Ease cooling measures? Too early, says MAS

The property market may be stabilising but it is still “too early” to ease the cooling measures that were introduced in recent years, the Monetary Authority of Singapore (MAS) said on Thursday (July 24).

This is because home prices remain elevated while global interest rates are at historical lows, MAS Managing Director Ravi Menon said.

Speaking at the release of MAS’ annual report for the 2013/14 financial year on Thursday (July 24), Mr Menon said property prices have risen 60% over the last four years but have declined by just 3.3% over the last three quarters.

He also said relaxing property measures at a time of low interest rates may set off another spiral of price increases.

Some Singapore households remain highly leveraged, and they would need time to reduce their debt levels, he added.

Mr Menon said the measures introduced to cool Singapore’s housing market can be divided into two categories – structural measures such as the total debt servicing ratio which are meant for the long term, and cyclical measures such as loan-to-valuation limits and stamp duties that can be “recalibrated according to market conditions”.

On the whole, it would be premature to ease property cooling measures now as it was important to secure the gains made in stabilising the market and restoring financial prudence.

Source: CNA

June new private home sales plunge 68%

Looks like someone beat us to this…

Sales of private homes by developers in Singapore fell by about two-thirds in June from May, hurt by ongoing Government measures to cool the housing market.

Data compiled by the Urban Redevelopment Authority (URA) on Tuesday (July 15) showed developers sold 482 units in June, down 68% from May when sales of 1,488 units were booked.

The bulk of the sales involved homes located outside the central region, with 269 units changing hands. Another 46 sales were made in the central region, while the rest of central region accounted for 167 units, the URA data revealed.

Coco Palms at Pasir Ris Grove was the top selling project of the month with 55 out of the 100 units launched snapped up at a median price of $1,014psf.

The Panorama at Ang Mo Kio, which was re-launched at a lower price in May, moved another 49 units at a median of $1,287psf, making it second best-selling project in June.

Info source: CNA

The wife and I would like to offer another possible explanation for the dismal June sales:

 

No property market crash, says DPM

Home prices in Singapore may have been moderating for several straight quarters now, as cooling measures introduced by the Government continue to take effect.

However, while taking questions at the DBS Asian Insights Conference, Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam said the cycle is “not over”.

“Market players will determine where the cycle goes. I don’t think the industry will crash, because we moved early enough, and we moved each step of the game, knowing full well that what we do may not be enough, but knowing too well that if we did too much, it may engineer a crash,” said Mr Tharman.

“So we moved step by step, but we started early, so we avoided a huge bubble. That’s why we won’t see a crash. But I think further correction would not be unexpected.”

Since 2009, the Government has implemented several rounds of measures to cool the property market. These include buyer’s and seller’s stamp duties as well as loan curbs like the Total Debt Servicing Ratio framework. The supply of new HDB flats has also been ramped up to meet demand. Together, these measures have curtailed increase in home prices.

The latest flash estimates from Urban Redevelopment Authority showed that private residential prices fell 1.1% in the second quarter of this year – the third consecutive quarter of decline.

The government has said recently that it is too early to relax the property-cooling measures.

Source: CNA

 

How much must market prices fall in a year before it is deemed a “crash”? The wife and I understand that there is no official definition, but analysts typically consider a price correction of 5 to 10% as a “soft landing”, while a drop of 15 – 20% is termed a “hard landing”. So we reckon market prices must plunge some 25% or more before we can start mouthing the C word.

And the YTD 2013 top foreign buyers are…

Mainland Chinese investors topped the list of foreign buyers of private property in Singapore from January to October.

They view Singapore as a favourable property investment destination despite the latest rounds of property cooling measures like the raising of the Additional Buyers’ Stamp Duty (ABSD).

According to numbers compiled by OrangeTee Research, 34% of foreign property-buyers (excluding permanent residents) in Singapore this year were from China.

Indonesians formed the second largest group of foreign condo-buyers with 32% while Malaysians took the third place with 13%.

The US came in fourth with seven per cent and India ranked fifth with two per cent.

US buyers do not have to pay the 15% ABSD imposed on foreigners buying private property. This is because of clauses in the free trade deal that the country has with Singapore.

In December 2011, foreign buyers (excluding PRs) must pay 10% ABSD. In January 2013, this was raised to 15%.

While cooling measures have slowed transaction activity, the proportion of foreign property buyers has crept up.

In the first nine months of this year, foreigners (excluding PRs) make up nine per cent of all condo buyers, compared to about eight per cent in 2012.

But some foreign buyers, including those from China, have turned their attention to other property segments.

OrangeTee’s research head, Christine Li, said: “Over the last one year or so, I think because of the high ABSD levied on the residential property market, we did see some China buyers shifting their attention to industrial as well as commercial properties in Singapore.

“Going forward we expect this trend to continue because 15% ABSD is quite hefty on high-end homes.”

Analysts say the strength of the Chinese yuan relative to regional currencies could mean mainland Chinese investors will continue to make up the bulk of foreign property buyers in Singapore.

Source: Channel News Asia 

DBS Interest Guard: Want to know more?

The good folks at DBS have sent us details of their latest “Interest Guard” product. They have also thrown in details of their “Hybrid” mortgage products for good measure 

So for those seeking peace of mind on their mortgage interest rates…

DBS LAUNCHES INTEREST GUARD TO HELP
HOMEOWNERS MANAGE RISING INTEREST RATES

 

***

DBS Bank today introduced a first-of-its kind mortgage offering to protect homeowners against rising interest rates. DBS Interest Guard is an add-on to existing mortgages and caps the 3-month Singapore Interbank Offered Rate (SIBOR) at 1% for the next three years.

           
             With this offering, homeowners can enjoy peace of mind, knowing that they are protected against sudden increases in interest rates. DBS Interest Guard will benefit homeowners who may be committed to an existing mortgage programme and those for whom refinancing may not be feasible given recent regulation changes.

Lui Su Kian, Managing Director and Head of Deposits and Secured Lending at DBS Bank, said, “The best time to lock into a set of good rates is during a low interest environment, especially for longer term loans such as mortgages. We recognise that many homeowners may find it challenging to do so due to a variety of reasons, hence the DBS Interest Guard is designed to add a layer of protection against rising interest rates. With the majority of our customers purchasing homes to live in instead of as investment, this offering addresses their need for security in a fluctuating interest rate environment.”

In Singapore, property remains a key asset for many residents and represents one of the longest term financial commitments for a household. The uncertainty in the macro environment since 2008 has not stopped the growth of the property market. Instead, the low interest rate has fuelled interest in the market and contributed to the rise in property prices.

While the government and banks have taken steps to ensure that homebuyers are spending within their means, housing loans in Singapore have grown at a much faster pace than earnings. Over the last five years, the median gross monthly income for full time employed residents grew at an average of 4%. In contrast, housing and bridging loans have doubled over the last five years to SGD 152 billion at the end of 2012, or an increase of 16% year-on-year on average.

Over the last three months, the take up for DBS’ fixed rate programmes has increased by more 65% as homebuyers in Singapore sought to take advantage of the low interest rate environment.

Presently, over 70% of the bank’s customers purchase their homes for owner occupation purposes. With the average loan tenure spanning 20 years, it is prudent for homebuyers to consider their repayment ability at different life stages. For instance, a young couple’s financial commitments would be significantly different when they have children. Assuming the couple is paying 1.5% interest per annum on their $500,000 mortgage, a single percentage point increase in SIBOR could mean a $237 increase in their monthly repayments. If the couple had subscribed to DBS Interest Guard, the increase on their monthly repayments would only be $147, allowing them to set aside more money for other financial goals such as their child’s education or retirement.

While rates are not expected to increase dramatically overnight, historical data has shown that it is not inconceivable for SIBOR to increase by a few percentage points in a matter of months. At the beginning of the global financial crisis, on 26 September 2008, SIBOR increased by 0.47% in a single day. Over the last five years, SIBOR has risen as high as 3.56% in July 2006 and reached a record low of 0.34% in September 2011.

With DBS Interest Guard, homeowners can better protect themselves against rising rates for a nominal increase in their monthly repayments. There is no commitment period required for the DBS Interest Guard and homebuyers can opt to have interest rate caps of either  1% or 1.5% for the 3-month SIBOR over a protection period of two to three years. The monthly cost for adding on the protection starts as low as $5 per month for every $100,000 loan outstanding.

 

Protection period	2 Years	3 Years
Protection level for 3 month SIBOR of 1% (per $100,000 loan outstanding)	$10/month	$23/month
Protection level for 3 month SIBOR of 1.5% (per $100,000 loan outstanding)	$5/month	$18/month

 

 

 

 

 

 

             The DBS Interest Guard is also available for new DBS mortgage customers. Customers can contact the bank directly at +65 6333 0033 to determine if the DBS Interest Guard is suitable for them. For more information on DBS’ suite of flexible mortgage programmes, please see Appendix A.

Appendix A: DBS’ suite of flexible mortgage programmes

Today, besides fixed and floating rates programmes, DBS carries a variety of hybrid offerings that combine both fixed and floating rates. These are designed to cater to customers who seek both flexibility and security in knowing that their interest rate is capped:

·         POSB HDB Loan is the first floating rate programme in Singapore to provide HDB homebuyers with the security of having interest capped below HDB concessionary rates for 10 years while benefiting from the current low interest rates.

Pegged to the 3-month SIBOR, the Mortgage Rate Protector allows customers to benefit from the current low interest while remaining protected by a cap on the interest rate, in the event that interest rates go up.

·         DBS 2+2, the first-of-its-kind in Singapore, is a fixed rate programme suitable for customers who prefer more stability in their repayments. DBS 2+2 allows customer to move on to floating rates after two years if interest rates go down or exercise the option to enjoy the same fixed rates for another two years.

 

Package with MyProtector Mortgage	Year 1	Year 2	Year 3	Year 4	Year 5 onwards
POSB HDB Loan	3M SIBOR + 1.38% capped at the CPF Ordinary Account rate for the first 10 years	3M SIBOR + 1.38% capped at the CPF Ordinary Account rate for the first 10 years	3M SIBOR + 1.38% capped at the CPF Ordinary Account rate for the first 10 years	3M SIBOR + 1.38% capped at the CPF Ordinary Account rate for the first 10 years	3M SIBOR + 1.38% capped at the CPF Ordinary Account rate for the first 10 years
Mortgage Rate Protector	3M SIBOR + 1.15% capped at 1.88% for the first 3 years	3M SIBOR + 1.15% capped at 1.88% for the first 3 years	3M SIBOR + 1.15% capped at 1.88% for the first 3 years	3M SIBOR + 1.25%	3M SIBOR + 1.25%
DBS 2+2	1.78% FIXED	1.78% FIXED	1.78% FIXED or 3M SIBOR + 1.25%	1.78% FIXED or 3M SIBOR + 1.25% (if taken up in Year 3)	3M SIBOR + 1.25%

 

 

 

Interest rate hike: First the warnings, now comes the insurance…

Our de facto English newspaper has reported today that DBS has introduced a product offering to help protect home owners in case their mortgage instalments start increasing.

The DBS Interest Guard acts like an insurance policy for new and existing mortgages that are pegged to the interbank rate, which will increase if global rates rise.

The product means a borrower can cap his interest rate for a set period no matter what happens to rates in the open market.

It will cost from $5 to $23 a month for every $100,000 of the loan, depending on the form of protection.

Protection can be bought for only two or three years. After that the borrower will have to pay instalments at the new interest rate.

Customers can choose when their protection kicks in.

One option starts when the local interbank rate hits 1.5%. The more expensive option is triggered when the interbank rate hits 1%, providing a lower interest rate cap for the borrower.

So is this a case of DBS being the opportunist or as per what the Chinese says: 无风不起浪 (translated as: There’s no waves without wind)? Some of us will recognize the English equivalent as 

 

Update:

And in a separate report by our de facto Business newspaper today, the take-up rate for DBS’s fixed rate packages has increased by more than 65% as a result of home buyers’ fear of interest rate hikes.

While rates are not expected to increase dramatically overnight, historical data has shown that it is not inconceivable for Sibor to increase by a few percentage points in a matter of months.

 

At the beginning of the global financial crisis, on Sep 26, 2008, Sibor rose by 0.47% in a single day. Over the last five years, Sibor has risen as high as 3.56% in July 2006 and reached a record low of 0.34% in September 2011.

 

Mortgage serviceability: Reality versus Fantasy…

The following article contributed by Mr. Kuo How Nam appeared in the Forum page of our de facto English newspaper today.

Borrowers need reality check

THE key element determining a person’s ability to pay his mortgage is income, whether it is from employment or from rent (“One in 10 borrowers overstretched, warns MAS”; Wednesday).

Rising interest rates can be managed if there is sufficient income, and if it grows in tandem with the rate increases.

Trouble begins if this does not happen. All it takes is for one spouse to be retrenched, or go through a period of unemployment, to spark a financial crisis in the household.

The same happens if properties are unoccupied or if rents do not cover mortgage payments.

There has not been much discussion on expected rental trends. This is an important element in determining debt-paying ability, as many people have bought additional properties on the assumption that the promised rental yields are better than the returns from alternative investments.

In many cases, they will be totally reliant on rental income for mortgage payments.

But we know that there is a huge supply of completed units coming on-stream in the next couple of years. Many are in the outlying areas, and several are shoebox units or tiny apartments.

These new locations and designs are, so far, untested in the rental market. There is the real possibility, particularly with slower growth in the labour force, that these new units will go unoccupied when they are completed.

Owners will be hard-pressed to meet their payments if this happens.

Property owners need to do a reality check and evaluate their vulnerabilities in the face of such uncertainties. They need to assess their employment and job security.

Nothing is worse than being unemployed and having outstanding mortgage loans.

They need to think of alternative scenarios, such as whether they can rent out their properties, the expected interest rate increases and how these will affect their cash flow.

Lastly, they must look at what cash reserves and resources they have available to ride out a rough patch that can last several years.

If necessary, they should lighten their debts, perhaps even taking a manageable loss now as a preventive step.

+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

There has been increasing sound bites recently from both government and financial institutions about rising interest rates and how this may affect homeowners with huge mortgages. This raises concerns that the low borrowing rate environment that we have grown so accustomed to for so long may be under threat.

The property buying euphoria has grown from strength to strength over the past 5 or so years, despite seven rounds of cooling measures. However, the latest (8th) sets of cooling measures may have bruised (the wife and I wouldn’t exactly say “broken”…yet) the camel’s back finally.

While it is natural for people to want to “get in” on a bull market, many have either failed or refused to acknowledge the fact that the property market actually go in cycles and those who are over-committed or highly-leveraged will be in trouble once the market starts to turn. One does not even have to be retrenched to spike a financial crisis at home – a combination of falling prices/rental returns and interest rate spike is sufficient to cause many sleepless nights (trust us, we have been on that road before). This is made worse if you have more than 1 mortgage to service.

Many will pour scorn on our cautionary tale even as recent as last quarter of this year, but the scenario doesn’t seem as far-fetched today, given the double-whammy of a huge influx of new “for investment” apartments that are steadily coming on-stream and a much poorer rental climate.

There is this other thing that the wife and I cannot quite comprehend: whenever we spoke with people who need to “downgrade” from their current apartment due to financial constraints, the common notion is that they will be selling at a “loss” if the price they fetch is less than the price that they have bought the property for, say, 5 years ago. Few (actually NOBODY, that we have dealt with on the subject so far) will take into consideration the opportunity cost of occupancy – everyone expects to stay in their apartment “rent-free” and then made a killing off it when they want to sell. The usual “justification” is that if they cannot sell the apartment for higher than what they bought it for, they will be out of pocket and that makes any replacement purchase an even bigger challenge. We reckon this is the main reason for the big price gap seen buyers and sellers, especially during a bull market. But if the market is indeed turning, maybe sensibility will finally prevail and such disparity should become smaller? The wife and I certainly hope so…..

End of the road for "Specuvestors"..?

The level of speculative activities in the private residential market in Singapore has dropped substantially in the past few years.

Sub-sales of private residential properties hit a six-year low of 4.5% in the first quarter of 2013, according to data from the Urban Redevelopment Authority.

Analysts said sub-sales – which refer to the resale of uncompleted units – should continue to trend down in the next year.

In the past, some investors have been able to make a quick buck by flipping private residential properties.

But it has been a lot less profitable to do so after the government introduced the Seller’s Stamp Duty in 2010.

It later increased the sales tax and holding period for properties in 2011.

The moves have helped bring down sub-sales, an indicator of speculative activity, over the last three years.

Nicholas Mak, executive director of SLP International Property Consultants, said: “The number of speculative sales as a percentage of total number of sales has dropped to about the same level as 2006.

“We are seeing one of the lowest levels, you can almost say that speculation has gone to such a low level it is no longer a problem.”

From 14 January 2011, buyers who sold properties within four years of their acquisition will have to pay a tiered sales tax, with a hefty 16% levy imposed on those sold in the first year and 12% in the second year.

Units re-sold in the third and fourth year will have a Seller’s Stamp Duty of 8% and 4% respectively.

Alan Cheong, research head at Savills Singapore, said: “People are not going to pay 16%; even if you make 20%, they are not going to say I am content with a 4% gain, and lose 16% in terms of a Seller’s Stamp Duty. That will be a big turnoff for people thinking of sub-selling.”

Mr Cheong said the sub-sales segment is also losing steam because many home hunters prefer buying new units from developers at project launches.

With these measures, analysts said the average holding period of private homes has increased from six years to 10 years in the last few years.

Ku Swee Yong, CEO of International Property Advisor, said: “Speculative activities are still around, but they are outside of the residential segment now. So (this is) good news for the residential segment; it means that we can expect more price stability and less speculative activity that might bring risk to the rest of the market.

“Less speculative activity means that there are fewer investors who are stretching themselves.”

Going forward, analysts believe the sub-sales number should remain fairly low, unless there is a severe economic downturn forcing owners to sell, or if home prices run up substantially and home owners could still make a decent profit after accounting for the Seller’s Stamp Duty.

Source: Channel News Asia

Revival of private resale?

Market watchers have said the private resale property market is seeing a gradual recovery after a drop in transaction volume in the first quarter this year following the introduction of cooling measures in January.

Based on preliminary estimates, some analysts said sales could potentially double in the second quarter compared to the first quarter.

New private homes may continue to pull in the buyers, but some analysts said the resale private property market is also picking up.

Real estate agency PropNex said it has seen resale transaction volume jump 20% in April and May. Enquiries and turnout at viewings of resale units have also improved, largely because buyers believe resale properties offer better value and comparable rental yield.

Mohamed Ismail, CEO of PropNex, said: “Sky Habitat at Bishan… is $1,600 psf (per square foot). Bishan 8, opposite, goes at $1,100. In other words, when you buy a resale unit, you are going to pay lower per square foot… absolute quantum is going to be lower, which means you pay lesser ABSD (additional buyer’s stamp duty) to the government.”

SLP International Property Consultants estimates that some 3,600 to 4,300 units of both completed and uncompleted units in the resale market could change hands in the second quarter.

This is up from about 2,200 units sold in the previous quarter.

Based on caveats lodged, analysts said that about 3,500 resale units have been transacted from January to early May this year.

About two-thirds of them are “family-sized” units above 100 square metres.

They added that the resale property market is likely to see a sustainable recovery, but there are potential risks as well.

Nicholas Mak, executive director of SLP International Property Consultants, said: “If prices continue to increase and rental yields continue to be compressed, one of the risks is that if interest rates were to increase this year or next year, we could see that this would actually discourage investors, because if rental yield is compressed to such a low level, any increase in interest rates would make that investment property less attractive.”

Mr Mak said that currently, the average rental yield for private homes in Singapore hovers between 1.8% and 2.2%.

Some analysts said that prices in the resale market are catching up with prices of units in new launches. For the whole year, they said that prices of resale private properties could go up by as much as 8%, barring any additional cooling measures.

Some analysts added that the total units of resale private homes sold in 2013 should be comparable to the 15,136 transacted last year.

Source: Channel News Asia

What the report did not mention is that as more and more new developments get completed and come on stream from 2014 onwards, rental yields are likely to be further depressed even if prices of new and resale units do not increase significantly.

The wife and I feel that rental yields for both luxury apartments and smaller-sized units in suburban projects that were launched over the past 2 years are especially vulnerable with the expected large influx of new apartments into the market over the next 2 – 3 years.

Have a great weekend, everyone!

Returned condos at its highest!

The number of returned condominiums is at its highest in about a year, according to property research firm Square Foot Research.

Data shows there were 152 units returned in April. This slightly pips the previous high of 150 units returned in May 2012.

It also brings the total number of units returned for the first four months of this year to 415, about 10% higher than the same period in 2012 – there were 378 units returned in the same period last year.

Buyers who choose to return their units have to forfeit 1.25% of the property’s price.

Some analysts attribute the increase to the record high private home sales in March, where 2,793 units were sold. The government’s property cooling measures, may have also led some buyers to back out of their purchases.

Analysts added that those who made impulse buys could have also contributed to the high figure.
David Poh, senior director at PropNex, said: “Even before you view a property, you know you’ll be influenced by salespeople and advertisements. So it’s best to do your homework and financial planning, and know what you can afford before viewing a place.”

Source: Channel News Asia

 

Sign of the times…?