Lushhomemedia

Archive for the ‘General’ Category

« Previous Entries

Subsales in past 2 quarters among highest since 1995

Posted by luxuryasiahome on November 23, 2009

Completion of large condo projects near MRT stations helps to boost demand

The number of subsales in the second and third quarters of this year were among the six highest quarterly figures since 1995 – reflecting the build-up in subsale activity that led to the government announcing measures on Sept 14 to cool property prices.

The completion of several condos this year – many of them large projects, close to MRT stations or near new projects launched this year – helped to boost their demand in the subsale market.

As well, the rise in private home prices this year has given sellers an incentive to let go units bought earlier.

Savills Singapore’s analysis of caveats captured by URA’s Realis system as at Nov 17 showed that 1,249 caveats were lodged for subsales of private apartments and condos in Q3 this year, a tad below the 1,300 caveats in Q2.

Since 1995 (when the Realis caveats database was first set up), there had been four other quarters when subsales of condos/apart- ments exceeded the 1,000 mark – during the 1996 and 2007 property market highs.

In Q2 and Q3 2007, subsales hit 1,857 and 1,534 respectively; in Q1 and Q2 1996, subsales were 1,238 and 1,650.

Projects that topped the subsales charts in Q2 and Q3 this year had generally been launched a few years ago and many of them were completed this year. Examples include Rivergate in the Robertson Quay area, Casa Merah near Tanah Merah MRT Station, City Square Residences along Kitchener Road, The Metropolitan Condo in the Alexandra Road area, The Centris in Jurong and Botannia in West Coast.

Projects that have been recently completed or which are nearing completion offer added appeal to potential buyers keen to move in or rent them out soon.

Giving a seller’s perspective, Knight Frank chairman Tan Tiong Cheng said: ‘If they bought their properties with the intention of leasing them out and if they find today’s rental market challenging, it may make sense to simply cash out, especially if they can make a profit.’

Savills’ lists of the most popular projects in the subsale market in Q2 and Q3 2009 did not include developments launched this year, with the exception of The Quartz, which was relaunched this year.

‘Those who bought projects launched this year would find it harder to flip because their entry price may already be very high,’ says Lee Hon Kiun, owner of Landmark Property Advisers.

Subsales refer to secondary market transactions in projects that have yet to receive Certificate of Statutory Completion. This can take place three to 12 months after Temporary Occupation Permit (TOP).

While subsales are often tracked as a gauge of speculative activity, Mr Lee hesitates to equate the increase in subsales in Q2 and Q3 this year with speculation. ‘Those who bought two to three years ago and sold this year… in the Singapore context, that’s a very long time,’ he chuckled. ‘Speculation is when people buy a property and flip it within six months to make a profit,’ he added.

Savills senior manager (research and consultancy) Christine Sun said new property launches by developers also fuelled subsale interest for nearby projects released a few years ago. For example, the release of Alexis, Ascentia Sky and Interlace in the Alexandra Road area could have helped subsales at The Metropolitan Condo nearby, which was completed this year.

Agreeing, Landmark’s Mr Lee said buyers can pick up more attractive buys in the subsale market for earlier launched projects than at new launches in the same area.

A developer said: ‘Personally, I advise friends to buy in subsale projects as prices are discounted to new launches.’

HDB upgraders bought 39 per cent of the 1,300 private apartments/condos transacted in the subsale market in Q2 this year, although the figure has slipped to 36.6 per cent in Q3 and 33.7 per cent in October. Nonetheless, these figures are higher than HDB residents’ 20.8 and 23.1 per cent share of subsale purchases during the property bull market in Q2 and Q3 2007.

Analysts say the jump in HDB resale flat prices has narrowed the price gap with private housing and made it easier for HDB dwellers to upgrade to a private home; and the subsale market offers a ready supply of recently completed homes that are ready for occupation.

Secondly, existing HDB flat dwellers looking for a bigger home may be deterred from picking one up from the HDB resale market because of high prevailing cash over valuation premiums. ‘If they fork out a little more cash, they could foot the downpayment for a private condo in the subsale market instead,’ said the developer.

Savills also provided monthly subsales data for non-landed private homes, which showed that for this year, the figure peaked at 596 in June.

It has since declined to 483 in July, 441 in August, 325 in Sept and just 184 in October – as at Nov 17 when Savills extracted the Realis data. It also observed an increase in the number of foreigners (including permanent residents) snapping up condos and apartments in the subsale market. Their share of purchases in the subsale market rose to about 31 per cent in Q3 this year and 33 per cent in October – from 21 per cent in Q1 2009.

Between 2007 and the first 10 months of 2009, Indonesians were the top buyers in the subsale market, followed by Malaysians, mainland Chinese, Indians and UK nationals.

Source : Business Times – 23 Nov 2009

Posted in Foreigners, General, Market Reports | Tagged: , , , , , , | Leave a Comment »

Timing of HDB tax hike ‘avoids bigger increases later’

Posted by luxuryasiahome on November 23, 2009

THE property tax of HDB flats is being raised next year partly to avoid having to introduce a bigger increase later should home prices continue to rise, said Acting Minister for Information, Communications and the Arts Lui Tuck Yew.

He gave the reason yesterday, after being asked at a dialogue with Aljunied-Hougang residents whether the Government could delay it, as the recession has just started to ease.

Noting that the adjustment had been delayed once, Rear-Admiral (NS) Lui said: ‘The problem is, the longer you defer it, the larger the increase will be…if HDB prices continue to go up.’

He also pointed out that the Government is taking steps to soften the impact of the tax rise early next year. It is giving HDB homeowners a one-off rebate, set at 50per cent of the property tax payable and capped at $120. This means low-income families with homes whose property tax is $50 and less will not have to pay any such tax next year.

The property tax rate is 10 per cent of a property’s annual value, although homes that are owner-occupied enjoy a concessionary 4 per cent tax rate. The annual value has increased with rising property prices.

HDB resale prices have risen a hefty 31.2per cent in the past two years, and a further 3.8per cent in the first nine months of this year.

Hence, the Government has decided to raise the property tax ‘to reflect the prevailing movement of HDB prices and also to give rebates’, said Rear-Adm Lui.

He also addressed residents’ concerns about the affordability of HDB flats.

Noting that existing owners gain from their asset’s increasing value, he said: ‘If they eventually need to sell…(it) releases more money for their old age.’

But the anxieties of those planning to buy a flat are not lost on him. He assured them that an HDB flat would not be beyond their means, saying that the Ministry of National Development has matched the prices of different flat types against the salaries of different groups of people in the population. ‘It tries to make sure that for every group, there is a flat type that meets their needs,’ he said.

In doing so, it aims for homeowners to pay no more than 30per cent of their salary every month towards their home loan.

More than 75per cent of HDB dwellers use only the contributions to their CPF savings to make their monthly loan payments, he said, urging residents to buy what is affordable.

Source : Straits Times – 23 Nov 2009

Posted in General, HDB News, Tax Matters | Tagged: , , | Leave a Comment »

Bugis office block sold to private school

Posted by luxuryasiahome on November 23, 2009

A DULL-LOOKING office block just behind Bugis Junction has been sold and will be renovated for use as a campus for private school ERC Institute.

ERC Holdings, which owns the school, bought nearly all of the 999-year leasehold building in North Bridge Road for $46 million earlier this month from City Developments. With 60 units, or 38,534 sq ft, ERC now owns 91.3 per cent of the strata-titled development.

It plans to spend between $3.5 million and $5 million to renovate the six-storey block, said ERC Holdings chief executive Andy Ong.

The price, which works out to about $1,194 per sq ft based on strata area, is considered fair as such space is hard to find in the city, said Mr Shaun Poh of DTZ, who sealed the deal. Mr Ong said he took 15 months to find the space.

Currently, ERC Institute, which has 2,000 students, operates out of two sites: a campus in River Valley Road and an office unit in Robinson Centre. Its most popular programme covers entrepreneurship.

Come September next year, when its long-term lease at Robinson Centre ends, ERC Holdings will give up that space and move to the Bugis building, tentatively named ERC Complex.

‘By 2012, we hope to get 6,000 to 8,000 students, of which 3,000 to 4,000 will be in Singapore,’ said Mr Ong.

ERC has started operations elsewhere in the region, including in Indonesia.

After the renovation, the new building will offer better facilities than the existing campuses, said Mr Ong.

It will have at least two cafes serving a variety of cuisines, a library, a student rest area and a recreation area.

About 30 to 40 state-of-the-art classrooms will be spread over three levels.

One floor will be reserved for the corporate office of ERC Holdings.

The ground floor has retail space, currently taken by a hair salon and a noodle shop. This Fashion has just moved out.

Nearby, another small office block, Premier Centre, could also be transformed. Budget hotel operator Fragrance Group bought it in July for $18 million, or $1,076 per sq ft, from a Hong Leong Group unit, and might turn it into a hotel.

Source : Straits Times – 23 Nov 2009

Posted in General, Office / Retail Space | Tagged: , , , , , | Leave a Comment »

MI-Reit manager seeks clarification from CIT directors

Posted by luxuryasiahome on November 23, 2009

It points out potential conflicts of interest as the two linked to NAB – lender to both Reits

THE manager of MacarthurCook Industrial Reit (MI-Reit) issued a statement yesterday seeking clarifications from two directors of Cambridge Industrial Trust (CIT).

MacarthurCook Investment Managers Asia, MI-Reit’s manager, spelt out the potential conflicts of interest facing Ian Smith and John Wood, two non-executive directors of CIT’s manager. Both Mr Smith and Mr Wood are representatives of nabInvest’s effective 56 per cent controlling stake in CIT. nabInvest is, in turn, a wholly owned unit of National Australia Bank (NAB), which is an existing lender to both CIT and MI-Reit.

The issue arises following a revelation last week by Chris Calvert, CEO of CIT’s manager. Mr Calvert, formerly the CEO of MI-Reit’s manager, said that his company is in talks to secure financing from NAB, and that CIT could use its own debt facility to fund some of MI-Reit’s most immediate needs. Although NAB has financing links to both trusts, it said in a Dow Jones article that there are appropriate measures to prevent conflicts of interest.

MI-Reit took CIT to task for the statements made in the Dow Jones article. It said they may have misled readers to believe that NAB was supportive of CIT’s initiative. However, the bank has written to it on Oct 2 that ‘it has a principled view of not funding hostile takeover bids against client entities’.

Among other things, MI-Reit also questioned if the two directors have performed their fiduciary duty to nabInvest’s clients. It asked if Mr Smith and Mr Wood had sought authorisation from NAB for Mr Calvert to make the statements he did, and to be involved in the discussion about a merger suggestion thrown up by Mr Calvert earlier.

MI-Reit also made another call for the board and managers of CIT to declare its position regarding the resolutions that will be proposed at an extraordinary general meeting today, after the latter withdrew some of the alternatives raised by itself last week.

Although CIT, which owns 9.76 per cent of MI-Reit, has maintained its intention to vote against the resolutions, it is quiet on its recommendations to other MI-Reit’s unitholders, who had earlier been urged to vote against the resolutions as well.

MI-Reit’s manager gave CIT a deadline which ended at 2 pm yesterday, to explain the basis of its recommendation to other unitholders. However, CIT did not respond to that call by press time yesterday.

Over the past week, managers of the two trusts had been locked in a tussle over a recapitalisation deal which MacarthurCook Investment Managers Asia said will help avert a liquidation of the Reit’s assets. With $226 million worth of loans maturing by the end of the year, and a $90 million obligation to meet, MI-Reit is seeking to raise cash by issuing 221 million units – 83 per cent of existing units outstanding – to AMP Capital Holdings, present sponsor AIMS Financial Group and other ‘cornerstone’ investors, at 28 cents a unit.

The price, representing a 70 per cent discount to MI-Reit’s net asset value, is the bugbear of CIT, which is arguing that the share placement would destroy value for present unitholders.

In MI-Reit’s filing to the Singapore Exchange last Saturday, it took CIT to task for the less than concrete alternatives. It noted that CIT’s manager (CITM) has no financing arrangement in place for MI-Reit and that ‘CITM’s discussions on the alternative options are currently only preliminary and exploratory in nature’.

At the same time, the Monetary Authority of Singapore has indicated that it will not approve CITM managing both CIT and MI-Reit, a scenario suggested by CIT early last week. MI-Reit wants CIT to state its recommendation to MI-Reit unitholders clearly, and to back it up by a quantitative analysis.

Source : Business Times – 23 Nov 2009

Posted in General, REITS | Tagged: , , , | Leave a Comment »

MI-Reit unitholders left with one hard option

Posted by luxuryasiahome on November 23, 2009

CIT looks even poorer, having bet on an unwinnable gamble

NOBODY looks pretty after a fight. Two Reit managers, Cambridge Industrial Trust Management (CITM) and MacArthurCook Investment Managers (MIM), have been battling for control of MacArthurCook Industrial Reit ahead of its crucial extraordinary general meeting today.

MacArthurCook Investment Managers’ plan is the worst available; it is also the only one available. The new investors had the bargaining power and they have used it well for their own benefit.

On Friday, CITM’s bid was scuppered by the Monetary Authority of Singapore – due to potential conflicts of interest – so it seems that MIM, MI-Reit’s present manager, has won. Its controversial plan to recapitalise the Reit will probably get passed today. Unitholders have no other options now that CITM is out of the picture.

Indeed, MI-Reit’s unit price fell almost 9 per cent on the news. The Reit’s price had been supported this past week by the hope that CITM had a viable alternative. That’s because the refinancing plan is heavily stacked in favour of a group of new investors. AMP Capital Holdings, present sponsor AIMS Financial Group and other ‘cornerstone’ investors, would be getting 221 million new units at 28 cents a unit. That’s 83 per cent of existing units outstanding priced at 70 per cent off net asset value, 24 per cent off Friday’s closing price, and about 32 per cent from its traded price before the announcement. A two-for-one rights issue at 15.9 cents apiece will also follow the placement.

By any measure, that’s a lot of wealth destroyed. How much exactly? If unitholders take up their rights entitlement, in return for only halving their stake they’ll be paying 31.8 cents for every unit they now hold.

In terms of distribution, they could lose one fifth of their annual yield, according to BT calculations. Not subscribing to the rights issue could cost them 75 per cent of their present annual distribution, and 80 per cent of their stakes. No wonder existing unitholders are up in arms. MIM’s chief executive Nicholas McGrath says the discounts were necessary to raise the cash it needed – $217 million from the placement and a subsequent two-for-one rights issue plus another $215 million in loans. The Reit desperately needs emergency funds to pay off $226 million in loans and $90 million to buy a property and would have to be liquidated if the plan was rejected, Mr McGrath said. It has already survived two close encounters with death.

Unitholders, pointing to its net asset value of 94 cents a unit, say that’s not such a bad thing, really. But MIM says its $490 million portfolio would not have fetched anything close to NAV in a firesale.

Is that true? Unitholders are suspicious and blame MIM’s mismanagement, grumbling that if the Reit survives, it will continue to reap management fees. We’ll never know; perhaps to support its case MIM could have hired independent consultants to estimate a break-up value.

But it is too late now. MIM’s plan is the worst available; it is also the only one available. The new investors had the bargaining power and they have used it well for their own benefit.

CIT, if anything, comes off looking even poorer. Its appearance on the scene on Monday saw a spike in MI-Reit’s unit price. Then, it was hinting at a merger – it said its analysis valued MI-Reit at about 47.9 cents, or 1.1 CIT units, comfortably above the then market price. It also released documents suggesting that a takeover offer for MI-Reit was under serious discussion. Chris Calvert, its CEO, told reporters that consolidation of the two Reits was an option. If not a merger outright, then having it as a manager of both Reits would mean cost savings, while MI-Reit could for a time live off CIT’s debt facilities. Investors bought the story.

CIT soon had to backtrack. That bit about consolidation – that was just ‘misinterpretation’. It was quickly forced to state openly that it would not launch an offer for MI-Reit.

And on Friday, no doubt under pressure from the authorities, it had to make the humiliating admission that it couldn’t take over as manager and that it otherwise had no feasible plans for the rescue of MI-Reit.

And the worst of it was, it was totally unnecessary. CIT only bought its close to 10 per cent stake the previous week, after announcement of the share placement. It could have quietly sat out the whole saga with no loss.

The fact is, CIT has now spent $10.3 million of its unitholders’ cash on a gamble we now know it could never have won (and likely thousands more on professional fees and attack advertisements).

Its own unitholders have started grumbling – that money, over a third of the $28 million raised in a recent private placement, was for asset enhancement and working capital, not a speculative venture that was at best, ill-advised. At worst? Your conspiracy theory is as good as mine.

Source : Business Times – 23 Nov 2009

Posted in General, REITS | Tagged: , , , | Leave a Comment »

Need to restore investor confidence in IRDA

Posted by luxuryasiahome on November 23, 2009

Frequent change of chief exec is alarming and must be disconcerting for potential investors

THREE chief executives in the space of three years. The attendant publicity that comes with such high-profile changes surely isn’t what Malaysia would have wished for its most ambitious development corridor.

But government officials, having earlier denied Harun Johari had resigned from the Iskandar Regional Development Authority (IRDA), confirmed last week a new man would be helming the federal statutory body next year. But whether Ismail Ibrahim – currently with the National Physical Planning Division and one of those involved in drawing up Iskandar’s comprehensive development plan – will have greater longevity at IRDA, remains to be seen.

But the frequent change in the person overseeing the project surely must be disconcerting for potential investors.

They might be prepared to shrug off talk of turf wars between federal executives under state investment agency Khazanah Nasional and parochial state officials who think they ought to be better consulted, but frequent changes at IRDA are particularly alarming since it was set up specifically to regulate and drive the project. Indeed, the government appeared to recognise that a key problem to drawing investments would be the bureaucratic red tape, and empowered IRDA to act as the conduit between potential investors and the various state and federal government agencies, and to facilitate investments as a one-stop agency.

Some measure of its success is perhaps evident in the RM46 billion (S$18.8 billion) in investments that Iskandar Investment, the project implementer, says it has obtained, half of which is from foreign investors and the balance local.

The bulk of investors are from the Middle East, Europe and Asia focusing on manufacturing, property and tourism projects. The largest investment to date is one amounting to some RM5 billion by Spain’s Acerinox SA and Japan’s Nisshin Steel to construct a stainless steel plant.

On the real estate front, Middle East companies have proposed RM4-5 billion of mixed development properties, while Khazanah is committed to funding tourism projects worth over RM1 billion.

Although Malaysia has made clear it wants to get out of its middle-income trap by getting out of low-value manufacturing where it is no longer competitive and into the services side where wages are better, it has yet to detail how it intends to effect that transformation.

In Iskandar, it has dangled long tax holiday breaks and incentives at the service sector and in the last budget, slashed the income tax rate to 15 per cent for knowledge workers.

Such giveaways might not be sufficient. As the Malaysian Institute of Economic Research says, these are only ‘icing on the cake’ as the ease of doing business matters more.

In this regard, Malaysia’s drop in Transparency International’s Corruption Perception Index by nine places to 56th position this year could do more to influence investors than huge tax breaks.

The influence of an advisory panel on Iskandar made up of eminent Johor-born personalities such as international tycoon Robert Kuok, former deputy prime minister Musa Hitam, ex-chairman of the Hong Kong Securities and Futures Commission Andrew Sheng and businessman Kishu Tirathai also appears to be of little significance.

The announcement of the panel aside, little else is known as to what ideas and recommendations have been advanced by the panel.

Because of its location next to land-scarce Singapore, Iskandar is viewed as a no brainer by many who believe its development is inevitable. Maintaining confidence in the project, however, could lead to an earlier achieving of its so-called ‘tipping point’.

In mid-year, Dubai’s Damac group withdrew from a proposed RM400 million harbour front property development. The ostensible reason cited for its pullout was the global financial crisis although some suggested the group was not entirely happy with the pace of the project.

Many shrugged off the Damac withdrawal as just another casualty of the global crisis. But the exit of another investor could set the alarm bells ringing, which is why it must now urgently restore confidence in IRDA.

Source : Business Times – 23 Nov 2009

Posted in General, Overseas Property | Tagged: , | Leave a Comment »

Development, but at what cost?

Posted by luxuryasiahome on November 23, 2009

CHANGE is coming, but is change always a good thing? I read the report, ‘Pasir Panjang Village Centre to go’ (Nov 13), with great dismay.

I am a resident of Pasir Panjang estate, and for at least the past five years, there has been a slew of construction works around my home continuously. I cannot recall a moment of peace.

Every time a condominium is built, the piling and drilling noise is enough to drive me out my home. I am a student, and it is hard to find an ideal spot to study, especially during examination times. My parents are just as frustrated as they cannot stay at home to rest.

Also, Pasir Panjang Village Centre has always been a one-stop convenience centre for residents. We do grocery shopping at Cold Storage, dine at the restaurants and drop off our laundry at the laundromat.

Soon, the nearest amenities will be a good 10-minute drive away, in West Coast Plaza or VivoCity. Our family doctor will also have to move.

The reason we live in Pasir Panjang is for its tranquillity. ‘Revitalising’ the area with yet another development may not be in the best interests of residents.

Oei Xi Zhi (Ms)

Source : Straits Times – 23 Nov 2009

Posted in General | Tagged: , | Leave a Comment »

Tampines residents get peek

Posted by luxuryasiahome on November 23, 2009

TAMPINES scored top marks for its lifts, but needs to improve in other areas before next year’s report card on Housing Board estates.

The Tampines Town Council gave residents a peek at its preliminary results at a town hall forum yesterday, in a bid to get residents more involved in the running of the estate and boost its grades by the time the final Town Council Management Report is released.

The nationwide benchmarking exercise of all town councils, which manage 900,000 HDB flats, began on Oct 1.

The report on the 14 town councils run by the People’s Action Party and the two run by the opposition, is due by June next year.

It will judge HDB estates on a set of six indicators related to cleanliness, maintenance, the performance of lifts and how councils deal with arrears in service and conservancy charges.

In each category, they will be graded from level one – the best grade – to five.

The first round of surveys was conducted by the HDB last month. The Tampines Town Council, however, is the only one so far to make its grades public.

It did best on lifts, recording nearly no breakdowns. It also got a good grade for arrears management, with overdue payments making up only 27.4 per cent of the conservancy fees collected each month. Only 3 per cent of all households failed to pay their fees on time.

Its worst grade was in estate maintenance. With an average of 5.7 defects per block, it scored only a level three. Cleanliness got a level two, with an average of 3.1 cleanliness problems per block.

To get the top grade, the blocks cannot have more than two maintenance defects or cleanliness problems.

Speaking at the forum alongside fellow Tampines GRC MPs, National Development Minister Mah Bow Tan said the main reason for sharing the results was to get residents more engaged in the estate.

The scores obtained, he said, ultimately reflected on the residents too.

Citing cleanliness, he said: ‘Cleanliness is not only a matter of how many cleaners we deploy, how the cleaners work, how efficient the cleaners are.

‘The cleaner can be very efficient but if residents continue to litter, then that particular part of the estate is going to be very dirty.’

Mr Mah said the results so far show there is room for improvement.

But the minister also stressed that the benchmarking exercise was not meant to rank the different councils.

‘Different town councils will have different profiles. There are estates which are newer, estates which have undergone upgrading, and so on.

‘You cannot compare across estates, but it gives town councils a sense of how it is doing over time,’ he said.

Tampines residents yesterday welcomed the move to involve residents in the upkeep of their estates.

Said Mr Foo Kuen Hin, 62, who works for a building maintenance firm: ‘It’s a good idea to let residents know the performance of the town council and how we can play a part.’

Town councils aside, Mr Mah also said a new five-year plan for Tampines was being drawn up and would be unveiled next year. He was responding to a question at the forum on what the constituency would be like in the future.

But he dismissed speculation that this could mean a general election was imminent. The new plan is coming out because the old one, set out in 2005, is expiring, he said. He added: ‘For a five-year plan, we need to reveal it after five years, right?’

Source : Straits Times – 23 Nov 2009

Posted in General, HDB News | Tagged: , , | Leave a Comment »

The dollars and sense of home loans

Posted by luxuryasiahome on November 22, 2009

Get a package that matches your income profile and appetite for risk

Home buyers were recently advised not to throw caution to the wind in their anticipation of fulfilling the Singapore dream of snapping up a private unit.

The Monetary Authority of Singapore (MAS) earlier this month flagged two scenarios in which the private property sector could falter. Lately, it has levelled off somewhat, after a strong rebound.

MAS warned that property buyers could not assume that interest rates on home loans will stay at their current rock bottom levels indefinitely.

If the economy rebounds, interest rates are more likely to rise over the longer term, MAS cautioned.

This, in turn, would drive up monthly instalments on home loans that are not fixed.

If that happens, any home borrower who over-extended himself with a big loan could face serious problems.

The second scenario that MAS laid out: Home buyers could suffer losses from falling home prices as a result of a possible market correction if economic growth proves weaker than expected.

The Sunday Times takes a closer look at key factors to weigh up when taking out a home loan.

Affordability issues

In order to ensure prudent financial planning, Mr Dennis Ng, spokesman for www.HousingLoanSG.com – a mortgage consultancy portal – suggests that home buyers track their total monthly debt repayment obligations.

These repayments should not exceed 35 per cent of their household income.

For example, suppose your car loan instalment is $800, other monthly bills are $1,200 and your housing loan instalment is $3,000. That adds up to a total monthly debt repayment of $5,000.

Assume a monthly household income of $10,000.

That means half your income is going into debts. In the language of financial experts, that is called a debt-servicing ratio of 50 per cent.

That is not advisable as it is well above the maximum recommended debt-servicing ratio of 35 per cent.

Mortgage consultancy firm Global Creatif Financial helps its clients work out the maximum amount they can borrow. Firstly, it takes into account its clients’ individual and/or combined income (with spouse) derived from employment, trade, property or other income.

This amount would then be used to deduct monthly commitments including mortgage loans, car loans, bank loans, overdraft and credit card bills, said its managing director Annie Lim.

From there, Global Creatif calculates how much cash the client has left after fulfilling his monthly obligations. Using a desired loan term and an applied interest rate, it calculates the lump sum that the client can potentially borrow.

Another tip from Mr Ng is that prospective home buyers should not assess the affordability of a home they are eyeing by using current low interest rates.

Before the downturn in 2007, home loan interest rates were hovering at a higher rate of about 4 per cent.

So to be prudent, home buyers should calculate their instalments based on a higher interest rate of, say, 4 per cent instead. This would give them a better sense of whether they could afford the instalments if rates change.

Home buyers should set aside sufficient funds to meet future instalments should interest rates move up.

One’s long-term repayment ability should take into account the stability of your source of income and the available Central Provident Fund (CPF) savings for the down payment and monthly loan servicing, said a spokesman for United Overseas Bank (UOB).

Consider a 25-year housing loan of $500,000 at a current rate of 2 per cent.

If indeed rates rise to 4 per cent, then monthly mortgage instalments will jump 24.5 per cent or about $520.

Using the same rate revision, if the loan is a higher $800,000, the hike in monthly instalments is about $830.

If the property is meant for investment and you are using the rental earned to fund your monthly loan instalments, you might want to factor in a possible drop in rental rates, added Mr Ng.

This is because rental rates fluctuate and it is only prudent to be prepared for the possibility of lower rental income to ensure you can still afford the instalments if rental rates fall.

Mr Ng advised home buyers to factor in a possible 10 to 20 per cent drop in rental.

Let’s assume that the property is rented out at $3,000 a month. Rental falls of 10 and 20 per cent translate to lower rentals of $2,700 and $2,400, respectively.

Whether you are buying a house to live in or as an investment, it is prudent to have sufficient cash or CPF savings on standby to pay for at least six months of housing loan instalments in the event of unforeseen circumstances.

This means that if your loan instalment is $3,000, you should have $18,000 in cash and/or CPF monies set aside to cover six months of instalments.

Interest rates movement

Financial experts generally believe that home loan rates will stay low for the next six to 12 months.

Singapore home loan interest rates are very much affected by the Singapore Inter-bank Offered Rate (Sibor), pointed out Mr Ng. ‘Sibor is in turn affected by two factors, United States Federal Reserve interest rates and the liquidity in the Singapore banking system. And the US has indicated it is likely to keep interest rates low for the time being,’ he said.

Sibor is the interest rate at which banks lend to one another and is partly influenced by the supply of and demand for funds.

UOB said it expects Sibor rates to remain steady at the current level of 0.7 per cent for the next six months.

However, in the event that the US economy recovers, the US Federal Reserve might increase interest rates. If that happens in, say, about a year’s time, interest rates here would likely rise as well.

Mr Ng recalled that Sibor was 3.58 per cent in 2007 and above 2 per cent last year. It dropped below 1 per cent only this year when the US cut interest rates to a historic low of 0.25 per cent. For the last 10 months, it has been about 0.7 per cent. As a result, some consumers may have the misconception that Sibor is always below 1 per cent.

‘Consumers need to be mentally prepared for Sibor to go up to 2 per cent in more than one year’s time,’ he cautioned.

Another indication that home loan rates are likely to remain low, at least in the coming months, is the introduction of low one-year fixed rate packages by the financial institutions, said Ms Lim.

‘The general sentiment in the market is that rates will remain low for the next 12 months,’ she said.

Whether rates will indeed start creeping upwards a year from now depends on how long it takes for the global economy to right itself, but Ms Lim is certain that rates will move upwards more than three years from now.

Fixed or variable home loan packages

Naturally, the benefit of a fixed package is certainty: You know how much your instalments are for a set period.

The key difference between most fixed rate and variable packages is that the former comes with a lock-in period where you are penalised for any premature exit from the package.

Variable packages usually do not impose a lock-in period. Therefore they are recommended for clients who are not sure if they would be holding on to their properties. A no-lock-in package is deemed to be more suitable as the home buyer is not slapped with a penalty payment if he sells his property and redeems his loan. Also, variable packages tend to feature lower interest rates than most fixed rate packages, noted Ms Lim.

‘These variable packages are also suitable for clients who feel that they are comfortable with any short-term fluctuations and/or feel that rates will generally remain low in the short term,’ she added.

However, a variable rate, as the name implies, means that the bank can change the interest rate any time. For example, a three-month rate would re-set every three months. At the end of each three-month period, it could be higher or lower and you would pay more or less accordingly.

Fixed rate packages are suitable for clients who want certainty and peace of mind, and are not comfortable with rate fluctuations.

If you are unlikely to sell your house in the next three years, Mr Ng suggested that now might be a good time to lock in the low interest rates. You might want to consider fixing interest rates for the next two to three years.

Looking at present circumstances, both Mr Ng and Ms Lim would go for variable packages with no lock-in, as the sentiment is that rates would remain low at least for the next one year.

‘Since Sibor is unlikely to go up in the next six to 12 months, one might be better off opting for a one-month or three-month Sibor package. In the event that the Sibor starts rising, one can opt to switch to a 12-month Sibor package,’ said Mr Ng.

One-month Sibor is currently at 0.4375 per cent, three-month Sibor is 0.68 per cent while 12-month Sibor is 0.9 per cent. So if you choose the latter, you might end up paying more interest while interest rates are still low.

Source : Sunday Times – 22 Nov 2009

Contact us at info@lushhomemedia.com or +65 9631 8037 for info and assistance on home financing.

Posted in Finance, General | Tagged: , , , | Leave a Comment »

Private home buyers go slow

Posted by luxuryasiahome on November 22, 2009

Year-end lull hits auction deals and new launches as buying sentiment cools

The auction market is seeing more sellers eager to beat the year-end lull as sentiment cools.

However, buyers do not seem to be in a hurry to commit.

Knight Frank’s auction on Thursday offered 23 residential properties for sale – its longest list this year, said executive director for auctions Mary Sai.

Among them was a rare 999-year leasehold, two-storey house in Pasir Ris Road that sits on 8,007 sq ft of land and faces a seafront park.

Even so, the bids came in below the opening price of $4.5 million, and the property was not sold. The counter offer was $4 million and the closing bid $4.24 million.

Only one residential property was sold at the auction. It was a low-floor, two-bedroom unit in freehold Regent Court which was sold for $700,000.

‘The auction attracted a large crowd of observers, but the results were disappointing as buyers remained cautious,’ said Ms Sai.

‘Of late, potential buyers have been making counter offers that are 10 to 20 per cent below the opening bids.’

Whether the sale goes through depends on whether the seller can accept such prices, she said.

These are not mortgagee sales.

Mr Shaun Poh, DTZ’s senior director for investment advisory services and auctions, said the mild slowdown in the auction market recently is partly a reflection of what is happening in the overall market.

Owners want to sell now as the school holidays are coming, and they worry that people might no longer be in the buying mood, said Ms Sai.

She added: ‘With all the government announcements, some also think it is better to sell now than later.’

The Government came out in mid-September with measures to calm the property market.

Two months later, Finance Minister Tharman Shanmugaratnam warned that the Government would not hesitate to use every tool at its disposal in a calibrated fashion to prevent another boom.

Said Ms Sai: ‘People are still keen to buy, but they have become more cautious since there has been a strong word from the Government that there is no need to panic as there is enough supply.’

At Colliers International, deputy managing director of agency and business services Grace Ng said it had received fewer inquiries about properties put up for auction since the government announcements.

The number of auction deals has also fallen since prices have risen, she said.

‘At the beginning of the year, sellers were asking for prices above valuation, and buyers couldn’t get bank support,’ she said. ‘Now, they are asking for prices at valuation level, but values have since gone up, so there is some resistance.’

With the slowdown in the market, buying activities might pick up only next year, industry observers said.

The new launch market is fairly quiet too, with the exception of the posh Marina Bay Suites, which will hold a private preview on Wednesday.

The launch of the 99-year leasehold project – by a consortium made up of Keppel Land, Cheung Kong Holdings and Hongkong Land – has been delayed for nearly two years because of the global crisis. It has 221 large units (three- and four-bedders). The developers have not disclosed the prices.

CBRE’s executive director for residential properties, Mr Joseph Tan, said Marina Bay Suites is likely to be the last major condo launch this year.

Source : Sunday Times – 22 Nov 2009

Posted in Auctions, General, Market Reports | Tagged: , , | Leave a Comment »

« Previous Entries