plan better and use resources more efficient-ly. Price stability can be attained through:• Exchange rate• Monetary base• Interest rates.

Impact of open economy and price stabilitySingapore is an open economy where trade is more than 250% of its GDP.

With such huge imports and exports, this means that domestic policies, monetary sup-ply and interest rates have a lesser impact on inflation than exchange rate. A stronger Sin-gapore dollar will lead to cheaper imports and lower inflation but more costly exports,

while a weaker Singapore dol-lar will lead to higher inflation (owing to higher import prices) but potentially higher exports. However, higher interest rates do not severely impact the manu-facturing sector, as Singapore’s manufacturing sector consists of large companies that can self-fund their expansion or transfer funds from their headquarters. Interest rates affect property de-velopers.

As the Monetary Authority of Singapore has observed that the three-month US dollar Sibor and the three-month Singapore dollar Sibor track each other closely, the US and Singapore economies are extensively cor-related. Moreover, owing to Singapore’s role as an international financial centre with an open economy, “small changes in the differ-ence between domestic and foreign interest rates can lead to large and quick movements of capital”, according to MAS. A negative capital account indicates capital outflow and is generally undesired, unless the outflow is due to investments overseas.

MAS monetary policy stance — gradual appreciation of NEER policy bandFor Singapore, monetary policy means ex-change rate policy. The country’s weak eco-nomic growth meant that MAS has to change its policy stance to “gradual appreciation of the NEER policy band. However, the rate of appreciation will be reduced slightly”.

This means that Singapore will continue to maintain a strong currency, but it will re-duce the speed of the Singapore dollar be-coming stronger.

Because of Singapore’s open economy, a small change in interest rates of the US as well as Singapore’s major trading partners “can lead to large and quick movements of capi-tal”. Hence, Fed interest rates hikes will lead to Singapore interest rates rising in tandem.

While the US is not Singapore’s major trad-ing partner, it is the second-largest economy after the European Union and the US dollar is still the dominant foreign reserve curren-cy. However, Singapore’s use of NEER means that it will weigh its currency appreciation against the trade-weighted basket of curren-cies. This means a slight depreciation against the US dollar and Hong Kong dollar, and slight appreciation against the currencies of its ma-jor trading partners, given their current eco-nomic weaknesses.

If you wish to contribute columns, please write in to propertyeditor.sg@bizedge.com

| BY PAUL HO |

Unemployment rate versus disposable personal income per capita in the US

Percentage change in wages in the US (November 2014 to November 2015)

Chart 1

Chart 2

Chart 3

The International Monetary Fund included the renminbi in its special drawing rights in November (effective Oct 1, 2016), making it one of the five global reserve currencies. It is expected that Singapore will make adjustments to its NEER to account for this major event.

When there is weakness in the economy, a country cannot easily maintain a strong currency stance artificially, unless it has huge reserves to defend its stance, or it will open up arbitrage opportunities to specula-tors such as George Soros. Therefore, in my opinion, Singapore’s adjustment to its poli-cy stance is right.

What happens during a currency appreciation policy stance?When a currency adopts a believable curren-cy appreciation policy stance, funds will flow into that currency. During this time, funds

will be ample and interest rates will be low (sometimes even negative). Other times, a currency appreciates as a result of other cur-rency’s policy stance.

For instance, the Swiss franc — a safe ha-ven currency — appreciated instantly against the euro in response to the European Central Bank’s printing of money, indicating weak-ness in the economy.

On the same day, the Swiss National Bank set its interest rate at -0.75%. This is to discour-age funds from flowing into the Swiss franc.

The day SOR went negativeOn Aug 17, 2011, the Singapore swap offer rate (SOR) was negative. This was to stop the flood of US dollars coming into the Sin-gapore dollar, owing to the Singapore dollar appreciating against the US dollar. Funds are

CONTINUES NEXT PAGE

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EP4 • THEEDGE SINGAPORE | JANUARY 11, 2016EP4 THEEDGE SINGAPORE | JANUARY 11, 2016

THEEDGE PROPERTY PROPERTY TAKE

One-month Sibor to be in the range of 1.4% to 2% in 2016willing to bear with negative interest rates in view of an appreciating currency.

When a currency depreciates, it is the op-posite. Interest rates will have to rise to mit-igate funds outflows.

Summary and mortgage interest rate forecast for 2016, 2017 and 2018A number of board members of the Feder-

federal funds overnight rate targets in 2016, 2017 and 2018 at about 1.5%, 2.75% and

3.5% respectively, and a longer-run interest rate at 3.25% to 3.5%. If these forecasts were to hold true, they will exert upward pressure on the Singapore dollar Sibor overnight rates.

A typical US economic recovery runs for several years and Singapore is just entering a weakening economic cycle. Singapore’s larg-est trading partner, China, enters a slower growth phase, while its second-largest trad-

A slight and gradual appreciation of the NEER policy band means that the Singapore dollar will have to find the trade-weighted “middle

ground” as well as a bit on the “appreciation” side. Given that the US is recovering and the rest of the world is slowing down, the Singa-pore dollar will depreciate against the US dol-lar and appreciate against many currencies.

Any currency depreciation will need to increase its interest rate to equalise or funds movement will be fast (in an open econo-my) and free market will equalise the inter-est rate upwards.

It would be hard to make a guess into the future, but if we are forced to make a guess based on the data we have now, iCompare-

Loan.com forecasts:

of 1.4% to 2%

of 1.9% to 2.5%

of 2.4% to 3%

in the range of 2.4% to 3%.

Paul Ho is chief mortgage consultant of iCom-pareLoan.com. He can be contacted at paul@icompareloan.com.

FROM PREVIOUS PAGE

Singapore’s nominal effective exchange rate

Chart 4

Switzerland’s interest rate

Sibor interest rates

Federal Open Market Committee participant’s forecast

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17 Aug 2011, SOR went negative

-0.75% Interest rates, 15 Jan 2015

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Trade as a percentage of GDP in selected countries

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Switzerland de-peg from Euro

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THEEDGE SINGAPORE | JANUARY 11, 2016 • EP5

| BY TAN CHEE YUEN |

A 958 sq ft two-bedroom unit at The Medley is being put up for sale at $1.1 million, or $1,148 psf on TheEdgeProperty.com. The Edge Fair Value, a valuation tool on

TheEdgeProperty.com, puts the indicative val-ue of the property at slightly above $1,200 psf.

The listed price of $1,148 psf is below the

concluded price of a similar-sized unit in April 2015 when an 893 sq ft unit was sold for $1,231 psf. In August 2013, meanwhile, a 958 sq ft unit found a buyer at $1,232 psf.

The Medley is a freehold apartment devel-opment located on Lorong G Telok Kurau and comprising just 37 units. Completed in 2009, it is within 500m of the Kembangan MRT sta-tion of the East-West Line. It is also well-con-nected via bus service to the CBD, Orchard

shopping belt and Tampines Regional Cen-tre. Popular schools located within 2km of the development include CHIJ (Katong) Pri-mary, Haig Girls’ School and Tao Nan School.

In 2015, there were four rental contracts for two-bedroom units ranging from 900 to 1,000 sq ft. The average monthly rent stood at $2,625, or $2.73 psf, which translates into a gross rent-al yield of 2.9%, based on the listing price of $1,148 psf.

Scan the QR code for value deals at The Medley and nearby projects

As we are not party to the contract between the client and agent, we are not able to verify in-formation provided by the agent

THEEDGE P R O P E R T Y DEAL WATCH

Freehold apartment in District 15 selling at $1,148 psf

E

Historical transactions of similar-sized units at The Medley

Rental contracts for 900 to 1,000 sq ft in 2015

CONTRACT DATE AREA (SQ FT) PRICE ($) PRICE ($ PSF)

24-Apr-15 893 1,100,000 1,231

2-Aug-13 958 1,180,000 1,232

28-Mar-12 883 995,000 1,127

Table 1

Table 2

The Medley is a freehold apartment development located on Lorong G Telok Kurau and comprising just 37 units

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MONTHLY RENT LEASE DATE ($) ($ PSF)

Jun-15 2,600 2.7

May-15 2,600 2.7

Feb-15 2,600 2.7

Jan-15 2,700 2.8

EP6 • THEEDGE SINGAPORE | JANUARY 11, 2016

THEEDGE P R O P E R T Y HOME IDEAS

We look at more exciting ideas from the London Design Festival

London trending: Bold graphics and modern exotics

From the halls of Decorex Inter-national 2015, Focus/15 and 100% Design, let me share with you more beautiful designs and creations discovered during my

London trendspotting visit.

Bold graphicsAt Decorex, Margo Selby showed off a fantastic range of woven fabrics for interiors that reflect her taste for the bold, colourful and graphic. A graduate of the Chelsea School of Art and Design, and the Royal Col-lege of Art, Margo first launched her collection in 2003. It was at this point where she united her inno-vative handwoven structures with industrial machinery to create the first three-dimensional fabrics that were to become the trademark of the Margo Selby brand.

Paul Robinson Wallpapers from the Paul Robinson Interiors compa-ny brings a sense of illusion to the world of interiors. A successful fine art photographer and artist based in Los Angeles, Paul has taken his fas-cination for the world’s most icon-ic destinations and landmarks and

translated the images into six unique wallpaper collections. Without any formal training, Paul began his ca-reer in fashion photography in Paris and moved on to shooting stills for the film industry in LA. I was very attracted to his work, which beauti-fully juxtaposes the human race and the elements… drawing on the rich influences of the street and architec-ture and the fact that no two cities are the same.

I was also very thrilled to see the new Lunar collection of coffee tables and side tables at Lapicida,

featuring bold graphic shapes. De-signed by Lara Bohnic, the Sun & Moon coffee table takes inspiration from the planets and their orbital movements, featuring highly fig-ured, richly coloured marbles set in brass or gold-plated steel rims. This contemporary design would make a striking centrepiece for any interior. Lapicida also offers a din-ing table and a side table as part of the collection.

Founded by Michael Curtis Green and Mary-Anne Denison-Pender, Ma-hout Lifestyle is a company obsessed with the beauty and craftsmanship of India. Its collection of dhurries I spotted at Decorex showcased col-ours and graphic patterns that were vibrant, exciting and contemporary. Very much on trend, these gorgeous handmade rugs make an excellent statement in today’s modern home anywhere in the world.

Another booth that caught my eye was Trowbridge’s collection of fine art prints, black and white photogra-phy, textiles, and original works of art in exquisite handmade frames. I was drawn to Emma Lawrenson’s

| BY RAYMOND LEE |

Stunning examples of the dhurries at the Mahout stand

Philippa Long, gallery manager at Trowbridge London, showing off Emma Lawrenson’s prints

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THEEDGE SINGAPORE | JANUARY 11, 2016 • EP7

THEEDGE P R O P E R T Y HOME IDEAS

01. Enemark & Thompson’s handblown glass sculptures make a striking statement

02. Bold and beautiful graphic patterns feature at Margo Selby

03. Paul Robinson designs wallpapers and fabrics with a photographer’s eye

04. Gorgeous LUNA lights by Serip offer illumination and great beauty

05. Functional beauties from MacMaster Designs

06. Marete Rasmussen’s very modern and colourful sculptures at the Future Heritage stand

07. Lapicida’s Sun & Moon coffee table is bold and elegant

08. Matthew Williamson’s exotic collection at Osborne & Little

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suite of affordable 125 limited edi-tion images. Emma’s exploration in design sees a series of recurring ab-stract images and an intrinsic explo-ration of shape and friendly form, through a delicate and well-chosen layering of colours. So very contem-porary and fresh!

Modern exoticsMany designers this season have combined exotic shapes and details with a modern attitude. At the Serip booth, the Luna circular-shaped wall lights in bronze and hand-blown glass was a standout. Sophisticated and slim, it uses LED lights that ra-

diate out within the circles of glass that have been produced to emulate an organic-like tapestry.

At the Future Heritage stand, cu-rator Corrine Julius presented her selection of some of the most tal-ented designers working in Britain today. I found an amazing collec-tion of vases, stools, home acces-sories and sculptures. Enemark & Thompson’s handblown, sculpted glass pieces which made such an impact on visitors this season are crafted using ancient Venetian glass-making techniques and blending the molten glass with the ceram-ic-based material, Smalto. Merete

Rasmussen’s Blue Loop and Or-ange Loop, both handmade from ceramics, stoneware and coloured slip, were stunning.

Over at Focus/15, I managed to visit the Osborne & Little showroom to preview its new collections. I had the chance to chat briefly with Mat-thew Williamson who has created yet another gorgeous collection of fabrics and wallpaper for them. Matthew’s love for colour, pattern and exotic detail is very much evident here in the latest Cubana collection. A grad-uate of the prestigious Central Saint Martins College, his debut collec-tion back in 1997 titled Electric An-

gels was most critically acclaimed. I crossed Kings Road to Designers

Guild for Tricia Guild’s quick over-view of its Autumn 2015 collections. From their Caprifoglio Collection, I was particularly fond of the rather striking Bloomsbury Rose pattern in Indigo that was featured on a vintage 50s sofa. Featuring voluptuous roses tumbling on sleek velvet, this fabric creates a contemporary tapestry with expressive handpainted flourishes in place of woven touches.

At 100% Design, MacMaster De-sign’s elegant wooden pendant lights caught my attention. Founded by be-spoke furniture maker Alan MacMaster

in 2009, all pieces are handmade in the Worcestershire countryside in the UK and made from natural timbers handpicked from sustainable sour ces and certified by the Forest Steward-ship Council.

Can’t wait to return to London in 2016 for more design inspirations.

Raymond Lee is an interior designer and founder of Xceptional Interiors. He can be contacted at raymond@xceptional-interiors.com, or check outwww.xceptional-interiors.com.

This story first appeared in The Edge Property Malaysia

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