Invest in THE SHORE residence and Greenwood terrace

Singapore Property Buyer

6100 0608
9782 8606 (SMS)

www.propertyBUYER.com.sg Singapore Mortgage Consultants

In view of the recent few launches such as that of “The Shore residence” and the “Greenwood terraces”, both of which are bought as Free hold land, redeveloped and sold as 103 years lease hold strata title. These are 2 Far East developments which have been launched recently.

Singapore government can release land in various forms, but more likely than not, most land parcels being released are 99 years leasehold land, while very few are freehold or 999 lease hold land. This means that the supply of perpetual land (FH, 999 lease hold) are diminishing all the time.

In land scarce Singapore, this means that in the coming years, Freehold land may become even more scarce.

The recent developments where developers who bought Free Hold land, develop and then subsequently sell it as 99 years lease hold could further accelerate the depletion of Free Hold land to the public.

We look at the implications of such developments

IMPLICATIONS OF DEVELOPERS RETAINING A REVERSIONARY LEASE

Developers may now bid for many Freehold land parcels or take over existing free hold property through en-bloc sales. The Singapore economy is still weak, if you look at the salary census, Singapore’s salary growth has been slower than that of growth of property prices.

In other words, affordability is an issue. Say for instance a couple earning a combined income of $10,000 a month with no financial commitment on a 30 years loan repayment tenure can only afford a $987,000 Singapore property loan with a threshold interest rate of 4.5%.

At 20% downpayment, and a loan of $987,000, the property price that such a property buyer can afford is $1,233,750.

If the property developer who wants to market his property at $1300 psf for a 1,100 sq feet property, the Singapore property developer would need to either reduce prices or reduce size to meet that affordability figure.

Singapore property developer's goal

The developer’s goal is always to maximize profit (There is nothing wrong with it).

Trend of Smaller singapore condominium units

In this scenario, the property developer can choose to reduce the size of unit, thereby meeting the affordability price quantum and achieve superior price per sq feet per plot ratio (psfppr). This could lead to a trend of smaller size condominium units in the future.

FH land becomes Leasehold 99 years land

In another scenario, the property developer opt to maintain the size of the unit, but converts the Free hold land to a 99 years leasehold land. The developer owns the Free Hold land title. This could lead to the gradual disappearance of the Free Hold land titles available to the public.


Overtime, if the law permits, developers could even sell properties on 70 years lease, 50 years and lesser.

Singapore hands power over to the large property developers?

If developers are allowed to hold on to the free hold land titles while developing properties and selling it as a 99 years lease, then this will over a period of time dilute the effectiveness of Singapore Land authority to regulate the market.


Say for instance when the building is 20 years old and run down, the residents opt for selling en-bloc, they can sell en-bloc for the remaining lease of 79 years. Whoever buys this piece of land en-bloc would find it hard to redevelop and sell it again as there is not much lease remaining.

Supposedly in any potential en-bloc deals, the residents are only selling the remainder 79 years lease of the land to another developer.

In order to make this development attractive, a top up of the lease by 20 to 30 years would be required. In the case of topping up of this lease, the property developer that owns the land has the final say on setting the rates. (Not SLA’s Development charge).


So whether you can en-bloc or not depends solely on the goodwill of the property developer. If the property developer sets a high price for the top-up, then that would mean that no other developer would want to bid for it, leading to lower market value for that property.


The final rights then remains in the hands of the developer who owns the master title of the free hold land.

In this case, Far east wold retain the rights and option to develop the land should the residents want to go en-bloc. Far East having a right to set development charges or extract additional fees, will have the first right of refusal in any land parcel development.


As more and more developers do this in the near future, the authority of Singapore land authority could become eroded. There is always a worry that such developers will eventually wield too much power.

DEPRECIATION OF THE CONDOMINIUM BUILDING

Let’s say the building is poorly maintained, the condition becomes worse, over time the value of the building drops. So in such a scenario, even if Far east makes an offer for the land that is giving only a slight premium, the residents will have no choice but to accept the offer and sell back the remaining lease to the developer and lose any potential upside.

WHAT IS PROPERTYBUYER.com.sg STAND ON THIS?

PropertyBuyer.com.sg is a Singapore mortgage consultants that is research focused, so what we do are to merely to inform the public of these matters. Whether such deals are good deals or not, it is a matter between the buyer and seller. We only state it as it is, the way we understand it.

We have already got in touch with Singapore land authority to enquire about under what circumstances are developers allowed to buy Free Hold land and release it back as 99 years lease hold land.

We are not against property developers maximizing profit. Ultimately it is a matter of buyer power versus seller power. If the seller has the pricing power, it is very obvious that buyers will have to do so on the seller’s terms and the reverse is true as well. Ultimately all profit seeking enterprises are there to make money, and rightly so.

What does this mean for you if you own a FREE HOLD properties?

We are checking with SLA under what statute or circumstances are such arrangements allowed. If this is allowed, wouldn’t you then be able to offer your Free Hold landed property for sale at a slight discount as a 99 years lease hold property?


Imagine, this is really a unique way of passing money and assets to the next generation while retaining a vested option in the land value of the property.
I would say, it has all the UPSIDE and none of the downside.


Stay tuned while we wait for a reply from Singapore land Authority.

Invest in Singapore properties: DBS OCBC Maybank eases credit

Invest in Singapore properties: DBS OCBC Maybank Eases Credit
Article contributed by: www.PropertyBUYER.com.sg

DBS Singapore term loans - Equity loans (loan to valuation) has been revised from 70% to 80% starting January 2010.

OCBC bank Singapore term loans - equity loans (loan to valuation) has been revised from 70% to 80% starting January 2010.

Maybank has raised the lending limit from 80% to 90% loan to valuation.

Note: Monetary Authority of Singapore allows banks to lend up to 90% of the valuation of a Property, but not all banks offer 90% loans.


Term loans are also known as equity loans. These type of loans allow property owners to take cash out of a property whose valuation have risen by refinancing these properties.


How Singapore Property term - equity loans work

For example (if CPF is not used)



A property which was bought for $1m dollars with an outstanding loan of 800k.



If the property valuation increases to $1.2m, this Singapore property owner can go to a bank to refinance their home loans. At $1.2m valuation and at a Loan to valuation of 80%, the bank can lend you $960,000.



If your new possible loan size is $960,000 that means you will be able to refinance your $800,000 home loan + a term loans (or equity loan) for $160,000.



This immediately avails $160,000 (after 12 weeks) of cash if your income can support $960,000 of loan quantum.



These cash out is not allowed for down payment for another property.



The actual impact or increase in liquidity is likely to be limited. These lending changes are not announced openly, as a result, they are not likely to lead to people suddenly going to the bank to apply to Singapore property buyer with “cash out”.



In Singapore Monetary Authority of Singapore do not make a lot of announcements unlike the federal reserve in the USA.



Therefore if we use DBS as a proxy for the Singapore government's policies, it does possibly infer a credit easing stance, albeit a very minor one. This could mean that credit and financial risks have abated and the climate is more positive for lending or it could be just a minor adjustment to keep Term loan and home loan maximum Loan to valuation cap in-line with home loans loan-to-valuation caps.



Easing of Credit typically fuel property asset prices.



What does it mean for Singapore property investors and buyers alike?



We do not think this is a big tide of change, rather it should be taken as just one more positive signal (out of many other signals) for property buying rather than a definitive BUY signal.



PropertyBuyer.com.sg Mortgage Consultants have a panel of lawyers with whom we work closely with.

However we do NOT take legal fee kick-back (Many property agents refer you to a law firm in return for a fee, the law firms then charge you a higher rate to recoup the illegal commission paid to the Singapore property agents).

But in return for this partnership with the Conveyancing Lawyers which benefits the conveyancing lawyers more than it benefits us, we monitor their performance. We require the Singapore conveyancing lawyers to be expedient, work with integrity and care. These lawyers also have to highlight any risks as soon as they see it. Their charges also must be transparent and in-line with market rates. But you are free to choose your own lawyers.



How do Singapore Mortgage Consultants survive then?



Banks pay us a fee on successful loan transaction as we complement the banks and ease the work load of bankers on the front end. You don't have to pay us an entry fee, exit fee or subsription. It's totally Free and transparent.



We are able to keep our independence because we work with all the major banks.

Invest in Singapore properties: Housing loans Glossary

Invest in Singapore properties: Housing loans Glossary

Do you know that in Singapore, the home loans terminology differs from that of the US and elsewhere? Of course there will be common terms. In the US, there are Fico score, in Singapore there is none.

Approval-in-Principle

This process allows the bank to first assess your cash flow and your liabilities and determine how much they would be able to lend to you. Singapore Home loans mortgage consultants can help you to conduct Approval-in-Principle so that you can be assured of a home loan. Please do note that Approval-in-principle are simply that, “approval-in-principle”, while there is much more certainty that the banks can lend you, the bank’s credit department have the final say whether to lend or not after looking at your credit report. Some banks will assess the credit report for an Approval-In-Principle home loans while some banks do not assess the credit report for an Approval-in-Principle, therefore it is best to be honest about your financial situation so that you do not end up with an “approval-in-principle” only for the bank to reject it at the last minute after finding out past credit issues.

Approval-in-principle are only valid for about 1 month.

Amortization

The process of paying off a debt (often from a loan or mortgage) over time through regular payments. The monthly payment is broken down into interest payments and the remaining amount is for principal repayments. In the early years, payments consist largely of interest; as time goes on, principal repayments increases. At the end of the loan tenure, the entire debt will be repaid.

Amortization Schedule

This is basically your home loan repayment schedule showing you the repayment of your principle and your interest over the entire span of your loan amount.

Bridging Loan

The bridging loan is usually a temporary term loan used to pay for the down-payment or part of the down-payment of the new property purchase. The bridging loan is most often collaterised against a current property that the buyer owns, but is in the process of being sold. Or in some cases, the bridging loan is collaterised against a current property that is already sold, but whose sales proceeds have not arrived. Bridging loans are very tricky as timing of execution is of critical essence. Make sure to check with your bank to make doubly sure or else your will end up in a situation where you have no funds to execute a property transaction where you have already exercised the option and entered into a sale and purchase agreement.

Board Rate

Board rate or mortgage rates and many other terminologies were invented by banks to be used as a reference in which to peg their variable rates. For example, if the bank set their “board rate” to 4.25% and the variable rate you pay is 2%. That would mean it is (Board rate – 2.25%). In case the bank modifies the board rate, it would affect your interest rates.

Building Under Construction (BUC)

Building under construction are buildings which have the permit to launch for sale but are still being constructed. This applies mostly to new development such as Condominiums whose Temporary Occupation Permit (TOP) is still some time away. Banks treat BUC and completed properties differently.

Cancellation Fees

The penalty that banks charge, usually a percentage of the loan amount (or a percentage of an un-disbursed amount), if you were to cancel your housing loan after you have accepted the Letter of Offer but before the housing loan is disbursed or cancel the home loan after partial funds have been disbursed but the others are not.

If you re-finance your home loan when the funds have not been fully disbursed, it would be considered a cancellation and cancellation fees would apply.

Cashback or Cash incentive Housing Loan

The lender refunds a percentage of the housing loan the cashback and you are usually tied into the loan for a number of years in which a penalty is applicable if the loan is redeemed. This type of loans is also usually useful for home owners who are contemplating redeeming a loan which is still in penalty period.

Combo Housing Loan

A combo or hybrid housing loan can be sub-divided into different parts for a single property. Each part can be treated as a separate housing loan so you can choose a package for each division. In other words, if you borrow $1m for a Singapore property, you can opt to have $500,000 under a fixed rate regime and another $500,000 under a Sibor rate package. Both loans are collaterised against the same property.

Claw-back Period

If you are to fully redeem your mortgage within the claw-back period, the lender will reclaim most of the subsidies given to you. These would usually be the legal subsidy and may include valuation fees, fire insurance premiums, cash incentive, etc.

Certificate of Statutory Completion (CSC)

The Commissioner of Building Control will issue the Certificate of Statutory Completion to a building project when it is completed. The building can only be occupied when a Certificate of Statutory Completion (CSC) or Temporary Occupancy Permit (TOP) is granted.

Fixed Rate Housing Loan

Fixed rate housing loans provide you the stability and ease of planning your cash flow. However Fixed rate housing loans usually comes with a lock-in period which correspond to the duration where the loan is fixed.

Floating or Variable Rate Housing Loan

The interest rate can rise or fall throughout the tenure of the loan. Lenders usually give at least one months notice when adjustments are made to the interest rate. Most lenders allow partial prepayments for this type of loan, making this a good package if you intend to repay a significant portion of your housing loan in the initial few years.

Floating rate packages comes in 3 main forms: -

* Bank’s variable rate packages which are pegged to the bank’s internal reference.
* Sibor pegged housing loans.
* Sor pegged housing loans.

Full Redemption Penalty

The amount that banks charge, usually a percentage of the loan amount, if you were to fully repay your housing loan within a lock-in period.

Interest-offset housing loan features

This feature allows you to offset your housing loan interest with funds deposited into an account designated by the bank. For example, your housing loan may be $1m and you also have $300,000 cash which you do not intend to pay down the loan. You could put this $300,000 cash into the designated account to offset against housing loan interest payable, (i.e. your effective loan is ($1m - $300,000 = $700,000) and you will only interest on $700,000 rather than $1m in case this is a 1-for-1 interest offset. For example, if the interest cost is 3%, the bank will charge you interest of 3% on the $m and give you interest of 3% on $300,000. In case it is a 2/3 offset, for a 3% interest rates, the bank will charge you 3% for your $1m loan and give you 2% interest for your $300,000 cash.

Many business people like this package as it allows them the flexibility to incur less interest costs if they do not use their funds, while still giving them the choice to use the funds like a current account.

If the housing loan is paid down, then this option of using cash in case of an emergency would disappear.

Interest-only Housing Loan

Monthly payments consist entirely of the interest due on your loan so that the balance you owe is not reduced during the term.

Letter of Offer (LO)

A contract between the borrower(s) and the bank stating the terms of the housing loan package.

Loan Quantum

The loan quantum or principal is the amount of money that you borrow.

Loan Tenure

The period of time that you will take to fully repay your loan.

Loan to Value (LTV)

A percentage figure indicating the size of the housing loan on a property in relation to its value. Thus, a house worth S$500 000 with a mortgage of S$400 000 would have a loan to value of 80%. Most banks and financial institutions have better housing loan deals for LTV 80% and below. The maximum LTV that lenders can legally go to in Singapore is 90%. This is mandated by the Monetary Authority of Singapore (MAS).

Lock-in Period

The number of years that you are tied to your lender. If you fully redeem your loan within this period, there will be a full redemption penalty that is equal to a percentage of your loan quantum. Lenders may also charge a penalty for making partial payments within this period.

Option to Purchase - OTP

This is a contract which compels the property owner to sell you the property at an agreed price if you give a 1% deposit. The Option to Purchase (OTP) usually gives a 14 day period in which to exercise the option. The law society gives certain guides on how an Option to Purchase should be drafted. However we have also seen many Option to Purchase contracts which are drafted by the Seller’s Property agents or property agencies which are unfair to the Property Buyer.

It is therefore our advice that when a deal is imminent, ask the property agent to send you a draft of the Option to purchase for you to first go through with your lawyer. If you do not have a Lawyer and would like us to help you take a quick look, you can email us at loans@propertyBUYER.com.sg, either us or our panel of lawyers can take a quick look at it and give you some comments. But do not, although we are generally more conservative in our approach, we cannot guarantee to be able to spot all errors or omissions and you promise not to hold us accountable to it.

Partial Redemption Penalty

The amount that mortgage lenders charge, usually a percentage of the loan amount, if you were to prepay your housing loan within a lock-in period.

Payment Holiday Housing Loan

A relatively new type of mortgage in the Singapore market. You take a break towards paying of your interest or monthly installment at certain periods during your loan tenure. This takes many forms, there is also a beautiful Sunday package which gives the borrowing 1 day free interest rate, which amounts to 1/7 reduction in actual interest rates.

Prepayment

Payments that you make in addition to the monthly installments.

Refinancing

Switching from one housing loan package to another, usually to get better rates or terms and condition.

Re-pricing

Switching from one housing loan package to another deal with the same lender.

Singapore Inter-bank Offered Rate (SIBOR)

Singapore Inter-bank Offered Rate is published by the Association of Banks in Singapore. This market is almost equivalent to the Federal Reserve funds market. Banks lend excess funds to each other at the Association of Banks in Singapore. The rates will be determined by the demand of funds and the availability of funds. During times of extreme financial stress where banks view other banks with suspicion, funds become scarce and monetary authority of Singapore is known to intervene by pumping funds into this market.

Singapore Swap Offer Rate (SOR)

Swaps are a form of financial derivatives. Swaps in Singapore are contracts of US$ versus S$ contracts which banks use to avoid converting their currency so as to incur the losses from bid and spread. As banks trade these Swap contracts within the Association of Banks of Singapore (ABS), the rates move in tandem with supply and demand. Swap Offer Rate is the rate that the banks will lend to each other at a pre-determined rate.

Temporary Occupancy Permit (TOP)

The Commissioner of Building Control will issue the Temporary Occupation Permit to a building project when it is completed. The building can only be occupied when a Certificate of Statutory Completion (CSC) or TOP is granted. A TOP, unlike a CSC, is not compulsory, but is usually obtained before a CSC as requirements for a TOP is less stringent.

Term Loan (Cash out)

For properties which has equity a term loan is possible. A Term loan is usually more strict and is contingent on many things such as equity value, remainder lease on the land, CPF property withdrawal and accrued usage and cash flow.

Contact Property Buyer Mortgage Consultants at: -

(sms) +65 - 9782 - 8606

(email) loans@propertyBUYER.com.sg