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 originally planned to retire this section with the start of 2013, but have received a couple of requests for it since. In the interests of dedicating our time and efforts to topics/segments that our readers wish to read, we’re holding a poll. If we have 50 or more interested readers, we’ll start up this section again! Please vote! You may also wish to let us know which topics/areas you would like us to cover in the near future.
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.
Let’s start by grouping the considerations/strategies into those that come into play at point-of-purchase, and those that can be initiated a little later down the line:-
Purchasing Your Rental Unit – Beyond PSF
Obviously when selecting property for investment, location is key. How well-connected a development is to transportation networks, amenities, schools etc and how popular the neighbourhood is with the expat crowd. (Since Singapore has one of the highest rates of home-ownership thanks to HDB, local renters form an almost insignificant component of rental demand.) URA will also provide you with plenty of rental and sale transaction data to help you determine the expected rental yield of a particular property. But as I often urge my clients and readers, let’s delve a little deeper than pure per-square-foot data.
The beauty of property investment is that it’s part science, part art. The art is in picking up the non-tangible elements of a development, the things that won’t be reflected in URA’s statistics. Let’s do a quick little case study – take One Devonshire, a relatively new 152-unit development right behind Somerset MRT.
Development Name: Parvis (pronounced par-vee, though most refer to it as par-vis, yours truly included)
District 10, Freehold
Developer: Ho Bee Group & MCL Land
Address: 12/16/18 Holland Hill ( 3 blocks of 12 floors)
• 2-Bedroom (51 units): 990 – 1,440 sq ft
• 3-Bedroom (100 units): 1,700 – 2,260 sq ft
• 4-Bedroom (76 units): 1990 – 2,600 sq ft
• Penthouse (21 units): 2,300 -3,230 sq ft
Set atop Holland Hill, my first grouse was that vehicular access was only via Farrer Road, from the Queensway side, however my grumbles were soon forgotten once I reached the sprawling 246,000 square foot grounds.
You’ll notice the difference from the minute you hit the driveway, firstly the concierge front-desk to the left as you enter. A concept first made popular by SC Global with their flagship project The Marq, it’s now practically a standard for all luxury developments around the Orchard area, but something considerably rarer in the Holland area. Secondly, the basement carpark – 273 parking lots for 248 apartments – each generously-sized, and no narrow, awkward corners where you might scratch your beloved vehicle. The basement carpark is also unlike your usual depressingly dark and stuffy basement carpark. It actually feels rather bright and breezy thanks to good ventilation, and the modern sculptures placed at various spots are a welcome touch, breaking up the monotony of a space more known for function than form. Continue reading “Property Showcase: Parvis @ Holland Hill”→
After several rounds of cooling measures, Singapore’s residential market has continued to climb in Q2 and Q3 of 2012. Thus MAS has stepped in once again, and as of today, borrowers will no longer be able to take loans of longer than 35 years. Given that the average tenure of residential property loans in Singapore is well below 35 years (29 years, according to MAS’ official press release yesterday), and bearing in mind that this average does not take into account the percentage of homes in Singapore that are fully paid-up, I don’t foresee this measure having a huge impact on the market. Continue reading “MAS Restricts Loan Tenure for Residential Properties – What Does the Future Hold?”→
If I had a dollar for each time I’m asked the golden question “is it the right time to buy?”, I’d have accumulated a tidy sum by now.
Similarly, if I were blessed with such prophetic vision, I’d probably be dictating this blog post to a personal assistant whilst sipping cocktails on some idyllic island resort in the Caribbean.
The thing is, a property bubble will mean very different things to different people, so it’s not so much a question of where the property market is headed (which nobody will be able to tell you will absolute certainty), but where are YOU headed?
The Home Buyer
So much has been said about speculators who flipped properties they could ill-afford for fast profits in the heady days of 2007, but what of the other form of property market speculators that aren’t normally recognised as speculators – those that hold off their home purchases indefinitely in the hopes of a property market crash? Is it wise to hold off getting a permanent roof over ones head in the vague hopes of buying in “cheap”? Continue reading “Property market crash? – what you should be asking”→
Found this article from TODAY newspaper interesting. In the short article, it brings up a few points.
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. Continue reading “TODAY article: Rentals go up near international schools”→