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Invest in Singapore Properties: Home loans using two borrower and Three mortgagors.

The economic climate has recovered. The recession seems a distant memory (even though it’s only 1 year ago). Many banks have relaxed credit, including banks such as DBS, OCBC, Maybank and recently HSBC, Bank of China. And from our experience and sampling working with the banks, the easing of credit from the bank is rather across the board.

Recently up until June 2009, credit was very tight. Very high barriers were set up to qualify whether to lend out money. Property buyers or investors have a tough time to get any housing or property loans approved if they are sharing a property with multiple non-related parties. Even if they are buying an investment property, many banks would require them to put up 30% down-payment. This means a 70% loan of the property valuation.

Any complicated Singapore property deals is almost impossible with extensive processing time and uncertain end-result.

Refinancing mortgages in Singapore is equally hard as property values plummeted with loans outstanding greater than 80% of the valuation of the property.

Investing and Sharing a property in Singapore

Many family members and friends tend to get together to buy a second or third property. This phenomenon is getting more common as far as our mortgage consultancy – broker has experienced.

Usually all will share in putting up the cash for the down-payment and all will become borrowers.

Recently, Property buyers have found an innovative way to borrow for your Singapore property loans.

Many of the so called “Property Gurus or experts” with property buying or investing systems or those, “How I manage to own a multi-million dollar portfolio earning $2500 a month” are also mainly using similar ways. We will delve into the risks in the later paragraphs, remember, there are no free-lunch. Many are dishing out standard generic advice, masquerading as divine investment and view of the future.


Let us now explain how it works.

One would avail cash for down-payment while the others will make their cash flow available so as to borrow large sums of funds.

For example, Property Buying amongst three people (real example, fictitious people), Oliver, Soon Huat and Kim Seng.

Do you want to know how Oliver and Soon Huat can buy a property without having CASH down-payment?

Do you want to know how Oliver and Soon Huat can buy a property without the cash down-payment?

• Oliver earns $2000 a month
• Soon Huat earns $5000 a month
• Kim Seng is a retired cousin, who has lots of cash, but no cash flow. Cash in excess of $400,000.

Property loans Borrowers

• Oliver and Soon Huat are borrowers.

Using a very relaxed criteria and barrier, they may be able to borrow up to $800,000 to $940,000 if they have no other financial commitment and are eligible to borrow over 30 years. (Maximum loan quantum is very risky, you have to assess your risks. The amount illustrated are estimates, banks have final say in actual amount of lending offered)

Based on the cash flow (salary) of Oliver and Soon Huat, they would be able to afford to buy a property in the range of $1m to $1.175m.

What is the Cash down-payment?

The cash down-payment required would be $200,000 to $235,000.

Since Oliver and Soon Huat did not have cash, Kim Seng who is retired and seeking an investment would pay the $200,000 to $235,000 cash plus stamp duty for it.

How does the Property Buyer Investment system work?

PROPERTY LOAN BORROWERS

• Oliver and Soon Huat would make available the cash flow (salary) so that they can borrow money to buy an expensive property.
• Kim Seng would pay the cash down-payment.

PROPERTY OWNERS – Mortgagors

• Oliver, Soon Huat and Kim Seng are all co-owners and mortgagors.
• The apportionment of the asset share is agreed by the property investors in private. They can do so under the tenancy-in-common structure.

Oliver, Soon Huat maxed out their Property borrowing capacity.

The Singapore property loan was based on Oliver and Soon Huat’s credit standing and cash flow.

Since Kim Seng is the Mortgagor (owner) and not the borrower, his credit assessment is not being looked at. (Not all banks allow this)

What are the risks for Borrowers and owners of such Property Investments structures?

Oliver and or Soon Huat lose their jobs, they will be unable to repay their installment if they have no savings.

The Singapore property loan – mortgage will be in default.

Soon the bank will likely serve notice to pay up to borrowers or mortgagors (owners).

Hence, the end result is, all people are liable for the loan, not simply the borrowers.

The bank will re-possess the property and put it up in the market for sale. If the sale comes short of the outstanding loan amount, all mortgagors and owners are likely to be liable. The bank may sue all three and recover whatever monies it can.

What is the RISK for Kim Seng the Financier of the property?

If Kim Seng finances the property deal and is himself involved in several such deals, he may be able to pass the cash flow requirement (because his credit and liability is not checked).

In case Kim Seng has many such properties, if One property falls through by default of payment or installment, Kim Seng will be exposed.

In addition to that,

Kim seng may be forced to pay up for any short-fall. Because if one or multiple properties default may cause a cascade of properties to fall.

These type of Singapore property buyers or investors typically rely on rental income. If rental income is not forthcoming, trouble will come very quickly.

Singapore government cools Property market

SINGAPORE: The Government has introduced two new measures that will take effect Saturday to temper sentiments and pre-empt a property bubble from forming in the private residential market.

It said they will help to ensure a stable and sustainable property market.

The first is a Seller's Stamp Duty on all residential properties and residential lands that are bought after Friday and sold within one year from the date of purchase. The stamp duty will be applied at the standard ad valorem stamp duty rates for the conveyance, assignment or transfer of property.

Housing and Development Board (HDB) flats will not be subjected to the stamp duty as they are already subject to a minimum occupation period of at least one year.

The Ministry of National Development (MND) said the objective of this new tax measure is to discourage short-term speculative activity that could distort underlying prices. It stressed that it is not targeted at the purchase of properties for owner occupation or longer term investment.

The housing loan limit will also be capped at 80 per cent of the private property's value, instead of the current 90 per cent.

The 80 per cent Loan-To-Value limit will apply to all housing loans granted by financial institutions for private residential properties, Executive Condominiums, HUDC flats and HDB flats, including those under the Design, Build and Sell Scheme.

Loans granted by the HDB for flats - including those under the Design, Build and Sell Scheme - will still have a cap of 90 per cent.

MND said this is because HDB flats are already subject to other criteria to prevent speculation and encourage financial prudence, such as minimum owner occupation period and restriction on ownership to one flat per household.

Explaining the rationale for the measures, MND said there is a risk that the market could overheat in the next few months, given the optimism fuelled by the economic recovery and low global interest rates.

However, it noted that the current level of speculative activity is still lower than what it was at the height of the property market boom. Overall price levels are below the previous peak.

MND warned that any excessive exuberance will make the property market vulnerable to the continuing risks in the global economy.

The Government described the new measures as "calibrated", saying it prefers to take small steps early, rather than be forced to impose more drastic measures after a bubble has formed.

It will continue to ensure that there is adequate supply of housing to meet demand. Sites that can yield 10,550 private housing units have already made available in the Confirmed and Reserve List of the Government Land Sales (GLS) Programme in the first half of 2010.

This is the highest supply quantum in the history of the GLS Programme.

- CNA/sc
(Source: Channel News Asia, 19 Feb 2010)