Invest in Singapore property: SINGAPORE BANK WITHDRAWS SOR SIBOR PROMO RATES

Invest in Singapore property: SINGAPORE BANK WITHDRAWS SOR SIBOR PROMO RATES
Contributed by www.PropertyBUYER.com.sg


In the last issue, 1st week of April we spoke of 2 Singapore banks withdrawing promotional rates. See last article (http://www.propertybuyer.com.sg/articles/compare-singapore-home-loans-/singapore-banks-raise-sibor-margins-on-housing-loan-rates/)



By today 16 April 2010, 1 more Singapore bank has removed their promotional rates. The choices of promotional rates SIBOR or SOR packages are shrinking, at least in April, 2010, until better rates comes about in May or if some banks choose to break ranks with the others.



Shortly after the last article which we posted, the tradionally media published a report saying that banks are lowering rates and competing to acquire home loans. And more are about to follow.



This lead some of our customers to come and ask us, "Why are you saying Sibor Sor margins are rising when the traditional media has just mentioned that the banks are reducing rates to compete?"



We found that article and we read it. It was factually correct and in that article it did mention that banks are revising rates in April 2010. However the headline title said banks are reducing rates to compete. The article was probably written early march and only approved for posting in 1st Week of April, 2010.



So we concluded and explained to our customers that the traditional media is at least 2 to 3 weeks behind the internet media.

For Singapore property buyers wanting to buy completed or Building-under-construction (BUC) properties, the cost is potentially getting higher.

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.

Singapore Economy: Video on Analyst Updates for February 2009

SOME BANKS ARE TOO LARGE TO FAIL

But they are not immuned to nationalization. According to Philips securities,

once nationalized, common equity holders (i.e. Shareholders share price or

equity will be decimated). For those who consider buying bank shares, in

anticipation of a turn-around, they generally will be rewarded when the

market turns around. But provided that the banks are not nationalized.

Because when a bank is nationalized, it is usually at a bad state.


Example (Hypothetical): -

If a bank is currently worth $1,000 and there is 1 shareholder owning 1000

shares at $1 each.

And assume that Share price = Equity

Therefore Asset = Equity + Debt

If it has assets of $20,000 And debts or $19,000 --> Equity = $1,000.

Since the bank suddenly discovered that part of their $20,000 assets which

they thought was assets is GONE. Assume that $950 of that $20,000 is

deemed assets that is not recoverable and lost fo good.


That means that the bank's equity is now (Asset - Debt) = $19,050 - $19,000

= $50 dollars.


That means instead of a $1 stock price, the equilibrium price of the bank

stock should be only $0.05 (or 5 cents).


Consider that at this scenario, the bank is in a desparate position and goes

to the government to ask for a bail-out. The government values the bank at

$0.05 per share. Since the bank has 1000 shares outstanding, that values

the bank at $50 dollars.

Say the government then invest $950 into the bank, by issuing more shares

at $0.05 per share. That is a whopping 47,500 shares.

So instead of being a 100% ownership at 1,000 shares, the enlarged

number of shares is 48,500 shares. The common equity shareholders will

suddenly only hold 2.07% of the bank, effectively relinquishing control to the

government.


But let's say for instance, some of these asset prices such as properties, we

know that the prices won't be forever depressed. In other words, due to the

nature of the BAIL-OUT, even if in the future the $950 of losses gets

"write-back" into the books as assets or booked at Profit of $950 2 years

down the road.


The common share holder, holding only 2.06% of the bank, gets back only

$950 x 2.06% = $19.57, having already lost $950. The net loss is still a

whopping $930.43.


So even if the banks shares are CHEAP, the common equity shareholder

and/or Potential investors must BET that the bank will NOT be nationalized.

Because doing so will usually entail the government injecting capital while

valuing the bank at dirt cheap prices, effectively taking control of the banks.


Subsequent upside is mainly for the government and common share holder

will lose most of their investment.


So how to look out for which bank share to invest?

We think that investors should always look for bank shares that have little

risks of further losses and is in no danger of bankruptcy and/or being

handed a "bail-out" by the government.


Because a bail-out typically saves bank jobs, but not the share holders.


All banks are somewhat affected

As a result, many banks are in "risk aversion" mode and concentrating on

raising lending margin and only focusing on customers passing the most

stringent credit tests.

If you are in a current bank loan and your rates are rather high, call us

to evaluate Refinancing. If your house valuation is high and your debt is low,

you may want to consider refinancing plus get "CASH OUT" a term loan.

This gives you the added ammunition and ready cash to pounce on any

potential opportunities that come by given the fairly attractive stock-market

valuations now.

http://www.propertybuyer.com.sg/viewnews.php?article=72

Valuing A Property - A layman's approach

"Success in a thought process."

What explains the price differential between 2 adjacent properties? Often you will see 2 adjacent properties sometimes a big enough price gap to warrant a big WHY.


Say for example, Condo 1 is asking an average price of S$900 psf and Condo 2 is asking a S$1200 psf.

What could be the reason???

Here are some possible explanations: -

SIZE
1. Condo 1 offers bigger units and Condo 2 offers smaller units. Towards the pricier end of properties, affordability is an issue. For example: -
Condo1 unit sizes may be in the average of 1500 square feet (10.76 sq feet = 1 sq meter). That means that an average unit would cost around S$1.35m.
Condo2 unit sizes may be around 700 to 800 square feet. That means an average unit would cost S$960k.

AGE
2. If size is not an dissimilar, Condo 1 may be older than Condo 2. Newer units generally command a premium as their design tends to be more up to date with current trends. Over time, property value tends to become higher, therefore newer properties tend to have better finishing, technologies (intercom systems), lighting, marble floors, feature walls, large lobbies, Bigger and faster lifts, air-con lobbies, nicely manicured gardens, etc. You name it, they have it. You are paying for the luxurious lifestyle. Good marbles and feature walls can cost upwards of 30 to 100 dollars (per sq feet).

LOCATION
3. Even if a property is across 1 road, the feel and surrounding attributes may be totally different. In feng shui, the road cuts across the "chi" 气 of the area. That may also explain the price differences. An example of that is Garden Vista a 99 years development (by Far East) in Dunearn Road, the going rates in 2006 were $850 to $900 psf and in 2007 and 2008, Far East was asking $1350 psf onwards. But across the road/highway is Sherwood towers, it is going for $400-$700 psf tops (and it is either Free Hold or 999 years). Location effect, in this case, garden vista is "Bukit Timah" while Sherwood towers is "Beauty world" branded, but of course more factors are at play.

LAND ATTRIBUTES
4. Two developments side by side may have similar finishing, however one may have a stream or is hilly and the other is flat. If developed and planned nicely, the rolling and hilly terrain may enhance the feeling of space and conveys a sense of well-being. As a result, people may like it more and are happy to part with more of their hard-earned money.

DESIGN ATTRIBUTES
5. Not all developments are the same. Different design appeal to different people. As Singapore is generally land scarce, properties are becoming expensive. Older designs used to have balconies. As Singaporeans become more and more utilitarian, the balconies disappeared to become part of the living space. Hence those without Balconies are more highly valued. Of late, as more and more developments are built without Balconies, developments with Balconies are making a come-back due to demand from certain segment of the home buyers who cherished the balconies, they are priced at a premium.

6. Some designs are awkward, they deliberately squeeze out 4 rooms when it should only comfortably have only 3 rooms. There are several twists and turns, corridors are long and space is "wasted". This is because you cannot really put anything along the corridor. Therefore the place feels smaller than it actually is. Though this kind of design may find some fans, it is generally not well liked by the Space minded and bargain hunting Singaporean home buyer.

FENG SHUI
7. Feng Shui, an age old art of harmonious living. More and more people are subscribing to this school of thought. And Feng Shui plays a big part in the valuation of a property. Even if you do not believe in it, many others do. It will eventually affect the price of your property either positively or negatively.

CONNECTIVITY
8. Properties near to major roads, bus stations and train stations are generally valued more. There are about 750,000 cars in a population of 4.6m. About 1 in 6 people own a car. But other family members still need to go to work, go to school, go to buy stuff and run errants, so connectivity is still very important. Despite Singapore's small size and famed public transport system, some private residential areas are a bit off the beaten track. If they are near to public transportation nodes, they are generally of the 99 year lease hold type.

VICINITY
9. Most good properties have good connectivity, but also great vicinity. The locality is near the Sea, near a nice lake, the hills, the forest or near heavily forested areas with lots of shade and foliage. Bukit Timah is one such place, East Coast park, Katong, Siglap, Yio Chu Kang are other such areas.

SCHOOLS
10. In Singapore, most children of school going age (6 to 7 years old) will have to go to Primary school. Being the usual KIASU (a hokkien word to describe, "Afraid to lose out") Singaporean parents, most parents will try to get their children to the best Primary Schools. And in Singapore, priority is given to families living within 1 km of the primary school (subject to the family having stayed there 2 years prior to the registration exercise). With good Primary schools within 1 km, most properties within 1km of the school is highly sought after.

AMENITIES
11. Singaporeans hate to walk. For an average foreigner, it would seem surprising that Singaporeans generally do not have the same sense of distance compared to a foreigner. So there is a premium to be near to the super markets, wet markets, shops and shopping centers.

LAND TITLE
12. In Singapore, most people prefer Free Hold land followed by 999 years lease hold and the least liked is 99 years. For some people from Hong Kong or China for instance, they do not seem to understand what is the big deal about 99 years and Free Hold, because no bodies lives that long. But I tell you, in Singapore, most people prefer Free Hold and that is a fact. If they did not buy free hold properties, it is usually a matter of budget constraint.

13. There is also a difference between Free Hold Strata titled land and Free Hold land with individual title deeds. Though the difference is not always reflected in the price of a property. Free Hold Land has more intrinsic value generally as it cannot be over-written by a majority vote. Strata titled land with properties on it, means that each property owner owns a "share" of the land that their property sits on. And older properties over 20 years old have Strata title laws that governs it, as long as 80% or more vote to demolish or sell the property, even the dissenting 20% of property owner will have to agree. In other words, you have no control over your home, even if you do NOT want to sell it, you may be force to sell it if the majority opts to sell or re-develop it.

FACILITIES AND SIZE OF THE DEVELOPMENT
14. A development needs to be of a certain size in land area in order to economically provide all the facilities. A full facility condominium (Condo) will have facilities such as: -
Swimming pool
Jacuzi pool
Gymnasium
Sauna room
tennis court
exercise bay
children playground
function room
Barbeque pits
Squash court (most condos do not provide this now)

The facilities differential will be create a price differential in 2 different developments.


LAND VALUE VERSUS PROPERTY VALUE
15. Property and buildings depreciate. Fittings degenerate, paints peel. The once sought after property is no longer deemed HOT. However, in land scarce Singapore with an expansive immigration policy, more population and lesser and lesser land is a recipe for higher land prices. Land appreciate, buildings depreciate.

16. Singapore is a country where the government likes to micro manage. Some call it good governance, others call it, "they plug every loop hole". So developers cannot buy large tracks of land and keep it till it appreciate. This is because the Government levies development charge and penalties on delay of building the "proposed" building and/or amenities. So that is out of the question.

However, there are many good gems out there that are DIRTY and OLD and FORGOTTEN. Many old buildings that sit on rather good land asking very reasonable prices.

Why is there such a price differential given that those are gems???

This is because buying and staying in a property is an emotional process. Many gems are over-looked because they are
simply "Dirty and NOT polished". It's definitely a different decision altogether. In this case, this property may be an
investment gem, but not a lifestyle gem, unless you can do some modifications work to it.


http://paulhokangsang.blogspot.com

http://investinsingapore.blogspot.com