Last week, both The Sunday Times and Business Times carried stories on the rise in demand for bigger homes. I plan to address the market gap for spacious new homes within the $2.5-3.5M budget in a later post, but for today let’s discuss the perceived drop in demand for shoebox units, and the future of home affordability.
In his article “Bigger Homes Back in Demand” published in The Sunday Times on 4th October 2020, Invest Editor Tan Ooi Boon observed the following:
“The data shows a drop in the demand for so-called shoebox-size apartments – those under 506 sq ft in the second quarter. These units accounted for only 10 per cent of total new transactions, down from 14% in the first quarter, when most office workers were still on site.”
Let’s talk actual figures. There were 290 shoebox units transacted in the first quarter, and 193 transacted in the second quarter. Clearly, a fall in numbers transacted – but I disagree with his presumption that this is due to a drop in demand. If you’re a seasoned market observer, you should know that new sales numbers are closely correlated to numbers of units launched during any given period, particularly for in-demand unit types. As a realtor on the ground, working with home buyers and tenants on a daily basis, I know how strong demand is for compact but well-appointed homes. My assertion is that transaction numbers for shoebox units are more reflective of limited supply rather than reduced demand.
In 2012, URA had already introduced guidelines to moderate excessive development of shoebox units – the maximum number of dwelling units (DU) was derived by dividing the proposed gross floor area (GFA) by 70 square metres (~753 sq ft). Four areas, Telok Kurau, Kovan, Joo Chiat and Jalan Eunos, were subject to a more stringent requirement of 100 square metres (~1076 sq ft), to avoid stressing local infrastructure capacity concerns of these high-density residential areas. (I will discuss further tightening on these restrictions later in this post.)
As such, the number of shoebox units offered on the primary market has been steadily dwindling. For example, at one popular new launch project this year, The Woodleigh Residences, none of the 667 homes being built are “shoebox” units – the smallest unit size being 570 sq ft. There are 55 units of this layout (A1a) being built, of which only 3 remain available for purchase at time of writing.
So what accounts for the seemingly dramatic drop in demand for shoebox units? If you’ve been tracking the hot launches this year, you would probably be able to guess – The M. This Bugis project was launched in late February of this year, 138 of the 522 homes launched were below 506 sq ft. These units were sold out in a matter of days, with snaking queues outside the showflat despite the looming pandemic situation at that point in time – the 6 shoebox deals you see transacting at The M after Q1 2020 were in fact bounced-out units- these were very quickly snapped up upon being re-released onto the market.
The fact that there were 138 shoebox units launched and quickly sold (in 2 days!) is reflective of the limited supply and real consumer demand for such homes. The writers’ observations on the fall in shoebox transactions from 290 to 193 – the difference of 97 units between Q1 and Q2 is more than covered by The M’s performance in Q1!
And if we’re to look at Q2 shoebox demand levels – consider Forett @ Bukit Timah – 76 of the 633 homes here are under 500 sq ft, and 32 of these units (roughly 42%) have been sold within 2 months of launch – a rather strong showing considering the location is more suited to families who drive, rather than the typical shoebox dweller. The difference in reception for Forett versus The M shoebox units is illustrative of the combination of features that sit well with shoebox buyers – nobody heads out into the market looking for a tiny home! Demand for shoebox units is primarily a demonstration of demand for the most affordable homes in any given project and neighbourhood.
When we invest today, we need to project our expected returns against the landscape our property holdings will be competing against in 3-5, 10, 20 years time, not based on today’s flavour of the day but our own investment timeline. We should also be careful not to confuse demand and supply from very different market segments – the increase in demand for units larger than 1,200 sq ft post-circuit breaker had little correlation with the fall in transaction numbers for shoebox units, which was more a result of fewer shoebox units being offered up for sale rather than an indicator of falling demand.
What we see offered up on the primary sales market today is what was planned for prior to additional changes to URA’s earlier mentioned building guidelines. For building plans submitted after January 2019, a tighter set of guidelines (first announced in October 2018) will bring average unit sizes even higher. Number of dwelling units for a given plot of land will be calculated based on a Total GFA divided by 85 square metres, a 21% increase from the earlier 70 square metres. In addition, areas under the stricter 100 sq metre formula will increase from the previous 4 to a total of 9: Marine Parade, Joo Chiat-Mounbatten, Telok Kurau- Jalan Eunos, Balestier, Stevens-Chancery, Pasir Panjang, Kovan-How Sun, Shelford and Loyang.
What does this bode for the future? For each new shoebox unit built outside of the central region, a corresponding unit of at least 123 sq metres (1323 sq ft), or 153 sq metres (1647 sq ft) if falling within the nine areas identified as high-density, would need to be built. So whilst land bids in future will need to fall to accommodate increased building costs, more challenging sales climate and stricter anti-shoebox planning restrictions, affordability is not going to come down – instead, private home ownership rates will.
To illustrate, I’ve done up a table of all District 3 pipeline projects, as well as the shoebox units or smallest available units in the case of projects that will not be building any homes within 506 sq ft. This gives you an indication of entry prices for new homes in District 3 in the next few years. Note though, that the “Starting Price” indicated is for the lowest done deal from developer whilst “Last Done Price” would be the last recorded price for any shoebox sized unit within the project, or smallest unit size in the case of ARTRA & Riviera as of today. It’s telling to note that whilst shoebox units form just 9.4% of total pipeline, they form 12% of total sold units – and the 63 units left unsold are currently all listing above $1M.
How does one act upon such knowledge? It really depends on what your specific home and investment needs are, but I would advise those who are looking for a centrally-located new home with budgets capped at $850K-1.2M to intensify their search now, and consider the future impact that the URA building guidelines will have when currently available projects planned prior to its coming into effect are already showing a shift upwards in size and affordability.
I’d also advise you to do plenty of homework, not just on paper, but get a real feel of the situation on the ground by visting showflats, and talking to those involved in the market (not just those observing from behind a desk!)- as I hope you’ve come to see, not everything reported in the papers is completely accurate.
You’ll need to be fast and decisive, whilst refraining from being impulsive or allowing yourself to become pressured into a decision. Knowing the market well will help tremendously. Oftentimes data doesn’t convey the full strength of demand – to illustrate, the 36 shoebox units at Avenue South Residences were snapped up within the space of 2 days, on 6-7 September 2019 (These were in addition, much-lauded heritage units that will give future occupants the rare opportunity of living in homes reminiscent of Tiong Bahru walk-ups, yet with modern full-facilities and private lifts!) The 4 deals recorded after these two days were in fact withdrawal units, that were snapped up almost instantaneously upon being bounced out.
I would want to delve further into the demand for compact homes on the rental market, but I’ve already went on for longer than I’d planned! Let’s revisit that in another post! Till then, keep your story ideas and questions coming!
In my past posts, I have described the prevailing climate as a buyer’s market, but my experience in 2015 has coloured my view slightly. To be more precise, we are in a negotiator’s market- there are bargains to be struck, but they’re not screaming out for takers like a bargain basement store. There is still a pricing gap between buyer and seller expectations at this point in time, but increasingly, I’m finding it possible to use non-price bargaining chips to persuade a seller into inking the deal.
I’m going to share some personal experiences culled from deals I closed in the past few months, but as my blog is a very public resource and I represented mostly buyer clients in these deals (some of which are still pending legal completion, in fact two were exercised just before the Jubilee weekend) I am not at liberty to disclose in quite as much detail as my earlier post on Record Sale Case Studies which were completed trades where I represented solely sellers.
“The ABSD Conundrum” – how to work it in your favour! As you likely already know, ABSD (or Additional Buyer’s Stamp Duties) refers to the additional stamp duties payable by buyers, rates depending on residency status and count of residential properties owned. Besides adding to the cost incurred by local investors and foreign home buyers here, it presents a sticky situation for those seeking to upgrade (or downgrade) their homes, as they will need to either time their home sale and next purchase very neatly, or consider selling and then renting till they buy their next home in order to avoid incurring ABSD on their next home purchase. This logistical nightmare is further complicated by current home loan restrictions, which make it hard for buyers to get maximum financing on their new home if they have yet to sell and discharge the mortgage over their old home. The good news is that this potential stumbling block can be leveraged upon if you’re a buyer who has time on his side. (Another reason why you should not hold off home purchase decisions till the last minute!)
In fact, three of the resale deals I closed in 2015 so far involved using this tactic – crafting an offer that provides a solution to this issue for the seller – purchase with leaseback by seller. In simple terms, it allows the seller to get his sales proceeds and redeem his first home loan upon legal completion of the sale, but continue living in the property for an agreed period and rental rate while the logistics of his next home are being ironed out – typically sourcing for that next home, securing the deal, obtaining financing, awaiting legal completion, and then renovations if necessary. In the first such case, which I shall call Duchess-3A, we managed to deal at almost 8% below the seller’s list price (despite his asking price at the time being a good $100K lower than all but one other 3-bedroom units listed for sale at the development, and the property being in great condition), because we were able to offer a 6-month leaseback period after completion. In the second such deal (Cashew-3A), I represented the seller, and my client eventually agreed to an offer slightly below our last received offer because the buyer was willing to grant an extended rent-free period to her. And in my most recent case involving post-completion stay (Duchess-2A), my purchaser client was able to knock off slightly more than 8% from the seller’s asking price, in part due to our willingness to extend a 3-month rent-free period to the seller. This was in spite of the unit already being advertised at valuation, and a good 10% below what the closest competing unit was asking.
Now, if you’re looking to use this strategy, there are several permutations and ways of going about it depending on the circumstances of the case. I was recently referred to a landlord, who purchased a property on his own some six months prior to our introduction. He too, had bought with a lease-back arrangement from the seller. Unfortunately, without proper advice, he had taken the option of purchasing with a one year leaseback arrangement. The seller had agreed to rent the property for a year post-completion, at a rate slightly above market, and the buyer had agreed to the purchase price with this in mind. After half a year, the seller decided to unilaterally terminate the leaseback agreement. To make matters worse, there was no form of security taken by the buyer, to ensure that the seller then held up to his end of the bargain. He would have been far better off getting an outright discount on the purchase price.
There is more to be said about how leaseback terms and conditions should be drafted, but perhaps I shall leave that for a separate discussion on how to negotiate contractual terms in a manner that covers your legal bases while ensuring the deal actually goes through.
Here’s something new- don’t be an ass! Fortunately I don’t encounter these too often, but such folks are definitely out there- the buyers who think that they can push down the price by being aggressively critical. This is in fact the worst possible thing you can do if the seller is present during the viewing. I recall a viewing I did earlier this year (For the aforementioned Cashew-3A), where a group of sisters came to view during an open house I was conducting. One particularly obnoxious member of the group took it upon herself to scoff at everything she came across in the apartment – it got to the point where she even made a rude remark about the owner’s choice of fridge. As soon as the party was out the door, my poor client turned to me and said, “I do not want to sell my home to them.”
Remember the Aesop’s fable about the North Wind and the Sun? You as a buyer are far more likely to get the seller to shed his metaphorical coat with persuasive charm rather than brute force. When a seller likes a buyer and knows that they genuinely appreciate their home, they will try their best to make things work for them. I think this is general human behaviour – we all hope our old belongings go to good owners, particularly a treasured home full of personal memories.
A resale deal I did in early July (Wilby-3A) is a perfect example of this phenomenon in action. The seller’s expected price was way above what my client was willing and able to pay. And here’s another reason why it often helps to have a middle man – it avails you of the “good cop, bad cop” psychological tactic. While my buyer was her usual charming self and candidly let the seller know she absolutely loved the house, I was the hard-nosed, calculative advisor who crunched the numbers and gave the seller examples of other available options that made better financial sense for my buyer.
Happily, we were able to reach an agreement that both parties were happy to settle for, but to do this, we worked not just on price, but also the funding arrangements. (The seller even shared with me that the price we finally agreed upon was lower than an earlier offer she had received- from a buyer whom she didn’t like, because they bargained aggressively and showed little appreciation for her lovely home.) I negotiated for an extended completion period to allow my client sufficient time for overseas funds to come in, and we sweetened the deal for the seller by releasing a slightly larger deposit. I also successfully used this strategy to benefit my own seller client in another sale earlier this month (OneTree-3A).
Typically the first 1% option fee goes direct to a seller, while the balance 4% deposit is held by the seller’s lawyers. If you do wish to try offering deposit to be released direct to seller, you need to know what you’re doing- this can potentially go very wrong for the buyer, for instance if the seller becomes a bankrupt during the period between exercise of Option and legal completion, or the balance sales proceeds are insufficient to cover the outstanding loan. Only use this tactic if you are professionally advised and have proper assurances on the seller’s financial standing.
There’s much misunderstanding about what constitutes good negotiation/ a good negotiator. Often, people imagine a no-nonsense tough guy like Samuel L. Jackson’s character in The Negotiator, but the truth is, when we’re dealing with sentimental and financially sound home owners, you need to have a good balance of hard and soft to persuade them into selling below their initial price expectations.
And the skill every good negotiator should know – when to stop!
A good negotiator isn’t one who simply bulldozes his way ahead, you need to know the value of what you are bargaining for, and when you should quickly grab the offer on the table. This was the case for three of the 2015 deals I closed so far.
The first was for a 3-bedroom in the Duchess area (Duchess-3B), which was asking for below $1,300 psf. All other similar units in the development were asking for far higher prices, and being familiar with the area (my buyer had been eyeing that particular project for months even before we met!) we knew that there were many buyers seeking homes at that condo. After bringing in our contractors to determine that there was no major plumbing and rewiring work necessary, we quickly sealed the deal.
About a month after this deal, I brought a buyer client to view a nicely renovated 3-bedroom apartment nearby (Adam-3A), which was receiving exceptional response from prospective buyers, with several second-time viewers the same weekend that my clients and I viewed. The last offer was $50,000 from the asking price, and we knew that a ready Option had been pre-signed by the sellers for $30,000 above the last offer. My buyers were decisive and quickly matched the inked price that very night, securing a prime freehold property for under $1.6M.
And my most recent such case was for a 2-bedroom unit (Jellicoe-2A). Thanks to insider news, we already knew the details of a recent low floor transaction at the project, and the response for this high-floor unit in the very first week of marketing had been overwhelming, with several groups viewing almost every day. An offer had come in just 3 days into marketing, with the seller counter-offering slightly above this offer. We were also aware that high floor 2-bedders at this project hardly ever came up – once in 2014, and none in the whole of 2013. Needless to say, we quickly scooped up the deal.
In closing, I’d like to remind readers not to take any particular example I’ve listed above in isolation, for one thing, it was not possible for me to share that much background information on each case due to client confidentiality concerns. Note that it is important to take a holistic approach when dealing with resale properties – assess the unit, the development, the area, know your position (and ideally the seller’s position as far as possible) to determine what is a realistic and best outcome you can craft for yourself as buyer, or your client if you’re an agent like me. Happy negotiating!
Hello again, dear readers!
After the last two articles on how to market your property in a challenging market and case studies on how I achieved record-breaking prices for my seller clients in 2014, we finally have something for readers on the buy side!
If you’ve been actively house hunting, you are probably familiar with and perhaps rather jaded by the marketing terms, “Value Buy!”, “Star Buy!” and its variations – these catchphrases have been overused and misused far too often. So today, I’d like to demonstrate what a true value buy should look like.
Value Buy Doesn’t Have To Mean Below-Valuation
Firstly, a sound investment doesn’t have to mean buying at a steep discount. (Although this is everybody’s ideal! ) Most buyers (and their agents) seem to think that simply checking past transacted prices for the particular development and then slashing the price by oh, say 10-20%, is The Way to getting a “value buy”.
That, my friend, is more likely to get you a rejected offer and disappointment. Sellers have access to the very same transaction data, so barring severe cashflow problems, a haunted house, or insanity, they’re unlikely to agree to getting ripped off.
A more sensible, realistic approach is to seek out properties that are undervalued, with good latent potential. This definitely takes more brain work and research, but less is left to luck and chance. So let’s get cracking!
Nothing like a live example to illustrate a concept, so let me use an exclusive listing I have at Cashew Heights as a case study. Based on my price of $905psf for a mid-floor 1,658sft unit, I consider this a stellar example of a “Value Buy”, for reasons I shall subsequently explain. Continue reading “How to Identify a Value Buy – Cashew Heights Case Study”
Happy New Year to all readers! Am typing this on my phone while holidaying in Japan, so please forgive me for any typos and editing errors.
As promised in my last post, I will be sharing 3 case studies of record breaker sales I personally conducted in 2014.
First up, a 980 square foot 2-bedroom apartment I marketed in late April, which subsequently sold in June.
The Challenge: Third floor unit facing a noisy children’s water play area. All units sold in recent times had been high floor units. Banks had given me valuations of between $1.7-1.78M. Also, many buyers were awaiting release of info on Keppel Land’s Highline Residences at the time. Thus despite plenty of enquiries and frequent viewings, I received only two offers which were below my client’s target price.
The feedback was that they found my asking price too high for a low floor apartment. We also faced a lot of competition from cheaper leasehold projects in the vicinity, including a huge upcoming supply of new units in district 3. We needed to sell within a fixed timeline and at a good price if my clients were to upgrade to a larger home for their new family.
What helped seal the deal:
– A relationship of trust between client and myself
Firstly, they entrusted me with an exclusive sale, of which I’ve explained in my previous post, is one of the first things a seller should do if keen to secure the best possible price for their property.
Secondly, they were willing to accept my advice and feedback and we completed some minor repairs in the apartment prior to viewings being conducted.
I recall viewing a bargain apartment with a buyer client previously, where we observed leakage stains on the ceiling. While the owner and his agent assured us that the underlying problem had been resolved, unfortunately the first impression had already been cast. Spending a little money to fix minor things like cracks , a loose tile, or stains on the walls can go a long way towards securing the most favorable price for your apartment.
Thirdly, besides tucking away personal items like family photos and keeping the property neat and tidy for viewings, the owners were able to pass me a set of keys to conduct viewings with just 2-3 hours notice. This turned out to be a critical factor, as the eventual buyers were in fact in town for a very brief window of time, and the second viewing was requested at the last minute before the cheque was secured.
Running a Successful Auction Sale
The reason why we often say sales is an art – different methods are applicable to different situations. In this case, I had built up sufficient genuine interest in the property, however due to the wait-and-see buyers’ market we were in, offers were either too low, or just not coming in.
I realized this after the first few weeks of marketing, and after discussion with my clients, we set a date for a possible auction sale. I began to follow up with both cobroke agents and direct buyers, informing them that if the seller’s baseline was not met, we would be conducting an auction at the end of June.
This gave prospective buyers sufficient time to mull over the best possible price they were willing to pay for the apartment. Under the strict bank loan rule these days, having sufficient financing is a very real concern, and buyers are unlikely to offer before they can ascertain whether their bank will finance their purchase.
I know, I know… This contravenes common salesperson knowledge that you should avoid giving buyers the chance to view alternatives or get cold feet. Hard-selling tactics are most commonly utilized by agents who care more about their bottom line than their clients’ interests, since a closed case ensures money in their pocket, versus holding out for a better offer. And it’s definitely a given when marketing an open (non-exclusive) listing – time is of essence lest the competing agents close the deal before one is able to secure an offer.
As a result of consistently following up with viewers and building up interest to launch an auction-style sale , I was able to secure a price that exceeded my clients’ expectations without a need for ruthless hard-selling.
Next, a 1,292 square foot three-bedroom apartment on the fourth floor that I originally listed for rent, and over 3 weeks of sales viewings sold for 8.5% above the last high.
This 24-unit apartment block has a great location close to Novena MRT station, but was poorly maintained by the management. Despite the tiny grounds and considerable maintenance fees, the pool decking was rotten and the exterior walls had not been repainted in close to fifteen years.
Of the two layouts available for standard units, the unit I was marketing had the less-preferred one. I faced several objections to the triangular-shaped master bedroom and the development’s proximity to the communicable disease centre and tuberculosis control unit.
Properties like La Maison often lag in performance, as the low frequency of transactions means the price never gets to run up much. This can be observed from the past performance – of the 16 resale transactions that have taken place since TOP, 5 were loss-making. My clients made a respectable 5.6% per annum gain, whereas almost seventy percent of La Maison sellers in the past made losses, or gains below 2% per annum.
Here’s how we did it
Feeding off feedback
The common misconception is that all successful salespersons have a gift of the gab, or so-called “sales talk”, but the truth is, we gain more sales ammunition from listening, both to prospective buyers and our sellers.
It can sometimes be disheartening to keep hearing negative feedback and objections to properties in our portfolio, however it’s critical to take all feedback in a positive light.
I make it a point to try and gather feedback from all viewers. Constructive criticism can help in conversations with your seller clients – not just what agents commonly term as “staging”, or trying to get sellers to soften on their pricing, but in gaining an in-depth understanding of the of the property as a home too.
For example, in this instance when I updated my clients on viewers’ feedback and objections, they shared with me many of their personal experiences living in the apartment -how they had in fact started out with renting an apartment in the project, enjoying it so much that they subsequently sourced for a unit to purchase, taking a year before finally securing a unit at this rarely available development. This exchange gave me many valuable nuggets of info to present both the tangible and intangible aspects that made the property a great home.
Open House Effect
This is again easier for an exclusive marketing agent to carry out. Open listers would fear requestors enquiring with other listers if they insist on viewers coming down on a specific open house date rather than catering to the prospect’s preferred timeslot.
I held open house viewings over two weekends, with between 4-6 viewers on both dates. This definitely went some way towards creating the right momentum needed for a record breaking price.
Oftentimes I’ve found with ad hoc viewings, the offers tend to be too spaced out in time, which often results in offers stagnating. “Last offer $2M? When was that? Oh, 3 weeks ago? Can I try $2M again?”
Buyers who view during an open house are already given mental preparation that if they view and like the property, they may need to make an offer shortly after.
And true enough, we clocked in a sale $70K above the last record for a similar unit.
And finally my third 2014 case study that I’d like to share is for a 2,067 square foot 4-bedroom apartment that I secured in September and sold a month later.
The Challenge:This exclusive sale listing had in fact originally begun as a rental listing, but the apartment had gone vacant for close to 3 months, with potential rental having dropped some 25% from what my clients were previously earning.
Having experienced the poor level of interest from prospective tenants, with viewing enquiries being infrequent despite being smack in the midst of the hot leasing period from June to August, and having had negative feedback from tenants on the dated, circa 2000 original interiors and the small grounds with limited facilities and tiny pool, I suggested that we simultaneously market the property for sale.
The project had been experiencing very flat performance since suffering a severe drop in prices back in 2008-09. It made sense to cash out if the the right price was achieved given the lackluster rental yields and limited upside in the short-medium term.
Recipe for Success
Creating Demand-side Competition
How do you create competition for your property in a market where buyers and tenants are spoilt for choice? Pit tenants against buyers.
We indeed landed up with that situation for this sale, when a letter of offer for rental came in just days before the prospective buyer was due to view. My clients were anxious not to let the prospective tenant go in case the sale failed to materialize, but thankfully the buyer was also serious about snapping up the unit vacant.
Buck the Trend
If you want above-average results, you need to steer away from what the crowd of average joes are doing.
Buyers who buy when others are staying clear of the market have far stronger bargaining power than when everyone is rushing back into the market. Likewise when it comes to selling.
Whilst Holt Residences is a small development, all units aside from the 4 penthouse units have similar layouts. This made it challenging when it came to sourcing for tenants as there were at least 3-4 of the same layout available for rent at any one time.
Units for sale, on the other hand, were in limited supply. Our negotiation power was thus bolstered, as the only other available unit for sale was on a low-floor. The proof is in the pudding- we were able to sell at $3.4M, despite most banks pegging valuation at $3.1-3.2M.
As you can see from the various marketing strategies I employed, it does not require rocket science nor a devious plot to sell well, even in a challenging market. If you or your clients are looking to upgrade homes or rebalance portfolio within the next 5 years, I recommend selling now before the bulk of new supply comes online.
Hello dear readers! It’s been a busy and fruitful year, and as a result, the blog has sadly taken a back seat! But now that the holiday season is upon us, it’s a great time to reflect upon the wealth of experiences notched in 2014!
One phenomena I’d like to discuss today is what I’d term ” The Upgrader’s Dilemma”- you already own a home, but want to shift to a bigger place and/or closer to good schools for the kids’ sake etc. Upgrading makes sense in a soft market, since you can buy your next bigger, better home at more attractive discounts these days (and in the coming months), but the dilemma is – how do you fetch a good price for your current home in a such a “slow” market?
Not sure if I’ll regret sharing these little “secrets”, but to me they’re fairly common sense, and often times it’s not just a matter of knowing but putting your awareness into practice.
Some tips are targeted at home owners, while others are more for fellow agents, so bear in mind some notes may be less relevant to your personal situation. Now, let’s get on with it! Continue reading “Selling your home in a buyers’ market – The first 3 things you should do”
I was recently invited to blog on BTInvest, a new online portal by The Business Times, a cherished opportunity to learn from professionals more knowledgeable than myself and also share my personal views and personal experience on investments.
Just thought I’d share my first BTInvest post with all my dear readers here. I will of course still be publishing news and my views on the real estate market here, so please do continue to lend us your kind support by visiting regularly! Continue reading “Just to share…”
The 8th round of property cooling measures announced by MAS on 28th June is intended to be a long-term one, put in place not just to tackle the current market situation, but to maintain prudent credit controls in the years to come.
I think at this point it would be timely to remind ourselves why Singapore’s government is so fixated on avoiding a property bubble. Sure, housing affordability is always of certain political significance in any country, but I struggle to think of any other nation where the government is quite so heavily involved in the property market. Having chosen to take on the mantle of providing public housing to over 80% of the population for all these decades and being so closely involved in the control of the private housing market too, it is unsurprising that the electorate considers the health of the housing market a key element when assessing their overall satisfaction with the ruling party’s performance.
As Minister Khaw has pointed out previously, he faces the delicate task of balancing the public’s call for affordable housing, with the need to maintain stable property prices to protect the interests of many Singaporeans whose homes and real estate holdings represent the bulk of their total net assets. Thus in the government’s efforts to provide affordable public housing, they must at the same time avoid a property crash at all costs.
The main focus thus far has been on beefing up rules and regulations: hiking stamp duties imposed on buyers and sellers, and reducing the availability of financing by lowering loan-to-value ceilings, restricting loan tenures, and general tightening of credit controls. But as any honest draftsman or legislator would be able to tell you, it is near impossible to draft a completely watertight book of rules without becoming unwieldy and impractical to implement. And in any case, is there substantive proof that heavy regulatory control is better at maintaining a stable market than free market forces?
An increasingly complex, convoluted series of rules and regulations governing the property market certainly poses a challenge for layperson consumers seeking to purchase or deal with their property holdings. I believe it would be helpful to take a look at trends that have been taking place both in Singapore and other cities for alternative means of coping with rising home prices. Continue reading “Affordable homes in Singapore? Looking beyond cooling measures.”
MAS has just announced the introduction of a debt servicing ratio framework, with effect from tomorrow, 29 June 2013.
Whilst the cap of 60% on debt servicing ratios (monthly debt obligations versus monthly income) is not something drastically different from banks’ current practices, my focus would be the impact of the following restrictions:-
- borrowers named on a property loan must now also be mortgagors (ie. co-owners) of the residential property for which the loan is taken;
- “guarantors” who are standing guarantee for borrowers otherwise assessed by the bank at the point of application for the housing loan not to meet the TDSR threshold for a property loan are to be brought in as co-borrowers (and therefore, must also become co-owners); and
- in the case of joint borrowers, that banks use the income-weighted average age of borrowers (based on borrowers’ gross monthly income) when applying the rules on loan tenure (i.e. lower LTV-ceilings for loan tenures exceeding 30 years or extending past a borrower’s 65th birthday ). Continue reading “Hot off the Press: MAS Introduces Debt Servicing Framework for Property Loans”
If you own private property in Singapore, it’s highly likely that you took up a mortgage loan when you first purchased it. Given the widespread use of mortgage loans here, I find it rather alarming that the vast majority of people who have taken up mortgages in the past are unclear on even the basic terminology used in mortgage loans.
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. Continue reading “The all-monies mortgage: Interest rate hikes are not the only risk”