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”→
With personal income tax capped at a modest 20% and no capital-gains tax, it’s unsurprising that Singapore has become a magnet for wealth around the region. In a recent survey of 1,000 mobile millionaires, Singapore was deemed the most desirable place to call home in Asia – billionaires Richard Chandler and Eduardo Saverin are amongst the notable individuals who have chosen Singapore as their home-away-from-home.
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 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. Continue reading “Iskandar Malaysia: An Exciting Frontier, But Tread Carefully”→
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. Continue reading “Stratum – First Impressions”→
Market naysayers claim that cheap financing has resulted in hot money, which has in turn created an unsustainable property bubble. While I constantly remind young, first-time home buyers not to overstretch their budgets by projecting affordability on the basis on today’s abnormally low interest rates, the continued upward march of property prices here was certainly not due to low interest rates alone. In any case, with the various phases of loan-to-value and loan tenure restrictions introduced since February 2010, the capacity for interest rates to create heat in the property investment market has been brought down to a minimum. (After the latest cooling measures in January 2013, the maximum loan-to-value in certain situations is a mere 20%.)
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.)
After murmurs on the subject have been rippling through the market for weeks, I believe the move to further restrict Mortgage Servicing Ratios (MSR) on private residential property is on the cards over the coming week, possibly as early as tomorrow.
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.
It has been just less than two months since the most recent and extensive round of cooling measures were implemented on 12th January 2013. Despite the initial shock and awe across the island, it appears from January’s transactional activity that the market is increasingly resistant to cooling attempts. We expect this to continue given that residential property vacancies are low at 5-6% islandwide, jobs figures remain healthy, and loan interest rates are set to stay low till at least end-2014.
To be sure, January’s data cannot be taken at face-value. While transactional volumes hit record levels, with new home sales hitting 2,013 units, several market analysts have pointed out that the bulk of these numbers were clocked in prior to the cooling measures taking effect. For instance, star-performer for the month, 810-unit La Fiesta brought forward its launch date and extended sales operating hours the night before the cooling measures kicked in, clocking in 404 units in January, of which an estimated 90% were deals closed prior to the measures. Continue reading “The 7th Property Cooling Measures: Further Tweaking Required?”→
We’ve been expecting the government to trot out another round of cooling measures, as I mused on Facebook just hours before the official announcements came out. Prices have continued to defy gravity despite the 6 earlier rounds of cooling, and the recent ruckus over $2M Executive Condos had also alerted Minister Khaw to the need to bring developers back in line with the original mission statement behind Executive Condos.
Still, the 7th round of cooling measures does stand out amongst its predecessors as the broadest spectrum of cooling measures we have seen, affecting both private and public housing, as well as the industrial property market. The measures have drawn a mixed response, ranging from fiery profanities from property agents concerned about their rice bowl, to mild jubilation from Singaporean first-home buyers (and more cursing and swearing from PR buyers yet to secure a home.)
On the whole, I agree with the government’s decisive move this round. The market, jaded by countless rounds of “cooling” measures, has reached a stage where anything less than draconian simply won’t cut it. However, I question whether the ABSD measures introduced will truly serve the interests of those they are seeking to protect -the Singaporean first-time home buyer. Today’s post shall be focused mostly on the ABSD hike and its repercussions.
I was admittedly shocked when I first caught wind of this particular deal – an option inked at $1.75M thereabouts for a 2-storey landed home in Upper Bukit Timah. Making a fuss over nothing? The house was situated upon approximately 3,300 square foot of land, with a balance lease of roughly 38 years. That’s akin to $3,800 per month in rent for 38 years, paid upfront!
Shortly after, Ms Lee Su Shyan, Money Editor of The Straits Times, highlighted in “Weigh the pros and cons of shorter leasehold homes” (16 December 2012) that a 60-year leasehold plot at Jalan Jurong Kechil had attracted 23 bids from interested developers. The 152,848 square foot site was ultimately awarded to World Class Developments (North), the property development arm of Aspial Corp, for $73.8 million. URA’s info on the Jurong Kechil tender exercise.
To my mind it was no longer just a single quirky home-buyer but 23 developers, a trend appeared to be developing! My interest in shorter leaseholds was piqued. Was there something I was missing?
If you’ve been reading our blog from the beginning, you’ll know that while I do favour leasehold properties for cashflow purposes, I generally shy away from anything with less than 60 years balance lease. For one, most banks require at least 30 years remaining lease on the property upon the expiry of the loan tenure – this means that you can take a 30 year loan on a 60-year leasehold, but only a 27-year loan if you wish to re-finance the loan 3 years down the loan, with the maximum loan tenure diminishing with each passing year. Evidently, banks consider such properties risky, unattractive collateral, and I certainly don’t argue with that view.