QE3: Why should you care?

Courtesy of BlueWire Studio

As you may already have read in the papers or watched on the news, Ben Bernanke, the chairman of the US Federal Reserve, just announced the initiation of further quantitative easing, dubbed QE3. The Fed will be purchasing additional mortgage-backed securities of US$40 billion a month until jobs data look better. Additionally, they are extending their low rate outlook until mid-2015. Well, that’s great and all, but how does that affect us here in Singapore?
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TODAY article: Rentals go up near international schools

Found this article from TODAY newspaper interesting. In the short article, it brings up a few points.

International school students have increased by 25% over the last 4 years. Picture courtesy of Singaporebaby.com

Point 1: Number of international students has increased 25% over the last 4 years.

Significance: Increase in international students = increase in expat families. Singapore remains an attractive location for companies. Additionally, the expats coming over should be relatively high-level for the companies to relocate the entire family. Since companies are unlikely to purchase real estate simply to house their expats, this should continue provide support for the rental market.
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Looking into my crystal ball…

Where will property prices be in the next few years? Will property prices plunge 30 – 50% as per the doomsday prophets? Will property prices trundle along sideways, moving up and down within a 10% band? Or will property prices continue its steady climb upwards? Unfortunately, I don’t know, so I can’t tell you. If I knew for sure, I wouldn’t tell you either. So, since I don’t know for sure, I will lay down how I think the different scenarios may play out so you can make your own educated guess. But before we go into the heavy stuff, let’s have some fun with a poll!

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Press Release: CapitaLand Group to relocate to Westgate Tower in 2015

CapitaLand Group to relocate to Westgate Tower in 2015

Westgate targets to meet BCA Green Mark Platinum and Universal Design standards

Singapore, 14 August 2012 – CapitaLand Limited today announced that the CapitaLand Group will relocate to Westgate Tower progressively from early 2015. The Group will occupy 11 floors, a total of about 160,000 square feet (sq ft) of the new 20-storey prime office tower. The relocation will further enhance staff interaction and sense of belonging and provide for a holistic sustainable workplace so that it becomes more productive for all. This centralised destination for “work, live and play” will strongly motivate and integrate the Group as one united family-like organisation.
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Property Market Update

According to the NUS SRPI, the property market continued to stabilise in June, with no change in the overall index. Breaking the index into its components, the market is supported by transactions in the non-central region with a month-on-month increase of 0.7% while the central region and small units decreased by 0.9% and 1.4% respectively.

NUS SRPI for June 2012

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The 50-year loan: Gimmick or Gimme?

About 2 weeks ago, UOB announced that they were able to give loans of up to 50 year tenures. Since then, Minister Khaw Boon Wan has come out to criticise it as a gimmick and urged home buyers and owners not to fall for it. So, is it a gimmick as Minister Khaw says, or is there a case for it?

Before we go there, let’s take a look at the conditions for the loan. Besides the usual income/net worth requirements, borrowers have to be below 80 years old at the end of the loan tenure. If the property is leasehold, it must have at least 35 years left on the lease at the end of the loan tenure.
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How to get the best deals on property loans…

Given the low interest environment, I imagine that most people will be looking to take out mortgage loans when buying a property, or to re-finance their existing loans. Now, how do you get the best deals? Most people will say that you have to shop around, and that’s a big part of the story, but what do you look out for after you’ve done that? There are still a lot of hidden costs involved if you know where to look in the fine print. In this post, I shall attempt to guide you through the loan-hunting process so you can get the best deal.

Step 1: Where to look?

The most obvious and easiest way may be to go to websites like Loan Guru or Smartloans that has already consolidated quotes from many banks. There, you can compare standard rates from each bank to find the best rate. However, you will not find the best deal there. If you spend some time on the phone, better deals can be found at the individual banks from time to time as they come out with loan promotions. However, these are still mass market rates. The best deals come from individual banks with whom you have a priority or private banking relationship. If you don’t have one, your friendly estate agent will have some recommendations as she would have worked with many bankers who may be able to work something out for you. Continue reading “How to get the best deals on property loans…”

Is the Singapore Property Market in Trouble? Part 3

Since the best trilogies come in threes, I guess this will be the final one of the series. In part 1, I talked about the risk of additional cooling measures. In part 2, I discussed the risk of over-leverage and increase in interest rates. In this part I shall talk about the risk of over-supply in the market.

Risk 4: Risk of over-supply

Another reason why the property market may come down is over-supply of properties, or to be more specific, more supply of properties than demand. Economics 101 tells us that price is determined by the interaction of demand and supply. When there is more demand than supply, prices go up. Conversely, if supply exceeds demand, prices come down. In order to determine the risk of over-supply, we need to split it up into the different categories of housing. Continue reading “Is the Singapore Property Market in Trouble? Part 3”

Is the Singapore Property Market in Trouble? Part 2

Just to recap, in my previous post, I discussed the risk of additional cooling measures for the property market, which I think is low due to the demography of the people who are actually pushing up the housing prices here. In this post, I shall discuss leverage and interest rate risk.

Risk 2: Risk of US-style housing defaults due to falling prices

A primary cause of the housing crisis in the US is the high leverage that homeowners there have on their property. Leverage means the use of loans to finance purchases of assets. Leverage is good in the sense that you’re using OPM (Other People’s Money) to buy your property, which can significantly increase your return on capital. It also allows you to borrow money cheaply against your home’s equity. However, using loans requires you to pledge your property to the bank as collateral, and in the event that market value falls way below the loan amount, then the bank has the right to ask you to pay down a portion of your outstanding loan. If you were not able to comply, the bank has the right to take over your property and sell it in the market to recover their loan. Although you will get any excess after the bank and CPF board are paid, the amount is typically very little, if any, since this usually happens at the worst time when the market is down. Buyers of such properties are looking to buy at fire-sale prices, and the bank’s main concern is to cover their loan, rather than to try to get a good price for the property, so transaction prices tend to be low. Continue reading “Is the Singapore Property Market in Trouble? Part 2”

Is the Singapore Property Market in Trouble? Part 1

Recently, I’ve been hearing a lot of speculation in the newspapers, blogs and forums about new cooling measures for the property market and how domestic lending has gone through the roof and may precipitate in property crash etc. The common thread in all the rumours and commentaries is that the property sector is not going to be good. I’d like to list out some of these topics to just discuss how bad the situation is, or if the speculation is unfounded.

It looks like it’s going to be quite a long discussion, so I’m going to break it up into a few posts to make it more readable.

Risk 1: More cooling measures

With housing prices continuing to rise, are we going to need new property market cooling measures? Before I try to answer that, here is a quick overview of the 5 rounds of property market cooling measures that the government has already implemented over the last few years:

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