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18 MARCH 6 – 19, 2015
Negative Yield
Interest cost is often the largest expense as-
sociated with property ownership. Current
rental yield averages 3% – 5% across Singa-
pore’srealestatemarket.ShouldSIBOR(Sin-
gapore Interbank Offered Rate) normalise to
the historical average of 2% – 3%, with bank
spreads of about 1%, real estate investment
yield could very well fall into negative terri-
tory. This in turn reduces the attractiveness
of real estate as an asset class for investment.
TransactionVolume
With net rental yield set out to be less entic-
ing, coupled with a stricter financing frame-
work (TDSR) and government cooling
measures in place, we are likely to see a de-
cline in transaction volume. It seems like in-
vestors’focuscouldwellturntocost-control,
rather than aggressive acquisition on their
real estate portfolio.
Homeowners and real estate investors in
Singapore have long practised a review of
their mortgages every 2 – 3 years to take
advantage of promotional rates dangled
by banks to draw in new customers. Fol-
lowing the latest spike in SIBOR, prop-
erty owners have turned their preferenc-
es to fixed interest rates, to hedge against
further rate increases. There are some
key considerations before refinancing
your home loan packages:
Prepayment Penalties on Existing
Home Loans
Prepayment penalties in your loan con-
tracts can reduce your interest savings.
Making that extra step to check out
when your lock-in period expires can
help to maximise interest savings as the
penalties can range from 0.5% to 2% of
your outstanding loan amount.
Reimbursements on Subsidies
Your current financier might have
helped pay for legal fees, valuation and
fire insurance costs when you first took
up the loan. Premature redemption of
your home loan (usually within 3 years)
might lead to a refund on these subsi-
dies.
Very often, property owners make mis-
takes in comparing home loan packages
by choosing the package with the cheapest
rates. Here is a list of 10 other terms to look
out for when it comes to picking the right
home loan:
1. Reference Rate
This can be either a Fixed Rate, or floating
rates pegged to Singapore Interbank Offer
Rate (SIBOR), Swap Offer Rate (SOR) or
banks’ internal Board Rates.
2. Lock-in period
Typically ranges between 1 to 3 years, but
we have also seen lock-in periods of up to
8 years. The lock-in period determines the
time frame in which you have to keep the
mortgage with the bank. Redeeming the
loan (whether making a full settlement for
the loan, refinancing the property or sell-
ing the property) prematurely attracts pre-
payment penalties.
3. Prepayment penalties
Usually applicable within the lock-in pe-
riod. This is the sum of money you have to
pay when you prepay the loan. It can range
from 0.75% to 2% of the loan amount pre-
paid whether you pay off part of the loan or
the loan in full.
4. Interest reset dates
This applies to loan packages that are
pegged to reference rates such as SOR/SI-
BOR. Some banks dictate that you may only
redeem the loan on specific dates (which
falls on the reset date of your loan, e.g. you
took up a loan on March 1 which is pegged
to the 3-month SIBOR. As the loan interest
is reset every quarter, you may only redeem
the loan on March 1, June 1, September 1
and December 1 every year. Failure to do so
will attract a penalty). Penalties can range
from 0.5% to 2% of the loan amount re-
deemed.
Continued on Page 21
Home Loan Packages –
What Property Owners Should Know
Monetary Policy
Singapore’s monetary policy manages the
value of the Sing-Dollar against a basket of
currencies of our major trading partners
(with USD as a primary component). With
that, Singapore has allowed a direct influ-
ence on domestic interest rates by the in-
terest rates of the currencies in this basket.
Hence, movements or anticipated move-
ments in US interest rates or strength of the
Sing-Dollar will give rise to a significant
impact on the domestic interest rates. With
anticipation that the Sing-Dollar will de-
preciate against the basket of currencies, it
seems like the domestic interbank rates will
continue to hike.
Money Supply
Following the BASEL III implementation
timeline, local banks have to adhere to the
Liquidity Coverage Ratio (LCR) of 60%
by 1 Jan 2015, rising 10% points each year
to reach 100% by 1 Jan 2019. To meet the
higher capital requirements, banks will in-
advertently increase their lending spreads.
What Affects SGD Interest Rates
What It Means To Property Owners
What Should Property Owners Do?
What Should Property Owners Look Out For
When Comparing Home Loan Packages?
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By Eugene Huang
Redbrick Mortgage Advisory
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