Singapore property investors: Can a 99 year lease-hold condominium go en-bloc?

Singapore property investors: Can a 99 year lease-hold condominium go en-bloc?


Contributed by www.PropertyBUYER.com.sg Mortgage Consultants

What should you buy? A 99 year property or a FH/999 year tenor property?

Are you looking for yield or are you looking for overall capital gains + Yield?

Assumes that a 99 year property gives a yield of 4% while that of a Free Hold property gives 3%.

Is it still worth it? What if the fall in your property value more than offset what you earned in rental?

Say you make 20k a year in rental for 10 years (making 200k) of a $1m property and after 10 years the property value falls from $1m to $800k. Not to mention interest costs, your efforts would have come to nothing.

Let’s look at how Singapore land authority determine the value of a 99 lease hold property.

According to SLA’s leasehold land premium calculation and valuation of 99 years lease hold land.



(Adapted from SLA’s Differential Premium valuation calculation)

As you can see, 99 year lease hold land depreciate less during the first 33 years, still fetching at least 80% of a similar Free Hold land it drops off very quickly after 60 years.


How much is a 99 year old lease property worth?

Under normal circumstances, without any Singapore government policy impetus, a 99 year lease-hold property will continue to lose value until it reaches zero.

If a development (or a condo) wants to top up the lease of a lease-hold property back up to 99 years, it is still subject to SLA’s chief valuer’s valuation of the value of the proposed upgrade.

Can en-bloc happen to a 99 year lease hold condominium?

In case of an en-bloc or simply just a top-up of lease, you would have a difference in values between the existing property and the proposed new one.

So this is how SLA calculates the differential premium.

• Differential Premium = The proposed new property value – existing property value.

Under the new ruling in 2007, Singapore government takes 75% of the additional value created (Differential Premium) from the proposed upgrade or development, while the stake holders take 25% of the additional value.

Due to the depreciation of the 99 lease hold properties, the differential premium becomes higher.

When the Singapore government takes 75% of the differential premium, this means that most of it will end up as tax or fees while the stake holders only stand to gain the 25% of the additional value created from an en-bloc or top-up of lease.

And this top up of lease of a 99 years land is not a given. It is entirely subject to approval.

So are you saying that 99 year lease hold condominiums cannot en-bloc?

En-bloc activity for 99 years lease hold properties can still happen.

Scenario 1 – Top up of lease to 99 years + tear down and build a new condo: -
For example, a 99 years lease hold property was sold at $900 per sq feet per plot ratio (psf ppr). The price differential between this property and the free hold property in the same vicinity is very small when new. Say the Free Hold property was $1000 psf ppr.

30 years later, the Free hold property price is $2500 psf ppr.

• At 30 years old, SLA’s valuation rates the 99 year property at 85.4% of a Free hold equivalent property. Assuming that the market also rates the property similarly.

This means that the equivalent 99 year old free hold property is rated at $2500 x 85.4% = $2,135 psf ppr.

Say you want to top up the lease to 99 years and build a new condominium on it’s existing site, the top up value would be $2500 x 96% = $2400 psf ppr. (But 99 years leases top-up is subject to case-by-case valuation by the SLA)

Considering that you would already fetch $2135 psf ppr. If you were to tear down the building to re-build a new condo, you are likely to get $2400 psf ppr and cost of building psf ppr could be $300 to $600 psf ppr. That would mean that the cost already be $2435 or $2735 psf ppr.

So in this case, there is absolutely no impetus for the developer to build or to make an offer to the residents for en-bloc.

The only ways an en-bloc would happen to the 99 years condo are: -
• The 99 year lease hold building is in a very bad condition. The price being sold on the market is much less than SLA’s valuation of 85.4% of a Free Hold equivalent. This type of anomaly or price distortion makes en-bloc possible.
• 99 years top-up of leases is approved. (There is no guarantee)

Scenario 2 – Top up of lease to 99 years + tear down and build a new condo + Doubling the plot ratio: -

For example, a 99 years lease hold property was sold at $900 per sq feet per plot ratio (psf ppr). The price differential between this property and the free hold property in the same vicinity is very small when new. Say the Free Hold property was $1000 psf ppr.

30 years later, the Free hold property price is $2500 psf ppr. But if you double the plot ratio, that means that you could build double the sq feet of space on the same plot of land. That would mean that the potential price now is $2500 x 2 x 96% = $4,800 psf ppr.

• At 30 years old, SLA’s valuation rates the 99 year property at 85.4% of a Free hold equivalent property. Assuming that the market also rates the property similarly.

Now, with an existing property on the old plot ratio = 85.4% of $2,400 = $2,049.60.

Assuming that building cost would be $400 psf ppr to $800 psf ppr (higher for bigger buildings)

So SLA calculated the differential premium is $4,800 psf ppr (assuming the case-by-case valuation agrees with this value)

So the cost is $2,049.6 and potential value is $4,800 psf ppr.

So the differential premium is around $4,800 psf ppr - $2,049.60 = $2,750.40.

And under the new role in 2007, the Singapore government takes 75% of the $2,750.40. So the cost payable to the Singapore Government is $2,062.80.

So the cost of the renewal of the 99 year condominium is: -

$2,062.80 (payable to the Singapore government) + $2,049.60 (Existing value of condominium) + $800 (Construction cost) = $4,912.40

The cost of building, topping up the lease as well as paying the differential premium of 75% came up to $4,912.40, there is no value to be had from en-bloc in this case.

Given the high development charge of 75% for change of use or for Differential premium, it is unlikely that en-bloc can happen.

Unless there is a change of the Singapore government’s share of the differential premium from 75% to a more reasonable level.

SUMMARY OF 99 YEARS LEASE HOLD EN-BLOC POTENTIAL
So in conclusion, the capital value of a 99 year lease hold property is better obtained from increase in property prices around the property rather than waiting from any en-bloc or top-up of lease.

This would likely hold true until such time that government policies would change making residential property renewal profitable and happen.

What would you do if Singapore property agents tell you again, "En-bloc" potential indiscriminately? As a Singapore property buyer, the choice is yours. Buyers beware.

Refinance home loan PROMOTION starts 16 Nov 2009

Refinance home loan PROMOTION starts 16th Nov 2009


Article provided by www.PropertyBUYER.com.sg and www.SingaporeHomeloan.net

Clicking on the title will BRING YOU TO the registration page.

http://singaporehomeloan.net/2009/11/refinance-home-loans-sibor-rates-promotion-starts-16th-nov-2009/

PROMOTION - Starts 16h Nov 2009 -
Will end once funds run out (Last hot promo lasted only 19 days)

For Refinance of housing loans

SIBOR(3month) + 0.85% (Throughout)

* Rates at same spread of 0.85% throughout loan tenure.
* Applicable for properties > 500k
* No lock-in (that means you can switch loans or sell your property without penalty, just the usual 3 month notice)

For those who are currently on SIBOR package, it is an apple-to-apple comparison, so it is a no-brainer.

CALL US NOW, FIRST COME FIRST SERVE: -
TEL: 6100 - 0608
SMS: 9782 - 8606
Email: loans@propertyBUYER.com.sg and info@propertyBUYER.com.sg
Fill in the forms at: http://www.propertyBUYER.com.sg/contactus.php

NOTE:

This refinance package is NOT for everyone. Home loans are not 1 size fits all, please do consider your family’s financial situation before you decide whether to take this up. If you are unsure, please feel free to talk to us to discuss. Other home loan packages are also available.

Compare Singapore home loans with NOT the best mortgage consultant

Compare Singapore home loans with NOT the BEST Mortgage consultant
Article contributed by www.PropertyBUYER.com.sg, 6100 - 0608, SMS 9782 - 8606


If you want to invest in Singapore properties, it is important to work with NOT the best home loan consultant.

By the way, have you ever noticed, we (at www.propertybuyer.com.sg) never say we are the BEST HOME LOAN Consultancy and we simply do NOT use the word BEST very much?

Are you crazy? Why work with NOT THE BEST HOME LOAN Consultancy?

This is because we are not the best and we are still trying to improve with your feedback.

And there are at least 5 to 10 other out there than claimed they are the BEST. As far as we understand, BEST means number 1, so rather than join them in claiming we are also the BEST, we would rather say outright now to set the record straight. We are NOT THE BEST Home loan consultancy in Singapore.

We are not the best home loan consultancy out there, but we do try very hard and we have a methodology to try to fit your needs.

Why use a Mortgage Consultant if you want to invest in Singapore properties?
In many economic cycles of boom and bust, the retail banking sector has evolved with the time. As more and more banks came into the home loan market, the bank’s margins became challenging.

As banks only mark up slightly above their cost of funds, this liberation of credit and financing fueled investments and asset prices. This included property prices inflation.

Singapore home loans margins are very little. But why do banks still do it?

Banks still lend out for home loans because in any economy, residential home loans form a large part of a country’s economic activity. This is a high volume activity despite the low margins.

Many rounds of cost cutting and retrenchments meant that the banks are really short of staff. Helplines are no longer manned by real people, instead you will go through endless hours of wait while listening to, “Your call is important to us, please hold on, our consultants will attend to your call soon.” And worst of all, “Please press * to hang up or call us back between 9 to 5pm.” Bank tellers are replaced by ATM machines.

Singapore banks retrench bankers to stay lean

In order to cope with the uncertain demand, banks have outsourced the front end banking. They pay Singapore mortgage consultants like us a fee for handling the advice, processing and follow up of the home loans. This way, they minimize the issue of a hire and fire culture at the banks, not that the banks cared, at the end of the day, it’s about profitability.

Banks do not really like home loan consultants that much. As a mortgage consultant works for the client’s interest and that means we represent the client rather than the banks. So it is in a way, a twisted outcome from the bank’s promotional activity. Banks prefer to work with property agents which has less concerns for their clients.

Service Satisfaction drops with retail bankers

Service satisfaction with banks soon dropped, banking loyalty which were in the past held by people to people relationship no longer holds as there is simply not enough bankers. But the banks will not start employing bankers as they want to stay lean.

Staying lean means that you cannot expect to maintain professional long term relationship with any banker.

With mortgage consultants such as us, SMS +65-9782-8606 or loans@propertyBUYER.com.sg, our customers have gradually become our friends. We maintain a long term professional relationship and friendship where we understand your unique requirements. We do not simply compare Singapore home loans or take out the Singapore mortgage calculator. The key step is first to establish the investment objective, not the mortgage calculator or comparing mortgage rates.

Our focus is on:


Doing the right things, right.
Right things = setting the objectives and setting it right.

Right = doing things correctly. So if you do the right things, wrong, it’s no use.

And what is worst? Doing the wrong things, right. (This means you have set the wrong objectives and you have successfully executed upon wrong targets and arrived at achieving the wrong targets)
So how did Singapore mortgage consultants come about?

Initially banks wanted the consultants to market only their home loans. However mortgage consultants like us have signed up with many banks and pick up the best features and packages from each bank. Property Buyer mortgage consultants at loans@propertybuyer.com.sg or sms us at +65-9782-8606 we will pick out the best few packages and highlight the pros and cons of each package. The clients will then pick from them.

Of course banks still need to stay profitable

In order to stay competitive while also profitable, banks came up with many possible combinations. While property buyer mortgage consultants are working for the benefit for the client, we are not against banks making money. And we are not advocating that banks cut rates or prices outright. Ultimately the banks will still need to make money. So we strongly encourage the Singapore banks to be innovative and create unique and useful features matches the client’s needs.

As more and more packages became available, the layman will have problems sifting through hundreds of home loans. So property buyer mortgage consultants can help you to compare Singapore home loans.

Refinance home loan Singapore or Get housing loans Singapore
Not Simply Cheap, but what Fits.
We Research, You Save!
Tel: 6100 - 0608
SMS: 9782 - 8606
Email: loans@propertyBUYER.com.sg

Singapore property agents speculate and fleece buyers

Singapore property agents speculate and fleece buyers
Article contributed by www.PropertyBUYER.com.sg

Do you really think you can get a good deal from property agents?

Do you really think you can outsmart the property developer?

Read on.

Do you remember some months ago that we warned that property agents are out hunting again. Their tools are catch words such as “it will sell out soon”, “En-bloc”, “sea view”, “Expats are buying”, “MRT”, “population growth”.


To us, these are simply qualitative aspects of an economy or a property or a development. It has no research value and very little bearing on the true value of a property.

Sometimes simply the word “MRT” will make you part with more than you realize and then after a while, you felt that you had overpaid.

During June to September 2009, there are many developer's condominium launches. Developers have a field day clearing inventory while Singapore property agents pounce on genuine property buyers.

Is it possible to get a good deal from developer launches?

Developers always find ways to enhance value of their properties through features and uniqueness. Many of these uniqueness are building related, some of these are location related and others perhaps are landscape related.

Many building related unique features will only last while the building is in good condition. Over time, the building deteriorates and the unique feature and it’s value is consumed and disappear.


So can you outsmart the property developer?

Condominium launches are timed to extract maximum benefit for the developer. You will only get a good deal when the developers are starved of cash and wants to let go of their properties cheaply and quickly.

Generally it is hard to get a good deal at property launches. This is because the property developers have: -

· They have inside news and development plans
· They have an in-house economic team
· They have political connection and relationships
· They have holding power
· They can constrict supply
· They can time the market
· They can influence the media, advertise and create PR
· The whip up the consumer sentiment.

In other words, the launches are timed to perfection exacting the maximum damage on your wallet.

Although all property cycles follow the economic fundamentals, but property cycles can also defy fundamentals for a period of time when sentiments are especially bullish, the prices only fall back down once the sentiment fades and tracks again the economic fundamentals.

There is another element of surprise. Recently our contacts have been telling us that the agents are themselves the speculators and they are fleecing the buyers.

Singapore property agents speculators add to your problems

A property developer will likely appoint 1 or 2 property agencies as marketing agents. These agencies will inform their agents to stand-by to sell the properties.

Developers normally do not launch the condominiums directly with the exception of Far east organization. Therefore the property agents are then able to get market information of the launches and then gauge the market response.

They will jump in and buy first if they sensed a possible killing. They have no plans to stay in the condos.

So Singapore property agents buy the properties and flip immediately at a huge profit. This profit is of course at the expense of genuine property buyers.


So do consumers get a choice to the best units and the best prices?

Usually not. This is because Singapore property agents dominate access to these information. And will they share these information with you?

Mostly not! Many agents with their “potong jalan” grab all mentality will not think of long term. They will leave the best for themselves and give you the scraps.

If they call you and tell you it’s a good deal, that’s because they don’t find it good enough, else they or their families will have already bought it.

Genuine property buyers will have to pay more

Of course you as genuine property buyer, if you like the development, not only you have to pay the developer’s already high asking prices, you will also have to suffer paying easily 5 to 15% more because of these Singapore property speculators if you really like the condo.

Property agents Convince property buyers that valuation can be matched

Property agents convince property buyers that bank’s home loan is obtainable as valuation can be matched when in fact there is no such thing.

After paying the 1% deposit for an option to purchase, the property buyer is stuck.

So how much did the Singapore property agents make from you?

Purchase price = $850,000
(Only a few banks can match as it is too high valuation)

Speculator buys at $850,000 and puts it up again at $920,000
(within days).

Property agents - how how does it cost them to speculate

$850,000 + $20,100 (Stamp duty) – $8,500 (1% commission for selling property) = $861,600.

Property agent flipper makes = $920,000 - $861,600 = $58,400.

This is the extra money you have to pay because of these property agents cornering the market and because banks refuse to raise valuations any higher.

Many people will fail to get a Singapore home loan and lose their 1% deposit. Luckily for some, they have come to us Property buyer mortgage consultants at SMS 9782 8606 to do an Approval in Principle for their potential purchase.

The EXTRA cash you have to pay because of Speculator property agents

$58,400 (extra) + $42,500 (5% cash) + $22,200 (Stamp duty) =

$123,100

Suddenly you are out of budget by $80,600.

Usually you can pay your stamp duty using the Central provident fund (CPF), but because for sub-sale, there may not be enough time to complete the transaction and insufficient time for your lawyers to work with the CPF lawyers to disburse the funds. Instead of using your central provident fund (CPF) to pay for your stamp duty, you will have to first pay it through cash.

Should I buy a Sub-sale unit?

It depends on how desperate you are to buy that property. There are more than 280,000 condominiums and private properties in Singapore. If you are patient you can always find another one as good, if not better.

Other articles: -
Singapore property investors
Singapore mortgage consultants