Tharman warns home buyers about rising interest rates, public on risks of crypto trading

SINGAPORE (BLOOMBERG) – Singapore’s Government is warning home buyers to think carefully about buying properties as interest rates increase in tandem with those in the US, potentially boosting debt servicing costs. It also warned the public about the risks of trading cryptocurrencies like bitcoin.

“The risk of rising interest rates is a reminder that everyone should continue to exercise caution in their property purchase decisions,” said Senior Minister Tharman Shanmugaratnam, who is also chairman of the Monetary Authority of Singapore (MAS). He was speaking in response to a question in Parliament on Monday (April 5) on the impact of rapidly rising US long-term rates on the city-state.

Rising rates in the United States should be seen in the context of a strong economic recovery there, which will add some momentum to Singapore’s own rebound, Mr Tharman said. Singapore’s economy is expected to grow between 4 per cent and 6 per cent in 2021, after shrinking 5.4 per cent in 2020 because of the Covid-19 pandemic.

While most buyers should continue to be able to service their mortgage loans, a small percentage of households within the private property market could face cash flow strains, he added.

MAS analysis showed that the median household’s mortgage servicing ratio would remain manageable even under a stress scenario of a 2.5 percentage point increase in mortgage rates and a 10 per cent drop in income.

“Buyers should assume that interest rates will rise, and be sure of their ability to service their loans before making long-term financial commitments,” Mr Tharman said.

The warning comes amid a rapid rebound in Singapore’s residential property market. Home prices grew at a faster pace last quarter, adding to speculation that the Government could join other nations in introducing another round of curbs to calm the market.

Private property values rose 2.9 per cent in the first three months of 2021, the most since the second quarter of 2018. Singapore last imposed cooling measures in July of that year.

Mr Tharman also said that cryptocurrencies are “highly risky as investment products, and certainly not suitable for retail investors”, in response to another parliamentary question on Monday. This is because digital currencies can be highly volatile as their value is typically not related to any economic fundamentals, said Mr Tharman.

He noted that cryptocurrency funds are not authorised for sale to retail investors. MAS also has powers to impose additional measures on digital token service providers, under which exchanges offering the trading of cryptocurrencies are regulated, as needed, he said.

The authorities in Singapore have also stepped up efforts to combat money laundering and terrorism financing risks associated with cryptocurrencies, Mr Tharman said.

Among the measures it has taken, the MAS has increased surveillance of the crypto sector to identify suspicious networks and higher-risk activities that may need further scrutiny, Mr Tharman said. MAS is also continuing to raise awareness on the risks of investing in digital assets to help people avoid being cheated or “inadvertently used as mules”, he said.

The Straits Times reported on Monday that 100 police reports have been lodged against online cryptocurrency trading platform Torque, run by Singaporean businessman Bernard Ong. Torque suddenly suspended the accounts of 14,000 investors, with some losing their life savings.

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Mr Tharman said on Monday that cryptocurrency trading in Singapore remains small compared with shares and bonds, with the combined peak daily trading volumes of bitcoin, ethereum and XRP accounting for 2 per cent of the average daily trading volume of securities on the main stock exchange last year.

But globally, the total market value of cryptocurrencies pushed past US$2 trillion (S$2.7 trillion) for the first time, doubling in about two months amid surging institutional demand. Bitcoin has been on a tear as investors dabble in crypto as a way to boost returns on cash in a world of near-zero interest rates, with the likes of Tesla saying last month it will accept its use as payment for cars.

While the likes of billionaires Elon Musk, Mark Cuban and Paul Tudor Jones have endorsed cryptocurrencies, Mr Tharman is not the only regulator to express caution about an industry where fraud is still a concern.

A European Union watchdog recently warned of “significant” investor risks after bitcoin’s gains, and Mr Gary Gensler, the nominee to lead the Securities and Exchange Commission, said in his confirmation hearing that ensuring the crypto market is free of fraud is a challenge for the agency.

“The crypto assets space is constantly evolving,” Mr Tharman said. “MAS has been closely monitoring developments and will continue to adapt its rules as needed to ensure that regulation remains effective and commensurate with the risks posed. Investors, on their part, should exercise extreme caution when trading cryptocurrencies.”

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