Rising mortgage rates may weigh on homebuyer demand

Weaker employment and wage growth could reduce demand for big-ticket purchases such as homes.

Singapore property developers face rising interest rate risks as higher mortgage costs could erode housing affordability and dampen demand, even as the sector trades below its long-term average valuation, said UOB.

Although the three-month compounded Singapore Overnight Rate Average (SORA) remains lower year on year, it has risen from its April 2026 low.

“A continuous rise in mortgage rates could erode affordability and dampen demand,” the report said.

Slower macroeconomic conditions could also moderate employment and wage growth, further weighing on demand for big-ticket purchases such as housing.

The risks come as Singapore's developer sector trades at 0.6 times price-to-book value, just below 0.5 standard deviations under its long-term average. Developer share prices fell in September and October amid rising interest rate concerns.

Despite these pressures, valuations remain inexpensive. Net asset values of developer stocks are expected to be supported by firm residential prices and a robust outlook for commercial and retail property valuations in Singapore.

Private home prices rose 1.4% quarter on quarter in the third quarter of 2026, bringing price appreciation in the first nine months to 2.8%. This remains within the forecast range of 2% to 3% for 2026.

Buying sentiment is expected to depend on developers' pricing strategies and the affordability of total purchase prices, alongside location considerations.

City Developments (CDL) plans to monetise $6b in assets, generate $1b in profit after tax and minority interests from divestment gains, and lower its net debt-to-equity ratio to 55% during 2027 to 2029.

CapitaLand Investment (CLI) also plans to unlock $7b to $9b in embedded value from non-core and legacy investments through capital recycling and value realisation.