A common mistake laypersons make is using the terms “mortgagor” and “borrower” interchangeably. In simple situations, where for example a home is bought by a single person and the loan is similarly taken in single name, the borrower and mortgagor would indeed be the same person. However, the term “mortgagor” specifically relates to an owner of the property that is being mortgaged, whereas “borrower” refers to any parties that are contracting with the lender bank (the mortgagee) to pay back the mortgage loan granted. By necessity, all owners of a mortgaged property are required to contract as borrowers, thus all mortgagors are borrowers, but not all borrowers are mortgagors.

The distinction between the two becomes relevant when non-owner borrowers are included as co-borrowers to support loan applications. Due to the rise in property prices and the various cooling measures introduced, some property purchasers have resorted to adding non-owner parties as co-borrowers, or buying properties together with parties who are either younger in age or able to provide stronger income documents (or both) in order to obtain larger loans, or loans of longer tenure.

It all seems quite easy and convenient, however the legal implications of including multiple co-borrowers or co-owners is that your personal risk exposure is increased too, as most if not all of the retail banks that grant housing loans in Singapore include an “All Monies” or “Open Mortgage” clause in their mortgage loan documents. To exacerbate the situation, such clauses do not have to be specifically highlighted, thus it’s not enough to just scan through your loan documents for a clause explicitly labeled “All Monies”. To illustrate, let me give you an example of how such a clause might be phrased, and tucked away in the depths of your mortgage documents:-

“…The Mortgagor hereby acknowledges:-

(a) …

(b) …

(c) …

(d) that this Mortgage expressly authorizes the Mortgagee to grant further Banking facilities in instalments or on a current, revolving or continuing account or otherwise or any other banking or credit facilities or accommodation whatsoever from time to time to the Mortgagor/Borrower(s) whether alone or jointly or jointly with any other person and all other monies and liabilities owing to the Mortgagee from time to time in connection therewith shall form part of the Secured Debt and be secured by this Mortgage…

(e) …”

Did you catch that? In simple terms, what this means is that when you mortgage your property, in the event of default, the bank has a right to foreclose and use the sales proceeds to pay off not only the original housing loan granted, but also any other outstanding debts that any of the co-borrowers/mortgagors might incur during the duration of the mortgage loan. And mind you, an “event of default” is not limited to simply not paying your loan installments in a timely fashion, but includes a wide range of possible events, many of which will not be within your personal control.

During my time as a real estate lawyer, the all-monies clause was probably one of the common clauses that surprised even veteran property investors when it came to running through the legal implications of the documents they were signing before me. I was again reminded of my previous experiences when I recently attended a property investment seminar, and similar misinformation resurfaced.

Perhaps it’s a throwback to my legal background, but in spite of my frequent affirmations on the benefits of using leverage to improve property investment returns, I err on the side of caution when it comes to leveraging on third parties. Property investors should conduct a personal risk assessment, based on their own financial standing and preferences, before determining whether a particular venture is worth entering. Such an assessment can only be done when you equip yourself with the right information. I would thus urge would-be investors considering alternative vehicles of property investment to seek independent legal and financial advice prior to paying any money down.

The above article was first published on Yahoo! News as part of the writer’s ongoing collaboration with Ascendant Assets Pte Ltd. To find out on what Ascendant Assets does, please visit www.AscendantAssets.com. The original posting of this article may be found at http://sg.news.yahoo.com/blogs/property-blog/monies-mortgage-interest-rate-hikes-not-only-risk-043054530.html#more-id

The proportion of articles that were positive, neutral or negative is also instructive. We had 7 negative (13%), 33 neutral (62%) and 13 positive (25%) articles in the last 4 weeks. In Season 1, we had 10% negative, 49% neutral and 40% positive.What this tells me, without looking at other statistics, is that interest in property is dying down, at least in the papers. Additionally, the trends are a lot more muted than in the previous period. Of course, if you look at the entire context of the property market, this should be expected, with the government building many more HDBs, and cooling measures in January.

What’s also interesting is that the articles seem to be contradicting one another. If you look at articles on 8 Jun, you’ll see HDB resale prices and COVs dip on fewer transactions, but prices are up in all but four districts. Also, there was a marginal overall dip as the curbs’ impact is felt. Fwah! What’s a property buyer/seller to think or do?

Here is my interpretation of this conundrum. Basically, (resale and new) HDB prices are down and going further down. Resale private housing is up but volume is down. New projects are selling well, but are really just trading at the market. This is because the government has now required discounts to be inputed in the price, so developers can’t book the sale at high prices and give a rebate any more. On the other hand, developers also don’t really want to undercut the market to avoid angering earlier buyers.

I think these observations really tie in with my previous expectations when the last cooling measure and the Population White Paper came out. Going forward, I believe that this trend will continue for quite a while. If I may, I guess predict that the breaking point will come when more and more people start to complain about their HDBs not rising in price. Watch out for that. The upturn will not be far off.

According to Boston Consulting Group’s 2012 Global Wealth Report, Singapore has the world’s highest density of millionaire households at 17.1% or 188,000 households. At the same time, its popularity as an offshore banking hub is also growing in leaps and bounds, with wealth under management set to overtake Switzerland by 2020. Switzerland currently manages some $2.8trillion in assets, whereas Singapore has seen assets under management grow from just $50billion in 2000, to $550billion by end-2011.

It is somewhat counter-intuitive then that Singapore’s luxury property market has performed dismally in recent years, particularly when the property market as a whole has had a spectacular run. One could blame it all on the whopping 15% additional buyer’s stamp duty payable by foreigners, but ABSD was initially introduced only in December 2011 and raised only recently in January 2013, whereas the luxury market has been slow since the financial crisis of 2008, never recovering its shine unlike the mass-market sector which experienced a rapid rebound beyond previous highs. Sales of non-landed homes above S$5M screeched to a halt between October 2008 to March 2009, and barely hit 400 transactions in the whole of 2012. In 2007, there were more than triple that number of transactions, at a time when there was a lot less money and a lot more exciting alternative investment options competing for a share of the pie.

The Marq by SC Global

The Ritz-Carlton Residences

It is perhaps necessary at this point to clarify on what I refer to as “luxury property”, since the word “luxury” has been used to describe even Executive Condominiums and mass-market private homes in recent times. For ease of discussion, I shall limit myself to non-landed luxury homes, since luxury landed homes are often custom-built to the home owner’s unique specifications and preferences.

With Executive Condos bearing $2.05M price tags, and average prices in suburban precincts exceeding $1,000 psf, it becomes more than just about million-dollar price tags. Luxury homes should conjure up a sense of prestige and privilege, from the address and surroundings, to the minute detailing of the interiors. The common grounds should feel anything but common, more an exclusive club for only the upper echelons of society. I think as a trendsetter in the luxury property market, Simon Cheong of SC Global captured the true essence of the luxury home when he became the first developer to introduce an in-house concierge service within a condominium development.

That is the key – luxury extends beyond pure bricks and mortar, beyond cutting-edge architecture and designer bathroom fittings. It is with the softer, human touches that true luxury is crafted. Any contractor-turned-developer these days can throw together some high-end European kitchen fittings, marble flooring and call it a “luxury condo”, but it takes a finer eye for detail, an intimate understanding of the lifestyles of the rich and powerful, and precise, skilled craftsmanship to ensure that the natural lines and colors of the marble slabs are seamlessly matched and aligned, that a kitchen’s fittings and layout are both aesthetically pleasing and able to perform up to the grueling expectations of the most exacting dinner party host.

So if I must, let me set the minimum criteria as such :-

1) Within Prime Districts 9 and 10;

2) No more than 150 units within the development, to maintain that “exclusive” factor

3) Concierge service;

4) All units within the development should have a minimum size of 200 square metres, since space equates to luxury in land-scarce Singapore.

Below are my top 3 picks in the Luxury Home segment:

The Marq on Paterson Hill was one of the most widely-discussed luxury developments in Singapore thanks to the record-breaking $6,840 psf achieved (The much-reported Hermes apartment is expected to fetch an even more eye-watering price, but has yet to be priced by the developer). The whole development certainly bears all the hallmarks of luxury: 66 exclusive homes set amidst a majestic 1.15 hectares of manicured grounds, the distinguished few who call the 8 Paterson Hill address home are thoroughly pampered by a concierge team trained by the Guild of Professional English Butlers. Each apartment is 3,000 to 6,200 square feet, and those found in the Signature Tower each feature a 15-metre infinity pool cantilevered off the main building.

The Ritz-Carlton Residences at 65 Cairnhill Road is another noteworthy development with a focus on high-end hospitality – a dedicated entourage delivering personalized service round-the-clock to 56 privileged households . Valet services, bellhop, housing keeping and even an in-house sommelier to serve you at the property’s bespoke wine cellar. Prices averaged $4,012 psf by end-2012.

Recently completed in December 2012, Bishopsgate Residences is nestled within the prestigious Chatsworth GCB precinct. Comprising 4 exclusive triplex homes and 27 apartment units, each home is oriented such as to enjoy a lush greenery view despite being just a stone’s throw from Orchard Road. The attention to detail is impeccable, from the metallic oxide-coated glass windows that serve to reduce interior temperatures by as much as 5 degrees Celsius, to the custom-sourced Canadian marble lining the powder rooms. First-class concierge service is a given, and the residences also feature chauffeurs’ waiting lounges. Pricing starts from around $3,300 psf.

A quick perusal of the projects due for completion in 2013 shows just 12 developments within the prime districts 9 and 10, none of which match the minimum criteria highlighted earlier in terms of unit-sizes, lack of concierge services or finishings.

Project Name                                  Launch Date     Units           Due  District

The slowdown in luxury may have started with the global credit crunch of 2008, but the ABSD on foreigners has certainly done it no favours. Looking into ownership profiles at the 3 luxury developments highlighted, it is obvious that such projects attract a largely foreign clientele. The Marq has only 37.5% Singaporean/PR ownership, Ritz-Carlton is 40% Foreigners and 16.7% corporate ownership, while Bishopsgate Residences is currently 100% foreign-owned.

But it is undeniable that interest is still omnipresent, both from my own interactions with clients and prospective-buyers, and discussions with private wealth managers, developers and fellow colleagues serving the luxury sector, as well as general news out in the market. Some foreigners with a long-term view on the Singapore market have grown tired of watching and waiting on the sidelines, seeing the 15% ABSD as a necessary entrance fee more palatable than the possibility of Singapore completely halting foreign purchases of real estate if further cooling measures are introduced. Others realizing that prices may creep up by 15% anyway and further waiting may not be the right strategy. Given the pent up demand, growing money supply and limited high end units available, it is just a matter of time before money starts quietly flowing back into the luxury market.

The above article was first published on Yahoo! News as part of the writer’s ongoing collaboration with Ascendant Assets Pte Ltd. To find out on what Ascendant Assets does, please visit www.AscendantAssets.com. The original posting of this article may be found at http://sg.news.yahoo.com/blogs/property-blog/singapore-luxury-property-dormant-market-worth-exploring-163439196.html

Image : Howard McWilliam (The Telegraph)

Delay the pain!
In order to avoid, or at least delay, the effect of a higher interest rate, one option that property owners or buyers can consider is the fixed rate mortgage. In Singapore, banks typically don’t have long term fixed rate mortgages, allowing borrowers to fix their rate for a maximum of 3 or 5 years. Only HDB loans are kinda fixed for the entire tenure of the loan.

Fixed rate mortgages have higher interest rates compared to the floating rate mortgages. This is basically a “risk premium” for the bank, as they would be locked in for 3 years with no chance of re-pricing even if interest rates shoot up. The fixed rate mortgage has fallen out of favour in recent years due to the expectation of the interest rate to stay low, and rightly so. Singapore interest rates track the US LIBOR closely and the LIBOR is expected to stay low as long as Bernanke continues printing money. Fixed rate mortgages are more useful when rates are expected to move up. Since I do expect that interest rates will go up, this is definitely an avenue worth exploring for me.

The question is, when should I lock in the rates? Ideally, I would like to lock in just before rates start moving up, just like I would like to catch the bottom or the top of the stock market. Unfortunately, I’m never that lucky so I’m going to have to make an educated guess and hope that I’m not too far wrong.

So what do we know? We know that Bernanke is buying US$85 billion of assets a month until unemployment rates goes below 6.5%. A quick search on Google tells us that US unemployment is currently at 7.5%. Various reports say that if employment continually increases by 250k per month, the 6.5% target will be reached by mid 2015, while at 200k more people employed per month, the 6.5% target will be reached by end 2015. Give a little room for monitoring and I’d say there’s a good chance that the Fed will only start raising rates in 1Q 2016, but rates should move up pretty swiftly once they start.

In order to take advantage, you don’t actually want to be too close to the edge, or even worse, when they actually start raising rates. The reason for this is that the market is generally forward-looking. By the time you actually see rising rate, the banks would have priced in the rising rates already. In fact, if you look at the yield curve on the US Treasuries, you would see that the curve has been steepening over time, reflecting the belief that interest rates will increase in the future.

If things continue to move at current pace, I will be looking to refinance my floating rate mortgages to fixed rates some time in 2015. Hopefully the fixed rates would not have run up too high by then.

For the benefit of our dear readers, I did a quick check with various banks and found the following fixed rate mortgages, which I think are probably the best pre-negotiated deals at time of writing:

The Iskandar region, image courtesy of Temasek.

The name “Iskandar” is on the tip of everyone’s tongue these days, and it is impossible to perform one’s duty as a property consultant in Singapore without at least rudimentary knowledge of neighbouring Malaysia’s rapidly developing special economic zone.

Thrice the size of Singapore, Iskandar is set to be a modern metropolis buzzing with economic activity, a conglomeration of various exciting growth sectors, including nine key economic clusters: financial advisory and consulting, creative industries, logistics, leisure and tourism, education, health care, electrical and electronics, petrochemical and oleo-chemical, food and agro-processing. What really piqued my interest was the chief executive of Iskandar, Ismail Ibrahim’s clearly articulated intent to make Iskandar Malaysia “a place to invest, work, live and play.”

The success of Iskandar will ultimately pivot on this – whether they are able to successfully integrate the four vital aspects of a bustling metropolis. They have done exceedingly well on the investment front, with the first development phase attracting a total committed investment of RM56 billion, surpassing its investment target by over 20 percent. Now well into Phase Two, cumulative committed investment in the region stood at around RM106.3 billion in 2012.

If the first six months’ performance of the RM720 million Legoland Malaysia is anything to go by, the “Play” component of Iskandar also appears to be well-received. The first Legoland in Asia saw over 10,000 visitors daily during the peak school vacation periods, and annual visitor rates for 2013 are projected at over one million. These figures are set to rise once the nearby water park and Legoland Hotel are up and running by early 2014.

Another much anticipated “Play” ground will be the RM3.5 billion brainchild of “Remisier King” Peter Lim – Motorsports City, targeted for completion in 2016. The sprawling 120-hectare site will not only boast a 4.5 kilometre race track for speed demons to clock speeds in excess of 300 km/h, but a whole range of facilities and services catering to the entire family: go kart track, warehouses for luxury car collections, simulation centres, as well as the peripheral food and beverage outlets.

The “Live” aspect of Iskandar is also looking positive, if the popularity of residential projects in Nusajaya is anything to gauge by. Foreigners, the bulk of which are Singaporeans, have been snapping up homes in developments like Horizon Hills, Leisure Farm Resorts and Ledang Heights. Landed homes on freehold land go for anything between RM2 million to RM8 million, while rentals range from around RM 8,000 to RM 20,000. These residences appear well aligned with the Iskandar planners’ vision of creating a certain level of lifestyle within the region.

“Work” is the final aspect of Iskandar that will determine whether the region truly works out or not in the long run. And at this stage, I find it difficult to say for sure whether the labour force necessary to power the level of industrial activity planned for Iskandar will indeed be forthcoming when the time comes.

Companies have been drawn to set up business in Iskandar by the promise of cheaper land and labour, and generous tax breaks. But where sufficient cheap labour will come from is a big question mark. Haunting images of entire ghost cities in China come to mind, like that of Chenggong, Yunnan, an impressive but vacant city first conceptualized in 2003 as a spillover catchment for neighbouring Kunming, a city of over six million people. An indicator a little closer to home would be Singapore’s own labour shortage in sectors such a hospitality and manufacturing.

I question whether Malaysians will be willing to work in Iskandar unless salary is close to the level of what they would enjoy were they to venture across the causeway to Singapore. Given that Iskandar is thrice as vast as Singapore, the possibility of a native Johorian having less distance to travel to work in Singapore than any other given location in Iskandar is highly probable. Tax breaks, while attractive, will eventually have to come to an end, be it five or ten years down the road, and the savings enjoyed by companies relocating to Iskandar should eventually level off.

And so whilst I am quite convinced that Iskandar is an exciting and worthy pursuit for the government of Malaysia, and bigger players like Liberty Bridge, a consortium of Singapore-Malaysia tycoons, Singapore’s Ascendas, and Malaysia’s own Sunway, Dijaya Corporation, Eastern & Oriental, SP Setia and the like, I advise those seeking alternative property investments after being priced out of Singapore’s property market to exercise caution. Iskandar does indeed present many attractive propositions, but as with all things that generate a lot of heat, the propensity for the ill-advised to get burnt is also high.

To my mind, Malaysia’s liberal policy towards land ownership by foreigners and cheap housing can cut both ways for a would-be investor seeking yield, since the traditional source of tenants, the expat community, can just as easily afford to buy rather than rent when the quantum in question is low. In fact I’d venture to guess that a fairly high percentage of tenants currently renting homes in the Nusajaya/Medini areas are merely doing so while awaiting completion of their own custom-built villas in the vicinity!

My parting shot would be to urge would-be investors to keep both eyes wide open before they take the leap onto the Iskandar bandwagon. There will be fortunes to be made, that is certain, but take care not to become just a stepping stone on someone else’s path to riches!

The above article was first published in Yahoo! News as part of the author’s monthly collaboration with Ascendant Assets Pte Ltd. For more information of Ascendant Assets, please visit http://www.ascendantassets.com. The original article may be viewed at http://sg.news.yahoo.com/blogs/property-blog/iskandar-malaysia-exciting-frontier-tread-carefully-030409266.html

Let me start by stating upfront that my agency SLP is one of the joint marketing agents for this project, thus it would be improper for me to voice overly critical views on Stratum. Happily for me, after studying the marketing information provided to agents and conducted my own independent research, I have to say I’m suitably impressed and feel I’m able air my opinions here without fear of offending the developers. As I believe there’s sufficient marketing material available to readers, I shall be sharing my own personal viewpoints here, so excuse the semi-casual tone of this piece.

When assessing a real estate target, my usual practice is to start with rental yields as leading indicators for future price movement. I was heartened to see that based on 2012 Q4 rental data, projects around the area like Livia and Ris Grandeur both enjoyed a healthy 3.9%p.a. gross yield.

Bearing in mind that there are several residential projects underway, one would be concerned about new supplies putting downward pressure on the rental yields. However, my sense is that this is a neighbourhood with relatively high owner-occupancy rates, thus the supply of units available for rent should form a low percentage of the total number of units coming online over the next few years.

The numbers appear to support my hypothesis. Thanks to the good folks at squarefoot.com.sg, I was able to determine that there were a total of 43 rental contracts concluded at Ris Grandeur in the year 2012. Assuming that most units are leased for 2-year periods, and that the average number of rentals concluded each year is fairly stable, I estimate that roughly 86 or so units at the 453-unit Ris Grandeur are likely to be investor units, a low 20% of the total number of homes there. And of course, with the Additional Buyers Stamp Duty introduced since 7 December 2011 and further increased on 11 January 2013, the percentage of investor owners of upcoming projects in the vicinity is likely to remain low. I don’t expect rentals to be too badly affected by the supplies of new units coming online over the next few years, as the bulk are being bought by end-users.

Next, let’s talk about the surrounding amenities. Stratum will be within 800 metres of Pasir Ris MRT, close to the upcoming Downtown Line MRT and Pasir Ris bus interchange, and also enjoy access to Tampines Expressway (TPE), Kallang Paya Lebar Expressway (KPE) and Pan Island Expressway (PIE). Besides having all major modes of transportation covered, residents will also enjoy the convenience of Elias Mall just across the road, and Downtown East, White Sands Shopping Centre, IKEA Tampines, Courts Megastore and Giant all within the neighbourhood. The real draw for me would be the 5-minute stroll to Pasir Ris Park and Pasir Ris Beach. With activities like horseback riding, fishing, biking and roller-blading, it’s bound to attract both local and expat families alike. In our increasingly urbanised city-state, that back-to-nature element is definitely a huge plus in my books. And where there are families, schools are a must – just to name a few, Coral Primary School, Parkview Primary School, Hai Sing Catholic School, Meridian Junior College, and the upcoming Singapore University of Technology & Design are all found close by.

And then of course, there’s the beauty of Stratum itself. I typically shy away from residences designed by big-name architects, as I personally feel if it’s that stunning, I’d rather admire it from the outside than live in it and have people gawking at the piece of art I live in. But I would make an exception for Swan & Maclaren, the oldest architectural firm in Singapore. Doesn’t ring a bell? Try national monuments like Raffles Hotel and Goodwood Park Hotel, or for a more contemporary example, our National Library. Take a look at the artist impressions and site plan for Stratum and you’ll be able to witness the timeless charm that the architects have created here. This is a classic tropical paradise residents can truly look forward to coming home to, year after year, decade upon decade.

The sprawling grounds of over 250,000 square feet will be home to only 380 privileged households. For the sake of comparison, let me contrast that with the much smaller 152,000 square foot Oasis @ Elias nearby, which will similarly yield 388 units. The 14 blocks of 5-storeys (the only low-rise development in Pasir Ris, from what I understand.) are ensconced within lush, resort-like landscaping, complete with full condo facilities with an extra touch of luxe. Luxurious details I especially liked include the grand entrance foyer, single-storey basement parking, the reflective pool atop the gym’s glass ceiling, and the lovely floating cabanas and the sun and pool beds surrounding the huge 50m by 12m main pool and smaller 30m by 9m pool. I also found it rather interesting that most of the suites and 1-bedroom units are found within the same area, that is blocks 98, 102, 104 and 106. Perhaps this might facilitate the meeting of eligible bachelors and bachelorettes… the surroundings certainly create a mood for relaxation and possibly romance! The units themselves are also a class above neighbouring developments that have used laminate flooring and homogenous tiles. At Stratum, all bedrooms are timber-decked, while units of 3-bedrooms and above have matt marble flooring throughout the rest of the apartment.

Whilst I’ve yet to view the showflat or been shown the floor plans for Stratum, the only seemingly negative feedback I’ve had from fellow agents thus far has been that the bedrooms are a tad small. I don’t see this as a huge concern in itself. When it came to rebuilding our current home, we had the luxury of designing our own layout (incidentally, our home was designed by a family friend who helms the design firm responsible for Stratum’s showflat), and we made the conscious decision to keep our children’s bedrooms small and free up more space to have a sizeable family lounge/ study area on our upper floor. Our thinking being, we’d rather encourage the kids to spend more time hanging out as a family, than holed up in their own rooms interacting with faceless persons at their personal desktops. Given the strong outdoorsy, family-vibe I’m getting from the development and its surrounding environment, I dare say home-buyers drawn to this project may share a similar mindset as mine.

If you’d like to be kept up-to-date on this project, feel free to drop me a line or email.

And so, when a property agent friend recently asked me for my opinion on whether she should advise her home-buyer client to “wait for property prices to drop”, I responded with a question in kind, “how long can she wait?” If you ask me for my honest opinion, today’s market is indeed a challenging one for buyers seeking an investment unit in the residential sector, and it takes a sharp eye to spot a gem worth surmounting the ABSD payable(there ARE such gems out there, I can personally vouch for that!). However, for those without a home to their names hoping to eventually get out of the rental cycle, I silently worry when they confide that they are waiting for prices to drop. (I stay silent in such cases, as my policy is never to give unsolicited advice, the opinions shared on this blog are for you to consider only if you choose to.)

Besides the fact that they are betting the roof over their heads on an event of uncertain magnitude and indefinite time line, very often the turning-point they have in mind may in fact work to their disadvantage if and when it actually occurs. Let me just run through the two situations commonly cited by those hoping to pick up homes during a property crash:-

Interest Rates Rising:

Some home seekers are waiting for rising interest rates to spark a housing market crash. While I certainly agree that interest rates will eventually rise, let’s not forget the reason for them being so low in the first place. The Feds have committed to keeping interest rates low until the US unemployment rates dip to at least 6.0-6.5%, in a bid to boost their flailing economy. What does this mean? That when they do decide to jack up rates, it will be because their economy is back on track and market sentiment has improved. Would an improved global market outlook help with bringing home prices in Singapore down? I doubt it.

Next let’s consider how the recent increase in local mortgage rates affects the housing resale market. The interest rate payable by a home owner here is based on a moving rate (SIBOR is the most commonly used one at present) plus a fixed margin (determined at the onset of taking up the loan). So a home buyer may, for example, take up a loan that charges him a margin of 0.75% per annum above SIBOR for the first 3 years, and 1.25% per annum above SIBOR in each subsequent year. In a bid to improve profitability, several banks have in recent months moved to increase the fixed margin they charge new mortgagors over and above SIBOR. So while we managed to secure a SIBOR + 0.7% loan package in mid-2012, we would probably be offered a package of around SIBOR + 1.15% if we sought to refinance the loan today. While the hike in rates does little to dampen first-time buyers’ demand, it could actually cause existing home owners to reconsider their upgrading plans, since their subsequent replacement home would likely attract mortgage rates at least 25 to 35 basis points higher than what they pay on older loan packages pegged to lower fixed margins. This in turn reduces the stock of resale units available to home seekers – not the best environment for home shopping.

Huge housing supplies scheduled for completion:

Firstly, the pipeline of private housing projects due over the next 4 years is competing with record numbers of public housing and infrastructure projects for both building materials and a tight foreign worker market, housing prices would tend to move in tandem with escalating construction and manpower costs.

Secondly, as I’ve highlighted before, developer companies aim to achieve profitable returns for shareholders. If there are serious signs that home prices must drop, they must and will source for other ways to reduce costs. There’s a reason why projects completed during times of economic crisis tend to have less impressive finishings than those completed during times of strong growth. There’s a wide spectrum of grades for marble floor tiles and wood parquet, a China-made glass window pane may look identical to an Australia-imported, shatter-resistant pane yet cost just a quarter of the price. Do you really want to be buying a new home when developers are at the point of slashing prices?

And finally, thanks to the 7 rounds of extensive cooling measures, there is a huge arsenal of tools available to the Government in the event that the market were to start showing signs of collapse: reduce ABSD, completely scrap ABSD, reduce/remove restrictions placed on loan-to-value and loan tenure. It doesn’t take much imagination to think, if this is how our property market performs under such draconian restrictions, what would happen if such restrictions were to be completely removed.

Now that the government has clamped down on buying and selling of property, perhaps it is time to look at other ways you can invest in property. One of these ways is to buy shares of companies that deal with property, whether as developer, contractor or owner-manager. Some such counters are Capitaland (developer), Ho Bee (developer), Wee Hur (developer, contractor), Suntec REIT (owner-manager).

There are differences when it comes to different counters, even within the same category. For example, Capitaland operates in various countries while CDL is predominantly in Singapore. Suntec REIT mainly does commercial property together with the namesake Suntec City Mall, while Cambridge Industrial Trust owns industrial property, which has very different profiles.

Before I start talking about how I analyse these companies, I’d first like to say that investing methodology is as varied as they come, and while there may be similarities, hardly anybody uses the exact same metrics, and what works for me may not work for everybody. Secondly, I am not a qualified financial advisor, and in any case, you should do your own research and never take someone else’s advice wholesale. After all, it’s your money.

Looking for a property counter
There are several ways I use to find counters to invest in, depending on what the trigger is. For example, if I am bullish on the property market, typically I do a zoom-in approach, starting with countries that the companies operate in, zooming into the sector they are in, further zooming into tier or type of property they deal with, before narrowing down into their financial statements. If there’s a particular counter I am interested in, then typically I do the reverse, digging into the financial statements first before zooming out.

What to look out for in the financial statements
Last Sunday (17 Mar 2013), The Sunday Times had an article talking about what to look out for in the annual report. While I don’t think it’s exhaustive, it definitely gives a good overview of the important parts to notice. Please give it a read if you can. For property companies, here are the things I look out most for, after first determining that they are operationally profitable:

Developers: NAV and RNAV
I look out for the value of a developer in 2 main aspects. The first is the profit it can generate from sales (or progressive recognition of sales), and the second is the value of the land bank. While both are important, it really depends on your time frame. In the short term, profits are more important while in the longer term, the value of the land bank will determine how sustainable the profits is. As such, I usually view the latter as more important.

Contractors: Committed contracts
Similar to the argument above for developers, I rather look at what projects contractors have in their pipeline to determine the sustainability of profits.

REITs: Cashflow
REITs are a little bit different from developers and contractors in that the most important aspect is really cashflow. As an investor, I treat REITs (or any type of business trust) as a stream of income. As long as the cashflow remains strong, and the distributions keep coming, I don’t care as much about profits. A case in point is Starhub. Even though it is a telecommunications company, it actually behaves more like a business trust. Month on month it may turn in a loss, but quarter on quarter, they continue to pay out good dividends. The reason is that even though they may make a loss, the loss is actually from depreciation of their fixed assets like their cables or fiber optics, and not from operations. Similarly, a REIT may book a loss due to downward revaluation of their assets or depreciation of lease etc, but the lease business itself may be healthy.

What to look out for in the macro-environment
The success of the property company is dependent on what happens in the economies they operate in. Therefore, I always try to read the newspapers and keep up with current affairs. Politics, economics, commentaries etc are important pieces of information for any investor. Here’s a quick list of what I look out for in the news:

1. Government policies
2. Openness of government to foreign investors
3. Commodity prices movement
4. Property market sentiment
5. Rental market sentiment
6. Interest rates movement

Finally, I’d like to remind everyone that investing is a risky business, and while you can try to minimise your risk by knowing more about what you are buying into, no amount of research can guarantee that you will make a profit. That said, good luck!! Huat ah!!

According to multiple sources, MSRs are likely to be brought down from the current 30-60% to just 30-40%. To illustrate what this means in practical terms, let’s take the example of a $1.5M property:-

A $1.5M home with 30-year, 80% loan-to-value housing loan of $1.2M at an interest rate of 1.5%p.a. ($4,141.44 monthly installment) would previously require a monthly income of $10,353.60 to support a 40% MSR threshold. When MSR is reduced to 30%, a corresponding one-third increment is monthly income is necessary to support the same loan.($13,804.80/month). Alternatively, the buyer with a $10,000/mth income would need to reduce his loan to $900K and either come up with more cash or assuming he maintains his cash/CPF downpayment at $300K, shift his sights toward properties $1.2M or below.

In theory, the measures aim to protect borrowers from over-extending themselves. But in practical terms, does it really help people manage their finances better? While I do foresee that some home seekers may reduce their shopping budgets proportionately, I think for most it would be a middle-ground between reducing their budget slightly while also upping their cash/CPF outlay slightly. In that sense, the tighter MSR requirements will force the average private home seeker to lock more cash into their homes. While it’s certainly bad to be over-extended on monthly loan commitments, I believe these can be successfully managed with the help of loan restructuring if need be. The problem of not having sufficient liquid funds to tide one through temporary emergencies is, I think, an even more dangerous problem.

The other danger that tightening MSR for private homes is of course the spillover effect on public housing. Borderline buyers deliberating between private housing or public housing may decide to go for a HDB home once the stringent loan requirements hit their budgets. That is certainly not going to help with ongoing attempts to cool the public housing market. (Since my last post on 28th February that mentioned a 5-year-old flat going for $780 psf, I’ve heard news of a 10-year-old flat around the area same area being sold for $800 psf.)

So does the tightening of MSR on private property loans make sense? If the end-game remains to make things affordable for first-time home buyers, then my answer is no, the move is more hampering than helpful. Speaking from the perspective of a property investor-owner, I am unlikely to part with anything in my existing property portfolio unless it’s an extremely attractive price, since I’ve already maxed out my MSR and will be unable to buy back into the market. That does not bode well for buyers seeking resale homes.