Real Estate Blog - Singapore Property Market

Singapore’s property market presents plenty of buying opportunities for institutional investors now that it has cooled somewhat.

Buyers waiting for a major price correction will be disappointed.

The Government’s measures to boost Singapore’s population could prop up demand for property and support prices.

So far, no recent transactions by institutional investors have reflected a repricing in the market.

Sellers here have become more realistic and lowered their expectations.

More investors are coming back to look at properties that may have previously been overpriced but are now open to negotiation.

Currently, there are many more people interested in selling Singapore properties than in buying them.

Now, growth funds and some opportunistic investors are pulling out of the plateauing Singapore market, at a time when owners - including banks, foreign firms and opportunistic funds - are becoming more willing to sell.

Interest in Singapore properties remains high, however, especially in the logistics and industrial market.

Commercial assets in Singapore are also in demand to some extent, but the residential sector is likely to turn in a weak performance in the investment market this year.

While repricing is not an apparent risk in Singapore’s property market, the Asia-Pacific region is facing an average repricing of 25 to 100 basis points, or 0.25 per cent to 1 per cent.

Recently, the cheap cost of borrowing, a result of interest rates heading south, has led to more home owners opting to refinance their mortgages to enjoy savings.

Mortgage consultancy portal www.HousingLoanSG.com has seen a surge of at least 50 per cent in refinancing activities.

At HSBC, the volume of refinancing applications has grown more than 50 per cent in the last three months.

The reason for this trend is the big drop in the Singapore Interbank Offered Rate (Sibor) in the last 18 months from as high as 3.5 per cent to about 1.2 per cent currently.

Sibor is the benchmark rate used by banks to determine mortgage rates for home loans. It is the cost at which banks borrow funds from one another.

The drop in Sibor means that those who took up a housing loan one to two years ago are likely to enjoy significant interest savings if they refinance now.

Refinancing should be considered only when there are no plans to sell the property in the short term so as to avoid paperwork and potential costs.

Pegged rates versus fixed rates

With Sibor falling steadily, it is not surprising that many customers are opting for new Sibor-linked packages or refinancing from a fixed-rate package to a Sibor one.

Still, some customers are confused when faced with a choice of a three-month or a 12-month Sibor-pegged home loan package.

Choosing the 12-month Sibor-pegged package is as good as fixing the interest rate for a year.

Customer enjoys greater certainty or lower volatility with a 12-month Sibor package than a three-month package.

However, the 12-month Sibor rate is typically 0.5 per cent higher than the three-month Sibor = thus equals paying out more interest.

New home loan packages

MortgageOne Sibor

Standard Chartered Bank’s (Stanchart) newly launched MortgageOne Sibor will appeal to those with excess cash.

It comes with an offset feature so that customers can use the interest earned on their deposits to reduce the interest payable on their home loans.

MortgageOne Sibor loans are priced at 0.8 per cent per annum above the three-month Sibor for the first three years.

Customers can enjoy the same interest rate as their mortgage loan on two-thirds of the deposits linked to their loans, subject to a maximum of their outstanding loan amount. The remaining deposits will enjoy an annual rate of 0.5 per cent.

At the same time, they have the flexibility to withdraw their deposits at any time.

Interest-only loans

Some mortgage packages like the DBS Bank’s new interest-only mortgage product launched early this month appear attractive, but experts cautioned that they are not suitable for everyone.

The product allows customers to pay only the interest for the entire duration of their home loan.

The principal amount is payable in one lump sum only at the end of the loan tenure.

The money that would otherwise have formed the principal component of the loan instalments would be available to the customer for investing.

Based on a rate of 3 per cent, a $1 million loan with a 25-year tenure would have a monthly instalment of $4,486.

Of this, $2,083 is paid towards the principal and would thus be available to the customer to meet other needs if he opts for interest-only servicing.

But here’s the potential pitfall. If the customer invests wrongly or, worse still, has no discipline to save and invest, the amount would be frittered away and he still has a loan to pay.

Go for an interest-only loan only under the following situations:

• intention to buy multiple properties and would like to pay only the loan interest and keep every cent possible;
• other alternatives to invest at higher returns; or
• cashflow is very tight.

Consider such a loan package if buying an investment property.

Home owners who opt for such a product would end up paying more interest in the long run compared to conventional loan packages where both the interest and principal components are paid up regularly.

You might end up in financial trouble in the event that property prices correct by say over 20 per cent and plunge him into negative equity.

DBS imposes certain restrictions such as allowing home owners to borrow only up to 70 per cent of the property purchase price.

Singapore’s hottest retail spots

1: Ion Orchard

Location: Being built at the corner of Orchard Road and Orchard Turn

Top rental range: $60 to $80 per sq foot (psf) per month

Star tenants: Six double-storey stores totalling 50,000 sq ft, including luxury fashion brands Prada, Louis Vuitton and Cartier

2: Wisma Atria

Location: On Orchard Road between Ion and Ngee Ann City

Top rental range: $55 to $70 psf

Star tenants: Double-storey Nike concept store, totalling 8,000 sq ft, which has taken over the former Topshop space.

3: Mandarin Gallery

Location: At the corner of Orchard and Bideford Roads

Top rental range: $50 to $60 psf

Star tenants: Double-storey stores, ranging from 2,700 sq ft to 6,800 sq ft, for Emporio Armani, Marc by Marc Jacobs and D&G.

4: Ngee Ann City

Location: At the corner of Orchard and Bideford Roads

Top rental range: $40 to $60 psf

Star tenants: Luxury giants Chanel and Louis Vuitton on the first floor. They are due to expand into double-storey spaces, or duplexes, over the next two years - Chanel into a 7,000 sq ft store and Louis Vuitton into a 10,500 sq ft one.

5: Paragon

Location: At the corner of Orchard and Bideford Roads

Top rental range: $40 to $60 psf

Star tenants: Four duplexes facing Orchard Road, ranging in size from 3,600 sq ft to more than 10,000 sq ft, to be occupied by luxe labels Gucci, Salvatore Ferragamo, Prada and Tod’s.

Withdrawal of 1998 Off-Budget Concession on Stamp Duty Deferment

A concession to defer Stamp Duty payment on all contracts was introduced in June 1998 as part of the off-budget measures to cushion the impact of economic slowdown. The concession allows property buyers to pay the Stamp Duty at a later date. For newly constructed properties, the due date is the date of Temporary Occupation Permit (TOP). For completed properties, the payment is due when the property sale is completed.

The Government has decided to withdraw the concession with immediate effect (from 15 December 2006) as the economic conditions and the property market have improved.

With the withdrawal of the concession on 15 December 2006, the normal treatment would apply, that is, a property buyer is required to pay Stamp Duty within 14 days from the date of acceptance of the Option to Purchase.

However, buyers who have accepted their Options to Purchase before 15 December 2006 are not affected by the new rule. They would continue to enjoy the Stamp Duty deferment concession.

As a transitional measure, buyers who accept the Option to Purchase or sign the Sale & Purchase Agreement between 15 and 31 December 2006, will have up till 14 March 2007 to pay the Stamp Duty without any penalty.

These buyers are required to complete and send a prescribed form to the Commissioner of Stamp Duties within 14 days after accepting the Option to Purchase or signing the Agreement. The form is available at IRAS website.

Marina Bay Residences at the new Business Financial Centre (BFC) has achieved S$3,400 per sq ft for two of its single-level penthouses.

The monumental benchmark set by this 99-year leasehold project has even surpassed that of freehold properties such as St. Regis and Ardmore Park / Ardmore II.

Response has been so good that the upcoming launch, originally scheduled for this Friday, has had to be cancelled as ALL UNITS HAVE BEEN SOLD OUT!

Our heartiest congratulations to BFC Development on the thunderous success for the Marina Bay condo project.

Now … to see if units at other nearby developments (THE SAIL, ICON Condo) are able to capitalise on this huge demand for marina bay-front properties.