It's a gradual softening of prices, unwinding some of the sharp run-up that you saw earlier. The household debt situation has improved and the debt servicing ratio for new loans is very good. Banks' non-performing loans for property are very low. So we don't have concerns for the property market as such. I think things are playing out in a good manner.T Menon said it was too early to lift the cooling measures, as "we want to make sure the gains we have made painstakingly over the last one to two years are entrenched, that we are on a sustainable path for the property market, and that the household balance sheets become stronger still to withstand (interest rate and income) shocks."8 FINANCIAL CONSIDERATIONS While the Wongs really liked their rental unit and its surroundings, their children preferred to have their own rooms. The larger unit, with four bedrooms, would be just right for them. If the Wongs made the purchase, they would need to pay a maintenance fee of $250 monthly to the condominium management committee, property tax of $ 100 per month to government authorities, and the cost of repairs and general maintenance within the unit of $100 per month. The initial cash payments included a down payment of 20 per cent of the purchase price, 3 per cent stamp duty, 1 per cent agent fee, $4,000 in legal transfer fees, and $4,000 in other closing fees. The Wongs planned to take a 30-year tenure loan with monthly instalment payments. The bank ofcer informed them that the current mortgage rate was a 3 per cent annual percentage rate. While the market conditions for borrowing had been favourable in recent years with the low interest rate environment, the Wongs worried that the interest rate might increase in the near term, making borrowing more expensive. In Singapore, loans from commercial mortgages were generally in the form of hybrid adj ustable-rate mortgages; the interest rate would be xed for the rst three years and adjusted thereaer based on the local one-month or three-month Singapore Interbank Offered Rates. Since 2015, the one-month and three-month Singapore Interbank Offered Rates had been increasing. In June 2016, they stood at 0.76 and 1.00 per cent respectively, more than double the average levels 'om 2009 to 2014 at 0.35 and 0.47 per cent respectively (see Exhibit 5). POSSIBLE SCENARIOS The Wongs had been advised that if they were buying to stay, it did not matter when they entered the market. This sounded rather counterintuitive to them. How could it not matter if they had to put out more money? It would denitely affect the size of their gains/losses if they were to sell the property in, say, 10 years' time. They decided to conduct an analysis of the net gain or loss on the purchase based on several scenarios: 0 In scenario 1, the selling price of the condominium unit remained unchanged at $1.5 million at the end of 10 years. 0 In scenario 2, the selling price was up 10 per cent. I In scenario 3, both the rent and the selling price increased by 0.15 per cent per month for the next 10 years. 0 In scenario 4, the annual mortgage rate would be increased by 0.5 per cent from the rst year onward and would be constant for the next 10 years. For their analysis, they assumed that when they eventually sold the condominium unit they would need to pay the principal still outstanding on the loan and a 1.00 per cent agent fee on the selling price. OTHER CONSIDERATIONS The property purchase would be a huge investment for the Wongs. Mrs. Wong felt uneasy. Mr Wong, however, was won'ied that the property market might rebound soon and they might miss this golden opportunity. Apart from their quantitative computations, they had to consider certain qualitative factors. For example, property transactions played a key role in the life of many families in Singapore as primary school districts were closely tied to residential addresses. 'Ihus, properties sited close to popular schools would invariably command a premium. On reaching the retirement age of 55, all Singaporeans could choose to receive a lump sum from the CPF after setting aside a minimum sum. The minimum sum would be kept untouched until age 65, at which time monthly payouts would be made to the retiree until he or she passed away (see Exhibit 1). The savings in the CPF alone might not be sufcient for a citizen to maintain the same standard of living after retirement. For stay-at-home spouses, the problem was very real. Since Mrs. Wong was a housewife, Mr. Wong would need to have additional savings to provide for himself as well as his wife. The Singapore govermnent strongly encouraged home ownership as a form of savings. After retirement, if the need arose, the retiree could unlock savings by moving to a smaller unit or consider a reverse mortgage. First-timer buyers (only citizens with monthly income below $12,000 qualied as first-time buyers) of public housing could obtain subsidies from the government. First-time buyers of private property, such as condominiums, would not qualify for subsidies. Singapore citizens who purchased properties could pay part of the down payment using their CPF funds. Specically, for a $1.5 million property, the Wongs had to put down a minimum of $75,000 in cash and withdraw $225,000 from the Ordinary Account of their CPF accounts. They could borrow up to 80 per cent loan-to-value or $1,200,000, assuming they qualied for the loan. SINGAPORE PROPERTY MARKET Between 2009 and 2013, property prices rallied 70 per cent. Exhibit 2 shows that the residential price index reached a level of 170 in the third quarter (Q3) of 2013 while it was at a level of 100 in Q1/2009. During the same period, the average nominal wages increased by only 30 per cent.3 Since 2013, the Singapore property market had softened on the back of sluggish economic growth, various newly adopted property cooling measures4 (see Exhibit 3), and a large supply of newly built private residential units. According to Augustine Tan, president of the Real Estate Developers' Association of Singapore, there were 57,597 new private residential units and 12,077 executive condominiums available as of May 2016. These numbers were signicant in View of the prevailing weak demand.5 Exhibit 4 shows that the supply of new units in the pipeline had dropped from Q1 to Q2 in 2016. Property home prices had dropped for 11 straight quarters at the end of June 2016.'5 Prices were 9.4 per cent below the peak of Q3 in 2013. At the central bank annual brieng on July 25, 2016, Ravi Menon, the managing director of the central bankthe Monetary Authority of Singapore (MAS)said that MAS was "quite happy" with the way the property sector was evolving. The Wong familycomprising Mr. Wong, aged 40, Mrs. Wong, aged 38, and their three young children relocated to Singapore in 2010 when Mr. Wong received a job offer from a leading investment banking giant. For the next six years, they rented a three-bedroom condominium for US$4,000 in Singapore dollars1 per month, which included parking and condominium fees but not the maintenance cost, which was borne by the owner. While renting made life easy, the Wong family began weighing the pros and cons of purchasing a larger unit, in the same building, that became available in June 2016. In the past three years, the real estate market had softened somewhat and the cost of the unit had declined from $1.6 million to $1.5 million. The idea of home ownership as a form of pension investment appealed to the couple. The monthly rents could be used for mortgage payments instead. HOME OWNERSHIP AS A FORM OF INVESTMENT Some years back, the Wongs had made the decision to settle down in Singapore. They were ecstatic to receive Singaporean citizenship in January 2016. They understood that Singapore had a pay-as-you-go pension system that placed the responsibility of retirement planning on the individual instead of the state. All citizens were required to put a percentage of their monthly income into their own account in the Central Provident Fund (CPF),2 which was managed by the Singapore government