MAS issues property investment warning in view of dire economic outlook

MAS cautions against overseas property obligations which can get muddled with currency fluctuations.

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The logo of the Monetary Authority of Singapore (MAS) is pictured at its building in Singapore in this February 21, 2013 file photo. Reuters

The Singapore Monetary Authority has issued a warning to domestic investors over the underlying risks in property and corporate bonds given the uncertain status of the economy. The central bank's warning comes in the wake of sustained weak growth, low interest rates and rising political risks globally.

In the latest MAS Financial Stability Review, the central bank said real estate investors should particularly consider aspects like vacancy rates and declining rentals. "In particular, before investing in property, investors should be aware that rising vacancy rates, declining rentals and impending interest rate increases mean that they may not always be able to rely on rental income to service their investment property loans."

With regard to the bond market, the MAs asked investors to be cautious as the oil market and shipping industry meltdown had forced companies to default on bonds. "Notably, a number of issuers in the shipping and oil-related sectors have defaulted in recent months, while others have moved to restructure upcoming debt payments," the MAS said.

Though MAS says Singapore households have the financial buffer to weather choppy economic conditions, the continued weak growth can have an impact on earnings that will affect households in the longer run. The priority for the households under the conditions would be to plan for retirement and take long-term view when deciding on property purchases, the MAs said.

MAS also cautioned against overseas property obligations which can get muddled in the backdrop of currency fluctuations and shifting monetary policies in foreign economies.

Singapore's economy contracted 2 percent in the third quarter and exports slumped 5.4 percent in the same period, raising the risk of the country slipping into recession.

The Ministry of Trade and Industry slashed the 2016 growth expectations for the economy. MTI said the island nation's economy is expected to grow 1.0-1.5 percent this year, compared with the previous projection of 1.0-2.0 percent growth. However, MTI said its official position is that the economy will avoid technical recession.

Figures released by International Enterprise (IE) showed that Singapore's non-oil domestic exports (NODX) continued to experience slump. IE also said exports for the rest of the year are likely to remain gloomy.