Opportunities in high interest rate?

As 2023 inches closer to the end, the escalating interest rates pose a significant concern for prospective market entrants. The Singapore Overnight Interest Rate (SORA) is on the rise due to the US Federal Reserve's tightening monetary policy, rendering financing more expensive for buyers and potentially deterring them from entering the market. High interest rates not only discourage buyers but also impede homeowners from refinancing, leading to potential defaults and foreclosures, resulting in higher monthly payments. 

Amidst challenges for buyers and homeowners, opportunities emerge for investors.  The pandemic-induced construction slowdown and housing shortages are often cited for high rental prices, yet few consider the contribution of rising interest rates. As interest rates climb, more individuals may opt to rent, increasing demand for rental properties and subsequently raising rental prices. This trend could also foster the growth of co-living spaces and serviced apartments, thereby expanding options for renters. 

Setting speculations aside, the realization of higher rental prices and lower property prices hinges on various factors. Notably, there is a growing potential for a Federal Reserve pivot towards lowering interest rates. If this occurs, it could signal the beginning of a new bull market for the real estate industry, with lower interest rates stimulating demand and propelling both price and volume growth. Investors should be prepared for anticipated market shifts in the event of an interest rate cut.

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