Even though the Total Debt Service Ratio (TDSR) and lowered Loan to Value (LTV) ratio have been implemented for more than a year, I believe the full impact of the measures have yet to surface.
Why?
From the run up in the property market from 2009 to 2013, in the absence of the two measures mentioned above, investors can over-leverage and buy multiple properties. Furthermore banks were dangling attractive interest rates to borrowers with typical lock-in periods of two and three years.
Those who were lucky to refinance before the measures can breathe easy for a while. For those who committed to a purchase from 2011, they will have to grapple with refinancing, easing rentals and the Seller's Stamp Duty (SSD) when the lock-in period ends and the development achieves its temporary occupation permit (TOP).
Borrowers with multiple loans will encounter difficulty refinancing with another bank as they have to meet the TDSR and LTV ratio. Even if they want to sell, they will need to pay SSD. If they hold, they might not be able to rent out the property at their desired rent (if they can find a tenant) to pay the mortgage. Effectively these people are at the mercy of the banks who can increase the interest rates.
Which brings me back to the title of the post - retirees. I know of retirees who depend on their property investments and other investments for passive income. The passive income may not be viewed favourably by banks and can be subjected to hairline cuts when re-assessing the repayment ability in the wake of the two measures. Some retirees might be forced to sell because they either cannot refinance or they face higher mortgage payments exceeding the rental collected on their property(ies).
One retiree is trying to offload his property at 20% below the last transacted price. The measures can deprive them of passive income in their golden years. Can they ever get back into the property market? Unlikely unless they do not take a loan as I do not see the two measures removed because they encourage financial prudence.
There will be more fire-sales coming up whether by retirees or speculators. Already I see owners trying to sell their completed properties of less than ten years for less than $1,000 psf. And these are in the city fringe areas.
Many investors are raring to go but held back because of the additional buyer's stamp duty (ABSD). When this tax is removed, transaction activity in the market is going to spike.
Monday 15 December 2014
Tuesday 7 October 2014
How High Can EC Prices Go?
Last week I discussed about the high return rate among Executive Condominium (EC) buyers. Today I shall look at how high can an EC unit on a per sq ft (psf) basis be priced.
The latest EC project to open for e-applications or e-Apps is Lake Life at Taman Jurong. On 6 Oct 2014, it was reported that 1,200 applications was submitted for the 546-unit project. The strong turnout was no doubt aided by the Government plans for the Jurong Lake district.
But what was eye-popping was the psf quoted for the EC project. At $880-$890 psf, this will be the most expensive EC project to-date.
Source: Lake Life e-brochure, news reports, Real Property Advisory Singapore
Can a family with an income ceiling of $12,000/mth afford the EC?
For a couple age 30 years, their affordability would look like this:
Source: Real Property Advisory Singapore
For a HDB upgrader, with more equity on hand, their affordability would look like this:
Source: Real Property Advisory Singapore
Looking at the numbers above, theoretically the developer can price their project at above $1,000 psf if there is no mortgage service ratio (MSR) and maximum loan tenure limit.
To afford the most expensive unit, the family has to have plenty of liquidity so as to fulfill the MSR.
Whatever it is, the applicants will be busy calculating how much cash they can afford to put for the downpayment so that they can catch the potential upside from the rejuvenation of Jurong Lake district.
The latest EC project to open for e-applications or e-Apps is Lake Life at Taman Jurong. On 6 Oct 2014, it was reported that 1,200 applications was submitted for the 546-unit project. The strong turnout was no doubt aided by the Government plans for the Jurong Lake district.
But what was eye-popping was the psf quoted for the EC project. At $880-$890 psf, this will be the most expensive EC project to-date.
| Type | Size (sf) | Quoted Price Range (psf) | Estimated Price (Top Range) |
| 5 bedroom | 1,604-1,711 | $880-$890 | $1.42-$1.52 million |
| 4 bedroom | 1,195-1,701 | $880-$890 | $1.06-$1.51 million |
| 3 bedroom | 1,023-1,711 | $880-$890 | $0.91-$1.52 million |
| 2 bedroom | 743-969 | $880-$890 | $0.66-$0.86 million |
Can a family with an income ceiling of $12,000/mth afford the EC?
For a couple age 30 years, their affordability would look like this:
| Household Income | $12,000/mth | $10,000/mth | $8,000/mth |
| Mortgage Service Ratio (30%) | $3,600 | $3,000 | $2,400 |
| Total Debt Servicing Ratio (60%) | Pass | Pass | Pass |
| Loan Tenure | 30 years | 30 years | 30 years |
| Interest | 1.50% | 1.50% | 1.50% |
| Loan Amount | $1.04 million | $869,000 | $695,000 |
| Purchase Price (80% loan) | $1.30 million | $1.09 million | $869,000 |
| Size of 3 bedroom | 1,023 sf | 1,023 sf | 1,023 sf |
| Maximum psf | $1,271 | $1,065 | $849 |
For a HDB upgrader, with more equity on hand, their affordability would look like this:
| Household Income | $12,000/mth | $10,000/mth | $8,000/mth |
| Mortgage Service Ratio (30%) | $3,600 | $3,000 | $2,400 |
| Total Debt Servicing Ratio (60%) | Pass | Pass | Pass |
| Loan Tenure | 20 years | 20 years | 20 years |
| Interest | 1.50% | 1.50% | 1.50% |
| Loan Amount | $745,000 | $620,000 | $497,000 |
| Purchase Price (70% loan) | $1.06 million | $886,000 | $710,000 |
| Purchase Price (60% loan) | $1.24 million | $1.03 million | $828,000 |
| Size of 3 bedroom | 1,023 sf | 1,023 sf | 1,023 sf |
| Maximum psf (60% loan) | $1,212 | $1,007 | $809 |
Looking at the numbers above, theoretically the developer can price their project at above $1,000 psf if there is no mortgage service ratio (MSR) and maximum loan tenure limit.
To afford the most expensive unit, the family has to have plenty of liquidity so as to fulfill the MSR.
Whatever it is, the applicants will be busy calculating how much cash they can afford to put for the downpayment so that they can catch the potential upside from the rejuvenation of Jurong Lake district.
Thursday 2 October 2014
High Return Rate Among Executive Condominium Buyers - No Cause for Concern
Early last month, The Straits Times ran an article on high return rate among Executive Condominium (EC) buyers. Reasons given range from inability to secure loan, lower mortgage servicing ratio (MSR), cancelled marriage plans and so on.
Based on my experience, returning units due to financing issues and not meeting Minimum Occupation Period (MOP) is highly unlikely.
When I registered my application or e-Apps for Lush Acres on 14 July 2013, I have to submit my income statement. If you exceed the maximum income ceiling of $12,000 a month, you cannot register your application.
If I am an existing home owner, the agent will ask me to login to MyHDBPage and check whether I have fulfilled the five years MOP.
As for loans, there are bank staff around to assist. Furthermore there is usually a one month period after e-Apps before you are invited to select an unit (I was invited to select an unit on 17 August 2013 but I opt not to). This period is long enough for you to determine your maximum loan for the unit.
The more likely reasons could be cancelled marriage plans (but I have heard of people not cancelling the agreement and find another spouse over the next three years), loss of income and perhaps jitters over the current property market conditions.
So buyers could have chose to give up the purchase because they think prices will ease further down the road.
My advice is don't give up the purchase. EC prices are unlikely to ease. Simply because of the 15 months rule imposed by the Government. This has unwittingly created a period where there are no launches of EC projects resulting in pent up demand. But down the road, the property market is expected to stabilise.
That being said, I feel that the application rate for new EC projects are likely to hover around 2 as there is a steady supply of Build-to-Order flats and softness in the HDB resale market.
Next I will explore how much higher can a developer price their EC projects.
Based on my experience, returning units due to financing issues and not meeting Minimum Occupation Period (MOP) is highly unlikely.
When I registered my application or e-Apps for Lush Acres on 14 July 2013, I have to submit my income statement. If you exceed the maximum income ceiling of $12,000 a month, you cannot register your application.
If I am an existing home owner, the agent will ask me to login to MyHDBPage and check whether I have fulfilled the five years MOP.
As for loans, there are bank staff around to assist. Furthermore there is usually a one month period after e-Apps before you are invited to select an unit (I was invited to select an unit on 17 August 2013 but I opt not to). This period is long enough for you to determine your maximum loan for the unit.
The more likely reasons could be cancelled marriage plans (but I have heard of people not cancelling the agreement and find another spouse over the next three years), loss of income and perhaps jitters over the current property market conditions.
So buyers could have chose to give up the purchase because they think prices will ease further down the road.
My advice is don't give up the purchase. EC prices are unlikely to ease. Simply because of the 15 months rule imposed by the Government. This has unwittingly created a period where there are no launches of EC projects resulting in pent up demand. But down the road, the property market is expected to stabilise.
That being said, I feel that the application rate for new EC projects are likely to hover around 2 as there is a steady supply of Build-to-Order flats and softness in the HDB resale market.
Next I will explore how much higher can a developer price their EC projects.
Thursday 7 August 2014
Is the Private Residential Property Market near the Bottom?
Should I buy now or should I wait?
I guess this question is on almost every Singaporean's mind. I get asked by quite a number of people: aspiring home owners, upgraders and investors. Afterall, everyone wants to buy at the lowest price.
However estimating the bottom of the market requires a very big crystal ball. Unfortunately I do not have a big crystal ball now. Unless someone wants to sponsor me a Swarovski crystal ball.
I do have a small soccer ball. A mini 2010 World Cup soccer ball - a gift from my previous company.
I shall put my head on the chopping board and attempt to guess the bottom of the market.
Let's take a look at the chart below. It shows the price index of the Singapore Private Residential Property Market. The green years are the peak in the property market and the red years are the bottom of the property market.
It appears there is a certain trend in the market. The property cycle seems to be five to six years. A property cycle is defined as either peak to peak or bottom to bottom.
Some will argue that it is only four years from 1996 to 2000 and eight years from 2000 to 2008. We must remember that the sentiments in the property market was badly shaken by the dotcom bust in 2000/2001, 911 terrorist attacks in 2002 and SARS in 2003. That led to the rise in property prices coming to a halt and staying dormant till 2004.
But nevertheless from 1996 to 2013, in a short span of 18 years, we witnessed three property cycles each averaging around six years.
If we look at the bottom of the market, it shows a time gap of between five and six years between cycles. Again, counting the time span between 2009 and 1998 which is 12 years, it is again around six years for each property cycle.
So if the past trends were to hold true, we are not at the bottom of the market yet. If anything, the earliest the market will bottom out is probably end of 2014. But a more likely scenario will be 2015.
There you have it. 2015 will be the bottom. Do your homework and assess your purchasing power before you commit to a property buy.
But please don't come after me if it did not materialise. Afterall I used a soccer ball instead of a crystal ball to peek into the future.
I guess this question is on almost every Singaporean's mind. I get asked by quite a number of people: aspiring home owners, upgraders and investors. Afterall, everyone wants to buy at the lowest price.
However estimating the bottom of the market requires a very big crystal ball. Unfortunately I do not have a big crystal ball now. Unless someone wants to sponsor me a Swarovski crystal ball.
I do have a small soccer ball. A mini 2010 World Cup soccer ball - a gift from my previous company.
I shall put my head on the chopping board and attempt to guess the bottom of the market.
Let's take a look at the chart below. It shows the price index of the Singapore Private Residential Property Market. The green years are the peak in the property market and the red years are the bottom of the property market.
It appears there is a certain trend in the market. The property cycle seems to be five to six years. A property cycle is defined as either peak to peak or bottom to bottom.
Some will argue that it is only four years from 1996 to 2000 and eight years from 2000 to 2008. We must remember that the sentiments in the property market was badly shaken by the dotcom bust in 2000/2001, 911 terrorist attacks in 2002 and SARS in 2003. That led to the rise in property prices coming to a halt and staying dormant till 2004.
But nevertheless from 1996 to 2013, in a short span of 18 years, we witnessed three property cycles each averaging around six years.
If we look at the bottom of the market, it shows a time gap of between five and six years between cycles. Again, counting the time span between 2009 and 1998 which is 12 years, it is again around six years for each property cycle.
So if the past trends were to hold true, we are not at the bottom of the market yet. If anything, the earliest the market will bottom out is probably end of 2014. But a more likely scenario will be 2015.
 | ||||
| Source: URA / Real Property Advisory Singapore |
There you have it. 2015 will be the bottom. Do your homework and assess your purchasing power before you commit to a property buy.
But please don't come after me if it did not materialise. Afterall I used a soccer ball instead of a crystal ball to peek into the future.
Thursday 3 April 2014
Will the Buyers Return in Force for Lakeville?
Tough days are coming and developers know it. No longer are the days where you can achieve sales of more than 50% during the launch. The Santorini for one, sold only 40% or 80 units of the 200 units launched for sale.
Analysts blamed the Total Debt Servicing Ratio (TDSR) for the quieter market. But I would say most of the demand has been soaked up. The TDSR helped to arrest price increases and return some sanity to the market.
More effort and even greater product differentiation is needed to move units. An article by Business Times on Tuesday (see below) highlighted that developers are spending or doing more marketing to sell their projects. Some examples are listed below.
I have seen more TV ads placed by one of the largest developers in Singapore. Another foreign developer even invited the public to name their executive condominium project - not one but two.
All eyes are on Lakeville now which is expected to be launched soon. The developer said the average selling price is between $1,250 to $1,350 psf on balloting day. If sales disappoint, the negativity will hit the market and perhaps trigger even lower prices for other projects yet to be launched.
Analysts blamed the Total Debt Servicing Ratio (TDSR) for the quieter market. But I would say most of the demand has been soaked up. The TDSR helped to arrest price increases and return some sanity to the market.
More effort and even greater product differentiation is needed to move units. An article by Business Times on Tuesday (see below) highlighted that developers are spending or doing more marketing to sell their projects. Some examples are listed below.
- Seminars
- Multiple estate agencies
I have seen more TV ads placed by one of the largest developers in Singapore. Another foreign developer even invited the public to name their executive condominium project - not one but two.
All eyes are on Lakeville now which is expected to be launched soon. The developer said the average selling price is between $1,250 to $1,350 psf on balloting day. If sales disappoint, the negativity will hit the market and perhaps trigger even lower prices for other projects yet to be launched.
Tuesday 11 March 2014
New Resale Rules Do Not Change the Resale Market at All!
The Ministry of National Development (MND) announced a new set of procedures for the HDB resale market on 10 March 2014. See below.
But does it change the resale market at all?
My stand is no.
Another reason why HDB is changing the whole procedures is probably because it is taking longer than three months for some HDB flats to be sold. Valuation reports are only valid for three months and sellers have to request for another valuation report.
But does it change the resale market at all?
My stand is no.
HDB is merely shifting the valuation report to a later stage and perhaps avoid the situation of sellers requesting for a new valuation report (some sellers are unable to sell their flats for more than three months despite offering to go below valuation). However buyers and sellers can still call any HDB appointed valuer and request for an indicative valuation (with no liability on the valuer). But at the end of the day, the valuer might not be the one who carries out the valuation. Seasoned real estate salespersons can also advise buyers and sellers on the value. It really depends on whether buyers and sellers want to use the published HDB prices, the indicative valuation or real estate salesperson's advice since either value is not confirmed/endorsed by HDB.
This practice of requesting for a valuation report after an option has been granted in the private property market has in most instances seen valuers matching the agreed price. If the same situation is to happen in the resale market where valuers match the agreed price, it serves to stop the slide in HDB resale prices.
Another reason why HDB is changing the whole procedures is probably because it is taking longer than three months for some HDB flats to be sold. Valuation reports are only valid for three months and sellers have to request for another valuation report.
 |
| Source: MND |
Thursday 30 January 2014
Are Private Property Prices Really Falling This Time?
The URA Private Property Price Index (PPI) registered a decline in the last quarter of 2013. Analysts are saying again that prices are starting to ease. They said that in 2012 Q1 when the PPI eased 0.1%. But the PPI rose in 2012 Q2, confounding many.
So is the fall in PPI for real this time?
My take is YES.
Let's take a look at the table below. In 2008 Q3, flash estimates showed a 1.8% decline in PPI. This accelerated to -2.4% when the actual figures were released one month later. This increased expectations that prices will fall further which was proven in 2008 Q4.
In 2012 Q1, the flash estimates and actual figures were the same. What happened in 2012 Q2? The PPI rose instead of falling further.
This time in 2013 Q4, the actual PPI fell more than the flash estimates. This has raised expectations that prices will continue to ease in 2014 which I also believe so.
Source: URA, Real Property Advisory
So is the fall in PPI for real this time?
My take is YES.
Let's take a look at the table below. In 2008 Q3, flash estimates showed a 1.8% decline in PPI. This accelerated to -2.4% when the actual figures were released one month later. This increased expectations that prices will fall further which was proven in 2008 Q4.
In 2012 Q1, the flash estimates and actual figures were the same. What happened in 2012 Q2? The PPI rose instead of falling further.
This time in 2013 Q4, the actual PPI fell more than the flash estimates. This has raised expectations that prices will continue to ease in 2014 which I also believe so.
|
Period
|
Flash Estimate
|
Actual
|
|
2008 Q3
|
-1.8%
|
-2.4%
|
|
2008 Q4
|
-5.7%
|
-6.1%
|
|
2012 Q1
|
-0.1%
|
-0.1%
|
|
2012 Q2
|
0.4%
|
0.4%
|
|
2013 Q4
|
-0.8%
|
-0.9%
|
The key point to note is if the actual figures were higher/lower than flash estimates, the chances of the PPI continuing in the same direction is higher. ie. if the actual figure is lower than flash estimates, the next quarter is likely to be lower.
In 2014 Q1, we have already seen property launches at prices equal or even lower than comparable projects in the same area. Even land bids for executive condominium sites are tempered. This means that developers are managing their costs in case property prices fall further.
Whatever it is, we will know how property prices fare in two months time.
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