PRoperty regulation in Jan 2011

PROPERTY BUYING REGULATION IN JANUARY 2011
By www.propertybuyer.com.sg

As the election is approaching, it is imperative to paper over the failure to keep property prices in check. The Singapore government is again resorting to brute force tactics to artificially cool the property market. The measures are an over-kill and ill conceived when the market is already showing signs of slowing down.

Just weeks ago, we mentioned that Quantitative Easing will likely lead to regulation risk to slow the market and sadly this has come so quickly and without warning.

The New Property Buying Rules Will Come Into Effect On The 14th January 2011.

1) Increasing the holding period for imposition of Seller’s Stamp Duty (SSD) from the current three years to four years;

2) Raising the Seller stamp duty SSD rates to 16 per cent, 12 per cent, 8 per cent and 4 per cent of consideration for residential properties which are bought on or after Friday, and are sold in the first, second, third and fourth year of purchase respectively;

3) Lower the Loan-To-Value (LTV) limit to 50 per cent on housing loans granted by financial institutions regulated by MAS for property purchasers who are not individuals

4) Lower the LTV limit on housing loans granted by financial institutions regulated by the Monetary Authority of Singapore from 70 per cent to 60 per cent for property purchasers who are individuals with one or more outstanding housing loans at the time of the new housing purchase. The measures will take effect on Friday.

(Source: Straits Times, http://www.straitstimes.com/BreakingNews/Singapore/Story/STIStory_623779.html)

ANALYSIS AND COMMENTARY ON PROPERTY BUYING REGULATION – SINGAPORE

The intention is to cool down the market and demonstrate to the Singaporean electorate that the government is really trying to do something to cool down the market and to show that regulation is starting to show results. Like we say previously, we hope they don’t over-react, but It seems that our hope is in vain. It could be that Q4, 2010 transacted prices are still moving up too quickly.

(We are still waiting for Q4, 2010 URA private property transacted prices to come out and we will be doing a research on it. We will first disseminate to all our ex-customers 3 to 4 weeks ahead of all others so that they get a head-start in decision making)

Trying to make property prices cheaper for Singaporeans and PRs

The supposed intention of the Singapore government is to try to make property prices not rise as fast. (We shall not go into who created the imbalance in the supply in the first place)

After much hard work digging (seems like median salary is not a favoured form of reporting statistics), we found the median salary statistics. Singapore’s median salary is only $2710 in June 2010.

This means that most Singaporeans will not be able to afford private properties. And since HDB flats is facing a severe supply shortage, the round of cooling is unlikely to have much effect given the extreme shortage of supply of HDBs. The segment of Singapore population most at risk is also the one most exposed to risks from over-priced HDB properties.

‘Boosted by the strong economic recovery, the median monthly income for Singaporeans in full-time employment rose by 4.2 per cent over the year to $2,710 in June. This is higher than the marginal growth of just half a per cent last year. According to the Ministry of manpower (MOM), the median income still rose by 1.8 per cent after factoring in inflation. The median income of part-timers also saw a significant increase of 13 per cent to $700 this year. Overall, the nominal median income for all employed residents rose by 3.3 per cent to $2,500.”

(Source: Reach.gov.sg, http://www.reach.gov.sg/YourSay/DiscussionForum/tabid/101/mode/1/Default.aspx?ssFormAction=[[ssBlogThread_VIEW]]&tid=[[947]])

Housing Benefit To Singapore Expatriates And Would Be Immigrants

The intention is to benefit the local population with some form of supposed lower property prices for HDBs, but instead it may cool the private property market. The new measures effectively will allow Expatriates in Singapore to own properties easily at 70% or 80% of loan to valuation (depending on the full regulatory statement from Ministry of National Development (MND) tomorrow on the 14th January 2011).

As most Singaporeans own their residential homes already, buying a second property will be a 40% downpayment and many cannot afford 40% downpayment. And most singaporeans earn only a median income of $2710, therefore most Singaporeans cannot afford private properties. Therefore, this paves the way for Singapore expats to buy their first property in Singapore without so much competition.

So Singapore expats, if you are looking to buy a property, whether the government intended or unintended to help you, this is the golden opportunity to consider to buy a property in Singapore now instead of renting (However please read Comparisons of buying versus renting property). Before their change the rules again and impose buying restrictions on Foreigners, this may be your last chance for 2011.

We anticipate that the next regulation may involve foreigners buying property in Singapore.

What If Property Buyers Want To Switch Properties Or Upgrade?

Property borrowers who can show evidence of Sale of property will not be subject to the new rules. If the Property buyer wants to buy another property, he must first sell his property, show a signed Sale and Purchase (S&P) agreement proving the sale of this property and then show the IRAS certificate showing that someone has bought his property and paid stamp duty on it.

Where the existing property is a HDB flat, he can show HDB’s approval letter to sell the flat, that HDB will issue within 2 weeks of the First Appointment. These borrowers will still be able to borrow at an 80 per cent LTV from financial institutions.

But the timings are extremely tight, 2 weeks for options to be exercised and another 2 weeks stamp duty to be paid. In this time, they must also apply for a home loan and show these to the banks to ensure that the bank can lend at 80%, (not all banks will lend in these cases, please check and confirm via approval in principle with banks at
loans@propertybuyer.com.sg or sms 9782 8606).

NOTE: we cannot be held responsible for the accuracy of this article and buyers please take all necessary precautions such as contacting us to ensure a loan can be obtained. Please read our terms and conditions.

Then they will need to complete the sale in 2 months instead of the usual 3 months in order to have a place to stay. Alternatively, buyers will need to drag out the sales completion date of the property they are selling.

Borrowers Without Any Outstanding Housing Loans Will Have A 80% Loan To Valuation Limit

These rules apply to housing loans granted by financial institutions for private residential properties, Executive Condominiums, HUDC flats and HDB flats (including DBSS flats).

Loans granted by HDB for HDB flats (including DBSS flats) will still have a LTV cap of 90 per cent.

Invest in Singapore Properties: Sibor or SOR rates

by: Property Buyer Home loans

If you are investing in Singapore properties and you want to know how safe is your cash flow? What can affect your property investing cash flow?

Rental rates can affect your revenue while the underlying Borrowing costs determined by Sibor and SOR can affect your Cost.

Which is safer? SIBOR rates or SOR rates?

In order to know the answer, we need to dwell deeper into how Sibor and SOR works in Singapore.

Setting Interest rate targets in USA and Singapore?

The USA is united from many states. There is a federal government and the state government. As the Federal government has certain rights and controls while the local government the others.

Therefore, the federal reserve uses rougher policy tools such as using interest rates to control inflation and regulate growth for the country while the local government does it's part.

Singapore on the other hand is small. The Singapore government can micro-manage. When the economy heats up and Consumer Price index (CPI) rises, instead of raising interest rates to control inflation, Singapore could raise it’s currency value against a trade weighted basket of currencies.

This reduces the prices of imports as the Singapore dollar strengthens. This has the effect of lowering inflation for Singapore citizens. However this also impacts certain industries which relies on exports.

SO DOES SINGAPORE GOVERNMENT SET AN INTEREST RATE TARGET?

Singapore’s interest rates are consistently set low. Though we are not sure “SET” is the right word. There are many factors including the liquidity of banks in Singapore which helps “SET” the interest rate environment.

Banks that are flushed with cash from depositor’s funds or it's own capital will release unused funds it into the Singapore Inter-bank market, made available to be borrowed by other financial institutions, for a small interest rate charge of course.

The rate is called, the Singapore Inter-bank offered Rate (SIBOR). This is the rate at which the banks lend to each other. Sibor is traded and published in the Association of banks of Singapore (ABS).

SOR is the Swap offered Rate also traded on the Association of Banks of Singapore.

SOR is a Swap. Swaps are basically derivatives contracts. These contracts are traded at a fairly high volume between the banks and financial institutions in Singapore.

SOR or Swap offered Rate is a benign form of Derivative which involves the US dollar and the Singapore dollar where banks trade with each other to borrow the funds. And the borrowed funds carry an interest rate. SOR is determined this way. Swap contracts behave a little like a share in a stock market.

Singapore’s interest rates are consistently lower than that of the US and that of Australia. This ensures that Gross Fixed capital formation is maintained at a higher level of which a significant portion goes into investment. Such as that of plant, machinery, software, etc. All of which could significantly enhance the long term productivity and efficiency of the Country.

Low Sibor and SOR rates drive investment driven inflation?

Singapore is not immune to inflation. However, due to the various policies tools at the disposal of the Singapore government, it can selectively target industries that are over-heating by imposing levies, taxes or restrictions while leaving the other industries which are not over-heating to continue to grow.

Thus Singapore’s micro-managed economy can maintain a higher growth rate due to long term lower interest rates driven by investments.

Australia's housing loans Interest rates are Crazy

Will Singapore’s interest rates reach the levels seen in Australia and US? It is hard to say whether Singapore will ever reach those rates seen in Australia or the USA, but on a comparative basis, Singapore’s interest rates tend to be lower than those in Australia and the USA.

Why will Singapore’s Sibor or SOR rates rise?

In most modern economies, credit is well developed. What this means is, when there are investments or economic activities, funds are being used up. For example, a project that costs $600 million may need financing of at least 60% of that fund.

That means the company who invests in that project only comes out with capital of $240 million while borrowing $360 million. Even the company’s investment of $240 million may also come from issuing shares or bonds of the company, leaving the actual capital of the investment lesser than $240 million.

In other words, investments deplete the funds available for lending into the Singapore inter-bank market. This leads to an investment activity based and economic expansion based rise of rates.

The other instance is when there are major economic shocks where we do not know how much are the banks exposed to these shocks. In such a scenario, each bank will view the other one with suspicion as they do not know whether they will get back their money if they leave lend it out. In such a scenario, the SIBOR or SOR rates move up very quickly. In such scenario, it is expected that the Singapore Government would intervene to provide the liquidity of the last resort, thereby stabilizing the market.

So it is safe to say, when investment grows, funds are sucked up because most investments are still credit driven in a developed economy like Singapore.

For Investors looking to invest in Singapore properties, it is important to understand the Singapore government's interest rate policy levers to estimate if you will be able to afford your Property loans in the coming future.

Singapore banks raise SIBOR and SOR Margins on home loan rates

Singapore banks raise SIBOR and SOR Margins on home loan rates
Courtesy of www.PropertyBUYER.com.sg Mortgage Consultants

The market has begun to awake. Investment activities are coming back. Hedge funds and private equity are again investing in properties as well as equities around the world.

The world economy has also been showing signs of recovery. The US household income has grown several by between 0.1 to 0.3% over the past several months. The household income number’s absolute growth are in the single digit billions, which is a drop in the ocean. But this signify that the world’s locomotive of consumption has gradually recovered.

Singapore has also shown signs of recovery. Unemployment rate fell in Singapore. Singapore’s domestic activity is also waking up, with property prices shooting up. The market is no longer fearful.

Several measures to curb speculators are not showing much results as demand outstrip supply in HDB sector. HDB prices rising is pushing up mass market private properties. Although there is still ~60,000 units of supply in the pipeline for private properties, these units are still building under-construction (BUC) and do not add to supply immediately.

All in all, Singapore economic activity is rising mainly from domestic consumption as well as recovering of demand worldwide. There is also substantial percentage of investment in property from the overall gross fixed capital formation. The demand of funds for financing all sorts of activities will be high. Even though that the Sibor or SOR rates have kept relatively stable up until now March 2010.

Singapore banks are raising their lending margin. For example, banks usually charge SIBOR + margin%, this margin is being raised.

We should now expect more and more banks to follow suit with more expensive home and housing loans from 05 April 2010.

Stay tuned while we wait for latest updates from banks. Meanwhile, some older housing loan rates in Singapore from March 2010 will be only valid until 9th April 2010 and all documents must be in.

You may wish to quickly compare singapore home loans and then to decide one within days.


Contact property buyer Singapore mortgage consultants



SMS: 9782 - 8606

Email: loans@propertyBUYER.com.sg

All articles are the intellectual property of www.PropertyBuyer.com.sg. You are welcome to reproduce our articles provided that you include an active and working link back to http://www.propertyBuyer.com.sg