In defence of valuers

by Colin Tan
05:55 AM Jan 28, 2011

Whenever a crime is committed, the top on the list of suspects for any investigator has to be the party that stands to gain the most. So why is it that valuers are the first to be targeted for most of the blame whenever property owners, buyers and sellers do not get their way.

As most valuation professionals will readily attest, their fees for housing appraisals cost only a fraction of what a socialite would spend on her Birkin bags or Manolo Blahnik shoes.

I am moved to write on this topic as there has been a lot of feedback about valuations recently from readers and the glaring discrepancies they have noted. Ironically, the worst complaints are from those who hold themselves out as property professionals because they do the most damage to the reputation of valuers.

Are they so naive to believe that an appraiser's issuance or withdrawal of endorsement can make or break a deal?

If that is truly the case, valuers would be the among the best paid in the industry. Is that the case? Far from it.

Lenders will issue loans if they feel there is an almost 100 per cent chance of getting their money back with interest or when they feel the intense heat of competition. Valuations are just a polite excuse of refusing loans to their customers, particularly those with whom they have a long-standing relationship.

If you are putting pressure on valuers - to find fault or get them to disclose their valuation methods, let me say that you are barking up the wrong tree.

If many people today think of themselves as property experts, I am sure an equal number also consider themselves valuation gurus.

Like everyone else, valuers also need to put food on their table. They are also susceptible to strong pressures. Some will succumb, which brings me to my next point.

The Monetary Authority of Singapore (MAS) last week announced that all local banks and significant insurers must have a dedicated risk management committee at the board level in place following their annual general meetings this year.

This is timely news and can only be good for Singapore. The pressures of competition in an open market mean that the effectiveness of lenders to police themselves - particularly at the middle and lower levels - will wane with the heightened level of competition and we all know our banks are flush with liquidity. The sub-prime crisis in the United States is an excellent example of where the finance industry has failed miserably to police itself. We will have learnt nothing if we believe that such an event will never recur in the US or elsewhere.

In Singapore, some banks are already charging at cost for the first year of a housing loan, that is they earn nothing for 12 months. Soon, it will be negative if they start giving out furniture vouchers or discounted renovation loans.

Today, Singapore is a top financial centre and we may boast that all our banks apply the "best practice" in all their dealings. Sadly, this does not seem to be the case in the way some banks in Singapore hand out property loans.

In some cases, sales staff are responsible for handing out valuation jobs. They will scour the market to get the highest valuation. Which valuer do you think will get the job? Why do you think there is such a huge gap in the indicative valuations?

By the way, let us not call them indicative valuations. They are merely an indication of market value. They are not valuations at all. Period. As pointed out by the Singapore Institute of Surveyors and Valuers, these desktop jobs are not a subscribed practice.

Other lenders may have stronger internal credit assessment teams but, due to the shortage of manpower, they become little more than rubber stamps. To be fair, some teams are doing their best within their means but when other banks are getting away with it, the team also does not want to be the major obstacle to greater profits for their own banks.

Many years ago, when the HDB allowed private banks to finance public housing flats, valuations shot up overnight so much so that it had to take the task of handing out valuations away from the banks. Today, the HDB is the only body that hands out valuation jobs to its panel of valuers. That is true independence for you.

Maybe the lenders and the MAS, with the advice of SISV, can come up with a similar system for all private property valuations, and not just for residential properties.



Colin Tan is the head of Research & Consultancy at Chesterton Suntec International.

Source; www.todayonline.com

Published January 15, 2011

Sitting pretty in the new property landscape
The latest property curbs are tough, but two groups might find themselves in a sweet spot

By UMA SHANKARI

THE latest round of measures to cool Singapore's property market, introduced on Thursday, have to be viewed together with all the government interventions in the market over the last two years.


Analysts believe that this last blow could kill off any positive sentiment left in the property market.

The last three rounds of demand-side cooling measures were introduced in September 2009, February 2010 and August 2010. These caused short-lived declines in volumes but had no visible impact on pricing - similar to what happened in Hong Kong.

But this time, it will be different. A significant fall in transaction volume is expected almost immediately. Analysts also expect private home prices to correct by 5-10 per cent in 2011 as the government's two-pronged strategy of releasing more land and controlling demand makes its impact.

Market watchers will remember that together with measures to curb demand, the government has boosted supply significantly over the last two years. It released record supplies of land for residential development in both H2 2010 and H1 2011. This, together with the latest measures, may prompt some investors to exit the market.

'We think owners are more likely to sell their units given the persistent measures and large upcoming supply due for completion in 2013 of 11,600 private and 18,300 HDB units,' said Morgan Stanley analysts Brian Wee and Wilson Ng.

The pool of available buyers will also shrink. Noted Citigroup analyst Wendy Koh: 'Except for genuine home buyers and long-term investors, potential buyers are likely to think twice before committing to a property now.'

It now appears that two sets of buyers are in a sweet spot: first-time home buyers, and buyers with deep pockets (a large number of whom are foreigners). They can now wait for prices to fall before choosing homes from the boosted supply.

Buyers looking to buy their first property remain untouched by the new rules. The government's move to slash the loan-to-value (LTV) limit on housing loans from 70 per cent to 60 per cent for individual buyers only affects those with one or more outstanding housing loans.

Buyers with deep pockets will also benefit. Analysts say that the most severe measure is a sharp hike in the seller's stamp duty to 16 per cent, 12 per cent, 8 per cent and 4 per cent respectively for properties that are sold in the first, second, third and fourth year after purchase.

This is a sharp increase from previously when sellers were subject to a stamp duty of only up to 3 per cent if they sold within the first three years. The new rule applies for properties that are bought on or after Jan 14.

Buyers with deep pockets can now take advantage of falling prices to hunt for luxury homes and trophy assets, and wait out the four years before re-selling their properties. They are also unlikely to be deterred by having to fork out 40 per cent in cash upfront.

Cash-rich foreign buyers fall into this category. The government has not introduced any specific measures to control property purchases by foreigners.

Looking forward, three segments of the market may prove to be interesting:


New launches

The new measures could put off property investors at recent launches. It remains to be seen how many will let their options lapse.

Those who exercised their options before Jan 14 will not be affected by the new LTV and seller's stamp duty changes. Those who didn't will now be subject to the harsher regime. One view is that buying decisions could be put off for up to one year as investors wait for the market to settle.


Secondary market

Units in the secondary market as well as newly-completed properties with Temporary Occupation Permits (TOPs) may prove to be somewhat more resilient than new launches.

If a buyer is genuinely looking to upgrade, he can sell his existing property and apply for a new loan for his new home.

The new loan will then be classified as the buyer's first loan, allowing him to borrow up to 80 per cent of the property's value. In this scenario, completed properties have an edge over new launches as units will be ready to move into.


Collective sales market

The latest round of measures could kill off the fledgling collective sales market.

Developers BT spoke to said that owners' asking prices are already too high. With these measures, home prices are likely to come down, making it even harder for a developer to break even after paying a high price for land.

'Reports of en bloc activity for smaller land plots at rising prices have intensified of late,' said CIMB analyst Donald Chua. '(This) could now ease as developers adjust pricing and demand expectations of final products.'

Corporate buyers looking for bulk purchases in residential properties will also be discouraged. The government has reduced LTV limits for corporate buyers to just 50 per cent.

'This will curb price growth for en bloc transactions and prime property bulk deals by private funds may dwindle,' said Royal Bank of Scotland (RBS) in a note.

All said, the latest measures will shake up the local property sector and expose the weak players.

In short, it will separate the men from the boys.


Source: www.businesstimes.com.sg

Published January 14, 2011

COMMENTARY
A cold shower on hot money

By KALPANA RASHIWALA

THE Singapore government yesterday acted defensively to stem the tide of hot money flowing into the island's housing market. This comes in the light of recent steps taken by Chinese and Hong Kong authorities to guard against property asset bubbles in their markets.


The latest measures are also the most severe announced till now to cool Singapore's housing market. Analysts say transactions will slide and so will prices. 'There's 100 per cent certainty these measures will work to cool the market,' declared Knight Frank chairman Tan Tiong Cheng.

The sharp spike in seller's stamp duties is even harsher than the May 1996 anti-speculation measures that had treated gains from sales of properties within three years of purchase as taxable income. Whereas that tax applied only to those who profited from flipping their properties, the latest set of hefty seller's stamp duties must be paid regardless of whether the seller makes a gain or loss.

Now, even if a property speculator or investor decides to simply cut a loss in future, he'll be liable to pay the hefty seller's stamp duty (SSD). This is a more severe deterrent to investing or speculating in property than the old 1996 tax.

In letter, the new SSD rates apply to those who buy a private home from today. In reality, they will also frustrate existing home owners' efforts to offload their properties as buyers become scarce since anyone who buys from today will be hit with the new SSD regime.

For those who buy a private residential property from today and sell it within the next 12 months, the seller's stamp duty will be 16 per cent of the sale consideration (much higher than the up to 3 per cent currently). If the property is disposed of in its second year of purchase, the SSD is 12 per cent (again higher than the up to 2 per cent currently). The SSD is fixed at 8 per cent if the property is sold in its third year of purchase (higher than up to 1 per cent currently). The government is also extending SSD for sale of properties in the fourth year of purchase, with the rate fixed at 4 per cent.

What the new SSD rates effectively mean is that short-term speculators would have to be confident of being able to clear a profit hurdle of about 20 per cent (comprising the 3 per cent stamp duty payable when buying the property and the 16 per cent SSD when divesting it within a year) before they'd find it worth their while to enter the market.

Following HK's example

The SSD package is somewhat similar to what Hong Kong authorities announced in November. Under those measures, homes sold within six months of purchase attract an extra 15 per cent stamp duty; the rate is 10 per cent for properties resold between 6 and 12 months; and 5 per cent for those resold between 12 and 24 months.

The Hong Kong government also raised downpayments for homes (depending on their value) and lowered the loan-to-value (LTV) limit for non-owner occupied residential properties and those held by corporates to 50 per cent.

Yesterday, Singapore's authorities too announced a lowering of the LTV limit (from 70 or 80 per cent currently) to 50 per cent on housing loans granted to corporates, trusts and other non-individual buyers.

Analysts suggest that this measure could have been triggered by recent bulk purchases of units in new residential developments which help developers achieve more pricing power.

As well, the Singapore authorities are further reducing the LTV limit on housing loans from 70 per cent to 60 per cent for new purchases by individual home buyers with one or more existing housing loans. This should further foster financial prudence and reduce over-exposure to the property market among Singapore households. After all, the hot money coming in from overseas can easily leave the local property market, and Singaporeans may be left holding the baby from a property downturn.

The latest package is the biggest bomb the government has dropped from its arsenal to cool the property market - and this will no doubt unnerve market players.

But the measures are not intended to cause a severe crash in the market and if that threatens to happen, the government can quite easily withdraw them.

On a brighter note, those who have been waiting for a price correction to enter the market may now see their wish fulfilled.


Source; www.businesstimes.com.sg

Published January 14, 2011

New measures expected to slow down home loans
They will eliminate speculators, rein in prices, say bankers

By SIOW LI SEN

(SINGAPORE) Bankers are bracing for a slowdown in home loans as buyers take stock of the government's latest property measures to dent the buoyant market.

The latest restrictions, the third in 12 months, are considered fairly drastic as they call for cash of as much as 50 per cent to buy a property in some cases. They could eliminate a lot of potential buyers.

In addition to increasing the holding period to four years from three for seller's stamp duty, the lower loan-to-value (LTV) for property purchasers who are not individuals is now 50 per cent.

That means a buyer will have to fork out $500,000 in cash for a $1 million home. And for individuals with one or more outstanding housing loans, the LTV limit on home loans will be lowered from 70 per cent to 60 per cent.

The latest measures will weed out speculative activities and further deter potential investors because of the higher cash outlay and a higher breakeven price to be achieved with a significant increase in stamp duty when the property is sold within four years, said a UOB spokeswoman.

Lui Su Kian, DBS senior vice-president and head of deposits and secured lending, said the bank has always encouraged home buyers to be prudent as a home loan is a long-term commitment.

'These new measures are likely to affect investors who would have to commit higher cash amounts for their down payments,' said Ms Lui.

As it is nearing the Chinese New Year, generally a quiet period for the market, it will take some time to ascertain the impact of the new measures, she added.

'The new property measures will have an impact on new housing loan applications, as we expect potential homebuyers to be more cautious and will take their time to review their options,' said Phang Lah Hwa, OCBC Bank's head of consumer secured lending.

Housing loans have been the biggest driver of bank loan growth, though there are signs of slowing growth. In November 2010, the latest data available, housing loans rose 1.7 per cent over the month - and 22.1 per cent over the year - to $110.9 billion at end-November. The annual pace of growth has been slowing since August, when it reached 23.4 per cent.

The 50 per cent LTV will hit a lot of mini-developers, sometimes comprising small groups of friends or relatives who join hands to buy a few, typically older properties, do them up and sell for a quick profit.

'I know of friends who banded together to buy two old properties. One of them is a contractor so he did them up cheaply, and they've sold them and they've made half a million,' said one banker.

Bankers expect the latest measures to rein in property prices, unlike those announced last year, which had little impact.

Vibha Coburn, Citibank Singapore business director, secured finance solutions, said a stable property market is good for the economy and Singaporeans.

'These new measures will help to reduce speculation in the market and owner-occupiers will continue to have opportunities to get their dream homes.'

Dennis Khoo, Standard Chartered Bank Singapore head of consumer banking, said the new measures will curb speculation and create greater home ownership opportunities. 'We'd like to reinforce that, the majority of the mortgage customers are homeowners. In this regard, while we will continue to monitor customer sentiments closely, we feel that the new measures will have minimum adverse impact on the bank.'


Source; www.businesstimes.com.sg

What the Govt property measures mean to you

by Phang Lah Hwa
05:55 AM Jan 15, 2011

With the latest round of Government measures, there might be concerns among first-time home buyers, those looking to upgrade their properties as well as property investors on how they will be impacted. Let me share my views:


First-Time Home Buyers and Property Upgraders

For first-time home buyers, you need not worry as these measures do not impact you directly. You will still be able to obtain loans of up to 80 per cent of the property value or purchase price, whichever is lower, if you fulfil the borrowing criteria of the bank.

As for property upgraders, you may still qualify for an 80-per-cent loan if the document for the sale of your existing property and the loan redemption statement can be submitted at the point of applying for a new loan.



Property Investors

The latest measures will have an immediate impact for those who are considering to invest in a second or subsequent property and have an existing mortgage loan.

Foremost, the capital outlay will be increased as a result of the drop in the permissible loan quantum at 60 per cent. The mandatory cash component remains unchanged at 10 per cent of the property value.

To illustrate, if the intended property to be purchased is $1 million, you can obtain a maximum loan of $600,000. A minimum $100,000 (10 per cent of the property value) must be paid in cash, while the remaining $300,000 can be funded with a combination of cash and CPF.

Your next concern will be the significant increase in the seller's stamp duty. If the property is sold within the first year from purchase date, the applicable stamp duty will be a hefty 16 per cent.

This percentage reduces to 12 per cent, 8 per cent and 4 per cent, if your property is sold in the second, third and fourth year respectively.

Hence, you should be prepared to hold for a longer term, at least four years from the date of purchase. Should you wish to sell within the four-year period, you should carefully weigh your capital gains versus the stamp duty and other ownership cost such as interest, legal charges and taxation.

For those who are considering setting up an investment holding company for your property portfolio, you should note that the permissible loan quantum is now capped at 50 per cent.

Putting regulatory impact aside, it is important for you to be comfortable with the overall financial commitments, such as your home loan instalment and maintenance fees.

Hence you should carefully review the variety of loan packages in the market, in order to select one that meets your needs. Only then can you benefit from your investment.



The writer is OCBC Bank's head of consumer secured lending.


Source: www.todayonline.com

by Chris Howells

Updated 11:12 AM Jan 14, 2011

SINGAPORE - A knee-jerk reaction to the latest round of property cooling measures is expected to hit banks and developers but industry players believe that normal service will resume.

For now though, banks here are likely to see a dip in new housing loan applications, while developers may postpone new launches.

Commenting on the latest measures, the Real Estate Developers' Association of Singapore (REDAS) said it expects these measures to discourage speculative demand but remains confident that the local "property market will continue to be underpinned by sound economic fundamentals and a favourable business environment".

Still, analysts expect developers to hold back on new launches.

Referring to the last round of cooling measures, which were rolled out on Aug 30 last year, Credo Real Estate managing director Karamjit Singh noted that, this time around, developers would also "hold back temporarily, as they assess demand and sentiment before launching their projects".

As a result, sales volumes would drop in the short term, he said.

Describing the latest measures as "a fourth and more decisive wave of prudential curbs", Barclays Capital economist Wai Ho Leong said any impact on prices may only be gradual.

Said Mr Leong: "We maintain that the risks for property prices and rents over the next four years are to the downside. Even so, the downward correction will occur gradually, given that Singapore is in the midst of a strong cycle of wealth creation, which has been fuelled by a surge in inward migration and rising asset values."

The cooling measures come at a time when home buyers have been keen to leverage on the low interest rates - and a fall in demand for mortgage loans could put further pressure on the profitability of banks here.

OCBC Bank head of consumer secured lending Phang Lah Hwa said: "The new property measures will have an impact on new housing loan applications, as we expect potential home buyers to be more cautious and will take their time to review their options."

Ms Lui Su Kian, DBS Bank's senior vice-president and head of deposits and secured lending, noted that the measures would mean investors would have to commit higher cash amount for their downpayments.

But with the Chinese New Year - traditionally a quiet period for the property market - around the corner, Ms Lui noted that it would take some time before the impact could be ascertained.

RBS head of South East Asian equity research Trevor Kalcic said: "There is very likely to be a slightly negative impact on the banks ... but it won't be a material impact. The reason is that mortgages are a relatively small component of overall earnings."

Source: www.todayonline.com

by Andy Mukherjee
05:55 AM Dec 09, 2010

SINGAPORE - OCBC today said in a new report yesterday that mass-market homes in Singapore are looking expensive, while high-end properties, which are yet to hit their previous peak prices, could be even riskier bets because of their reliance on fickle overseas buyers.

"The market may choose to 'dance until the music stops', but in our opinion, it is time to recognise the risks of direct investments in residential property," wrote Ms Meenal Kumar, an analyst at OCBC Investment Research.

Ms Kumar expects the Government to introduce more measures to cool the property market at a time when many buyers are getting lured by cheap debt. Some of the possible steps may include asking banks to cut the loan-to-value ratios or to demand higher upfront payments from customers for new mortgages, she says.

"The biggest risk to the property market today is policy risk," Ms Kumar writes.

Affordability of dwellings is a key issue with policy-makers.

According to OCBC's analysis, in the first nine months of this year, a family here earning the median household income spent 35 per cent of what it made on servicing a floating rate mortgage that covers 80 per cent of the property's value and charges half a percentage point more than the Singapore Interbank Offered Rate (Sibor).

Last year, a mortgage taken on similar terms on the same 900 sq ft, non-landed apartment outside the central region would have cost the family less than 31 per cent of its income.

"Buyers seem to have readjusted the 'bands' of what constitutes a 'responsible' housing purchase," Ms Kumar says. "Buyers could be at risk if housing loan costs go up, and a previously responsible loan and leverage level is no longer so sensible."

According to OCBC, the investment case for "shoebox" homes will get tested as a sizeable supply of these small apartments hits the market in the next two years. "It remains to be seen if 'shoebox' units can achieve the kind of rental yields that justify their high price per sq ft," says Ms Kumar.

Developers that are betting on high-end property prices to scale their previous peaks "could be in for a profitable but volatile and more uncertain 2011," the OCBC report notes.

OCBC's top pick among Singapore property stocks is UOL Group, whose portfolio of commercial and hospitality properties would prove to be helpful, should prospects for residential real estate weaken next year, the researcher says.

Overall, OCBC Investment Research has a "neutral" rating on Singapore's residential property developers. Andy Mukherjee

Source: www.todayonline.com

Published November 26, 2010

Housing loans rise to 34.5% of banks' portfolio


(SINGAPORE) Banks' exposure to housing loans has risen to 34.5 per cent, said the Monetary Authority of Singapore in its Financial Stability Review 2010 released yesterday.


Strong demand for homes has seen housing loan growth averaging some 20 per cent on a year-on-year basis in 2010, since hitting a trough in early 2009, it said.

While it is premature to assess the full impact of the measures announced at end-August 2010, outstanding housing loan growth has moderated slightly on both a year-on-year and quarter-on-quarter basis in September 2010.

Local bank chiefs said earlier this month that new mortgage applications have slumped 20-25 per cent since end-August.

The MAS said that given the strong growth since early 2009, housing loans now account for about 34.5 per cent of DBU (domestic banking unit) non-bank loans as at September 2010, slightly above the average of 32.1 per cent since 2004.

The bulk of housing loans (more than 70 per cent) are for owner-occupied residential properties, which tend to have a lower risk profile.

Negative equity housing loans represented less than one per cent of outstanding housing loans as at September 2010, down from a peak of close to 3 per cent in September 2009.

Similarly, the share of housing loans with loan-to-value above 80 per cent fell from a high of 17.3 per cent in September 2009 to 7.1 per cent as at September 2010.

The asset quality of housing loans remains robust with non-performing loan (NPL) ratios at well below one per cent as at Q3 2010.

The MAS also said that after 10 consecutive months of contraction, year-on-year growth of outstanding building and construction (B&C) loans turned positive in August 2010.

The banking system's Section 35 property exposures (which excludes home loans) stood at 15.8 per cent as at Q3 2010, well below the regulatory limit of 35 per cent.

Section 35 ratio looks at property exposures which include loans to property and non-property corporations, housing loans for investment purposes and other property-related debt instruments.

Lending to the B&C sector accounted for about 17 per cent of total DBU non-bank loans as at September 2010. The NPL ratio for B&C loans remained low through the downturn, almost reaching one per cent in Q2 2009, but moderating to well below one per cent as at September 2010.

The relatively robust asset quality of B&C loans is largely due to the recovery of the property market and the improving financial conditions of B&C firms.

B&C loans growth could rise moving forward owing to continued land sales and more construction of HDB Build-to-Order projects.

While B&C NPLs appear benign at this juncture, developments should be closely monitored in view of likely stronger loan growth and the risk that borrowing decisions may be distorted by assumptions of a sustained low interest rate environment, the MAS said.


Source:www.businesstimes.com.sg

DENNIS NG explains what the latest changes in property financing are and what they mean to you

Published September 23, 2010
DENNIS NG

WHAT is the outlook for interest rates? How will the latest changes in property financing affect you? Fret not, this article will help guide you in the right direction.

From Aug 30, 2010, regardless of whether you're a Singaporean, permanent resident or foreigner, if you have an existing housing loan on a property - whether the property is in Singapore or overseas - the maximum financing you can get for your property purchase has been revised downwards to 70 per cent from 80 per cent previously.

And also from Aug 30, 2010, if you have an existing housing loan, and if you want to purchase another property, the minimum cash downpayment has been revised to 10 per cent from 5 per cent previously.

Thus, if you have an existing housing loan and are thinking of buying a property, it is time to re-work your numbers. And you might need to put off the decision to buy a property for the time being if you do not have the required minimum 30 per cent downpayment for the property, as the maximum financing has been reduced to 70 per cent.

However, if you have an existing property that is fully paid, and have no outstanding housing loan, and if you buy a property, you can still get up to 80 per cent financing. The above measures on the cash downpayment and 70 per cent financing limit apply to all property purchases with date of option to purchase dated Aug 30 or later.

How does it affect upgraders and people in the process of selling their property?

The government's main intention of introducing this new measure is to deter speculation in property. However, it can affect upgraders and people in the process of selling their existing property.

For instance, if you have an existing property which has an outstanding housing loan, but want to buy a new condominium project to be completed in a few years' time, you can only get maximum 70 per cent financing.

Those with plans to move are affected as well. If you plan to move to a new home and you purchase the new home before you sell your existing home, and if there is an outstanding loan on your existing home, you can only get a maximum of 70 per cent financing for your new home.

For those who have sold their property but the transaction is not completed yet, they might be affected as well.

In order to qualify for 80 per cent financing, homebuyers must prove the sale of their existing home to get the 80 per cent loan. For HDB flats, this requires an approval letter from HDB to the seller within two weeks from the date of the first sales appointment, which typically is about one to two months after the date of option to purchase.

For private properties, a signed sales and purchase agreement is required as proof, and a certificate from Iras showing that the stamp duty has been paid by the buyer of the existing home.

Types of housing loan packages available

With the recent entry of new players into the market, such as ANZ Bank and CIMB Bank, there are currently altogether 16 financial institutions that are active in providing housing loans in Singapore.

Each financial institution offers five to 10 different home loan packages. Thus, at any point in time, there are easily over 120 different housing loan packages available for you to choose from.

Housing loan packages with interest rates pegged to Sibor and SOR were only introduced since 2007.

Over the last three years, as interest rates remain low, and with more consumers aware of the availability of such packages, there seems to be a trend of more people choosing a housing loan package pegged to Sibor or SOR instead of floating rate packages, with interest rates pegged to bank board rates.

The reason for this is Sibor and SOR are transparent and are average market interest rates and are not subject to unilateral changes by individual banks, but each bank has its own discretion in determining the board rates.

Which is the best housing loan package?

Because of competition, banks change their housing loan packages very often. Furthermore, other than interest rates, banks vary their other terms and conditions, such as the penalty period, which varies from zero penalty period to three years' penalty period; penalty fees, which might vary from one per cent to 1.5 per cent; flexibility in making partial repayment within the penalty period; number of years of free fire insurance provided; amount of legal subsidy provided; etc.

A common misconception is that consumers might think there is such a thing as a best housing loan package.

The fact is, different home loan packages are suitable for people with different needs and priorities. Thus, there is no one-size-fits-all solution. You need to choose a housing loan package that is most suitable for you.

In this aspect, instead of trying to check with different banks on the different home loan packages available, which can be very confusing to consumers, a better choice might be to talk to an independent mortgage consultancy, who will, based on your needs and priorities, help you shortlist a few of the housing loan packages that are most suitable for you.

This service is provided free to you as a consumer, as the mortgage brokers are separately paid a fee by the banks for the service they provide.

Outlook for interest rates

Sibor (Singapore Interbank Offered Rate), the average interest rate banks borrow/lend money to one another, is used as a guideline by banks in setting interest rates on housing loans.

Currently, Sibor is at its lowest level. The three-month Sibor (as at Sept 3) was 0.543 per cent while the SOR (Swap Offer Rate) was at 0.308 per cent. SOR is basically Sibor + US$ swap cost into S$ rates, it involves swapping US$ into S$. Thus SOR is also affected by the volatility of the exchange rate of US$ versus S$.

In turn, Sibor is affected by mainly two factors. Namely, the US Fed interest rates and the liquidity of the Singapore banking sector.

Given that the US economy remains weak, it is likely that the US will continue to keep interest rates low for the next six to 12 months. And given the ample liquidity in Singapore's banking sector, it is likely that Sibor, and thus housing loan interest rates, will remain low in the next six to 12 months as well.

Outlook for housing loans market

This year saw the entry of two new players to the housing loan market, namely CIMB and ANZ Bank, which makes the already competitive housing loan industry even more competitive.

This is indeed good news to consumers as competition typically results in better and more competitive home loan offers from banks.


The writer is an accountant by training with 17 years of bank lending experience. In 2003, he set up www.HousingLoanSG.com, an independent mortgage consultancy portal

Source: http://www.businesstimes.com.sg