Why Singapore property prices are vulnerable to sharp rate hikes

Amidst 60% price growth.

According to Barclays, they believe Singapore property prices could be vulnerable to a sharp rate increase after three years of super-low interest rates and 60% price growth.

Barclays' current base case is flat private home prices to FY16E, but they estimate these could fall up to 23% should mortgage rates increase by 200bps within a short period, all things remaining constant.

Here's more from Barclays:

It could be worse if this coincides with a bumper supply. Drastic price collapses could be mitigated if there were a more gradual increase in interest rates, accompanied by income growth, some expansion of the mortgage-servicing ratio and given more prudent owners and investors who have been taking a longer-term view after seven rounds of measures since September 2009.

Under such a scenario, we would avoid pure-play residential developers. We continue to like CapitaLand (CAPL SP; OW; PT S$4.64) for its more diversified profile and recovering ROE.

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