Tags: eco / home loan / housing loan / riversails / sky miltonia

Business as usual despite new housing loan restrictions!

- October 8, 2012 11 Comments

According to reports, more than 300 units have been sold at Allgreen Properties' 920-unit Riversails, with at least 20 homes sold over the weekend. Prices of the larger units average slightly over $800psf while the one-bedroom units average $1,000psf.

The larger units (three-bedrooms and above) at the 99-year project have been doing well, with quite a few sold to upgraders. Three out of the five stacks of one-bedroom units launched have been sold.

Over at Sky Miltonia, 67% of units at this 420-unit have found buyers. The developer is offering an 18% discount and throwing in the option for buyers of certain units to upgrade their flooring to marble.

The 748-unit eCO in Bedok South has thrown in an additional 2% furniture voucher in addition to an array of discounts offered.

According to our central bank, the average tenure for new residental property loans jumped from 25 years to 29 over the last three years. Over 45% of the new home loans have tenures exceeding 30 years.

Lower initial monthly repayments from long loan tenures and low interest rates may cause borrowers to overestimate their loan servicing ability, says MAS (The Monestary Authority of Singapore).

Our blog posting on the new housing loan restrictions have generated a fair amount of discussion between our readers (which the wife and I are extremely pleased, as it is another small indication that  people actually read our blog). A few have expressed the opinion that the new restrictions will have little to no impact on demand. But if it is indeed true that over 45% of the current new home loans are more than 30 years, we believe that the "penalty" imposed on loan tenures that exceed 30 years will have a significant effect on demand going forward. Already units at new launches are not flying off the shelves as they used to be just a couple of months ago.

While we cannot claim to be a representative sample, the new restrictions have effectively put us out of the market for a second property - the longest tenure that the wife and I can qualify for a new housing loan is about 20 years, else we be hit with the new LTV ratio of 40% of the property value should we decide to extend the loan period beyond the retirement age of 65 years.

And we are pretty sure that we are not alone in this predicament.

Having said that, the fear of potential (especially younger, first-time) buyers being lulled into complacency by the combination of lower initial monthly repayment with a longer loan tenure and low interest rates are very real indeed. We were once guilty of such back in our early days of property venture, and it took a bout of rising interest rates to jolt us back to reality...

Tags: housing loan

End of the road for them 50-year housing loan...

- October 5, 2012 13 Comments

The Monetary Authority of Singapore (MAS) will restrict the tenure of loans granted by financial institutions for the purchase of residential properties, effective from 6 October.

MAS' move is part of the government's broader aim of avoiding a price bubble and fostering long-term stability in the property market.

The maximum tenure of all new residential property loans will be capped at 35 years.

In addition, loans exceeding 30 years' tenure will face significantly tighter loan-to-value (LTV) limits.  (* We understand from tonight's news report that the new ratio will be 60% for first property and 40% for all subsequent proporties *)

The new rules will apply to both private properties and HDB flats.

"Over the last three years, the average tenure for new residential property loans has increased from 25 to 29 years. More than 45% of new residential property loans granted by financial institutions have tenures exceeding 30 years," MAS said.

"The new rules aim to curb continued upward pressure on residential property prices, driven by low interest rates and rapid credit growth," the central bank added.

Previous rounds of measures have had a moderating effect on residential property prices. There is also significant supply of housing that will come onto the market over the next two years.

However, prices in both the HDB resale market and private residential property have continued to rise in Q2 and Q3 of 2012.

Private home prices rose 0.5% in the third quarter from the April-June quarter, when prices increased by 0.4%, while HDB resale prices gained 2.0% quarter-on-quarter following an increase of 1.3% in April-June.

Source: Channel News Asia

Tags: home loan / housing loan

50-year housing loan: Down the Californian road?

- August 14, 2012 1 Comment

Longer mortgage tenures could have adverse implications for the property market, borrowers and banks if it becomes more widespread.

Deputy Prime Minister Tharman Shanmugaratnam gave the assessment in a written reply to Parliament on Monday.

He added that the government will continue to closely monitor the property market.

Stretching a home loan out over 50 years does translate to a lower monthly instalment. But this is just an illusion of affordability.

Mr Tharman said that the borrower ends up paying more interest. The repayment period could also stretch past the retirement age, when the borrower may no longer have a steady income stream.

According to analysts, the higher interest rate on a longer term loan would mean that loan repayment can be easily be 20% more in the long run, compared to taking a 30-year loan.

The government said it will monitor mortgage tenure in the context of how banks structure their mortgage products, as well as banks' underwriting standards.

Still, analysts said the government is wary such loans could fuel speculative buying and undo its efforts to cool the property market.

Alfred Chan, director, Financial Institutions, Fitch Ratings, said: "Had property prices not been where they are, let's say (if) they were to be increasing at a more moderate pace, I think affordability wouldn't be an issue and banks wouldn't need to go out that aggressively to offer 50-year loan tenors."

Analysts added that the move to offer 50-year tenor loans also reflects the stiff competition among banks.

Loan yields in Singapore are at 2% compared to emerging markets like Indonesia, with 6%.

Timothy Kua, director, SmartLoans.sg, said: "I don't think the property market has cooled very significantly. It is still fairly healthy and UOB's 50-year loan tenor is probably more of an inter-bank competitive move to try and win over a bigger chunk of the mortgage market."

The government said its cooling measures in recent years have helped reduce the risk of a sharp escalation in property prices.

Still, it has cause for concern.

Fifty-year tenor loans first appeared six years ago in California, driven by sky-rocketing home prices.

California now has the second-highest foreclosure rate in the United States as of last July. According to reports, its foreclosure rate is one in every 239 households.

Source:  Channel News Asia

It seems that whenever property prices are shooting through the roof, 50-year tenor loans start to surface. This happened not only in California but Japan and Spain as well... which eventually contributed to bursting the housing bubble in each case.

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Tags: home loan / housing loan

Singapore Homebuyers: Shorter term mortgage preferred!

- July 24, 2012 1 Comment

Homebuyers in Singapore will likely opt for mortgage loans with shorter repayment periods.

That's despite the availability of new home loans that offer up to 50-year tenors.

Experts said more are taking into account their retirement age and interest costs when servicing their loans.

Serene Loong and her husband took a $760,000 home loan when they upgraded to a two-storey, three-room private apartment at Upper Serangoon in 2005.

With a 35-year home loan they got from DBS Bank, the couple was paying $2,000 in monthly repayments.

That loan has since been refinanced to 28 years with another bank, and monthly payments have come down to $1,800 at a lower interest rate of 1.88%.

"I definitely was taking into account the affordability, as well as when I would retire," said Loong, who is the founder of website www.reallifetheory.com.

She added: "I wouldn't want to be servicing a home loan after retirement because I think there will be other expenses that I might have to take care of like medical expenses, etc."

So far, Singapore banks are offering home loans with a maximum term of 35 to 40 years with age capped at 70 to 75.

UOB has come up with a first by offering home loans that stretches repayment to 50 years and a maximum age of 80.

UOB said that for the maximum tenor of 50 years, the requirement is to have at least 35 years remaining on the lease for leasehold property and no more than 80 years of age at end of loan tenor.

Still, some market players said such loans may be more suited for investors.

Dennis Ng, who is the founder of mortgage consulting firm HousingLoansSG.com, said: "A longer loan repayment period may make sense for investors because the investor is always looking for return on investment. So the less capital they put into the property, the higher their return."

For ordinary home buyers, experts said they should tailor their loan repayment period to the age they want to retire.

DBS Bank's head of deposits and secured lending, Ms Lui Su Kian, said: "The average loan period we are seeing now for customers is about 30 years. In general, I think, especially in Asia, we do see that our customers are prudent when it comes to managing their mortgage, so most of them do not stretch out to the maximum period."

While a 50-year tenor may reduce monthly repayments, experts said interest could push the loan's amount by up by 15 to 20%.

For example, a $1 million loan at 50 year tenor will total to $1.45 million by the end of its term - much higher compared to the 1.3 million principal and interest if the loan was taken up at a 35-year tenor, according to DBS.

And comments from Channel NewsAsia's Facebook page show most buyers are averse to half a decade loans, with some saying 25 to 30 years is their threshold.

HousingLoansSG.com, which sees 20 to 30 enquiries a day, said around 70% of its clients opt for 25 to 30-year loans, while 15% go for the 30 to 35 year loans. The rest prefer terms of less than 25 years.

"If you have problems paying the installment right now when you are much younger and your income is much higher, I think you will have a bigger problem as you age," said Mr Ng.

Ms Lui said: "In this current interest rate environment, where interest rate is relatively low, we actually encourage our customers to try to shorten the loan period based on their affordability. Because rates are low, you can actually pay down as much as you can."

Ms Phang Lah Hwa, Head of Consumer Secured Lending at OCBC Bank said customers generally take up to the maximum loan tenor as they can repay or make capital repayment along the loan tenor.

"Shorter loan tenors are typically taken up due to the age of borrowers or by those who have the funds to service a higher monthly commitment," she added.

Mr Harmander Mahal, Head of Customer Value Management at HSBC Singapore, said: "We observe that customers who take up housing loans with longer tenor (30 to 35 years) tend to be younger in the age group of 35 years old and below.

"They are usually financing the purchase of their first homes and therefore, prefer to stretch their repayments over a longer period so that they can pay lower and more affordable monthly instalments."

HSBC said its housing loan portfolio has seen double-digit growth over the last five years with an increase in market share.

In its 2011 annual results, residential mortgages have increased 21% in value year-on-year for 2011 compared to 2010.

Source: Channel News Asia

Coincidentally the wife and I have just made a partial repayment on our home loan. And we have chosen to reduce the loan tenure instead of the monthly repayment amount. So the cat's ouuta bag... we do not belong to the age group of 35 years and below!

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