SIBOR OR NOT???

Between 1988 and Aug 2008, Interbank rates have almost reached 9%. During recession years of 2002 and 2005, interest rates hovered around 1%. However it has risen to 3+% from 2006 to 2007 only starting to fall dramatically back to around 1% in 2nd half of 2008.

Differences between 2002 to 2005 and 2008.

During 2002 to 2005, inflation are low, while in 2008, inflation is still high (~5-6%). This negative interest rate to inflation rate is typically rare. This could indicate intervention.

But then, nobody really knows where the rates will end up. If you cannot stomach the full risk, take some precaution such as a mix of Fixed Rate and Variable Rate mortgage to cushion the risk of fluctuation.

BANKS STEPS ON BRAKES ON LENDING

quote: "Success is a thought process"

Wachovia Corp. A big regional american bank lender has stopped Offering option adjustable-rate mortgages, which let borrowers skip part of their payment and add the balance to the principal. According to Robert Steel, the Charlotte, North Carolina based bank is "tapping the brakes" on risks.

Banks worldwide are indeed becoming more cautious, not less.

That means some people who do not qualify for refinancing with other banks may be stuck with an existing bank. Many banks in Singapore tend to charge a lower interest rate to acquire new customers and in latter years charge more to either recover their profitability.

As interest rate directions especially the SIBOR cannot be accurately predicted, it is safe to say that for some people, certainty of a fixed rate mortgage for a number of years gives them ample time to react to any crisis.


Source: Morningstar.com

As you can see from the chart of 3-month Libor (The London equivalent of Sibor) rates over the past 20 years. It can go as high as 20%.

Many banks are increasingly providing Sibor Plus packages to home owners (Sibor + margin%). While it can offer lower rate in the short term, it can be highly dangerous when a credit or liquidity crisis comes.

Now the question to ask yourself. Can you afford your installment when interest rate hits 20%?

BUYING A PROPERTY IN GEYLANG

quote: "Success is a thought process"

Recently in 2007, a friend of mine bought a property in Geylang. The property is in decent condition, it's Freehold and it is about 1000 square feet. With all the promises of KALLANG Expansion and being near to the city, etc. It seemed too good to be true at S$400,000. She was planning to lease it out for S$1500/- per month.

So here is the calculation: -

Rental revenue --- S$1500 x 12 months = S$18,000
Downpayment 20% --- S$80,000
Cost of Financing S$320,000 @ 2.5% --- S$8,000
So the Return of Investment --- (18,000 - 8,000) / 80,000 = 12.5%

So 12.5% gains is quite OKAY right?

So she went to the bank and tried to borrow money, the banks told her, sorry you have to pay 30% to 35% downpayment.

NOW, new calculation: -

Rental revenue --- S$1500 x 12 months = S$18,000

Down payment 30% of 400k --- S$120,000

Cost of Financing S$320,000 @ 2.5% = S$8,000

So the Return of Investment = (18,000 - 8,000) / 120,000 = 8.3%

Where are you going to get that extra S$40,000 all of a sudden.

People can avoid these pains if they get a PRE-APPROVED LOAN. Just provide the unit number, development name, the banks can usually reply to you in 1-2 days to give you a YES/NO answer. Do bear in mind that some banks may say NO and you have to go check with some other banks and wait some more days. So it is a tedious process. A Independent mortgage consultant such as

http://www.propertybuyer.com.sg or info@propertybuyer.com.sg
can quickly help you get a loan pre-approval (and subsequently get you the best fit loan). So you can put your heart at ease to buy the investment property/home of your dreams.

This is just a simple calculation which does not YET include the Rental property tax of 10% p/a. Conservancy charges, maintenance and depreciation of property as most tenants will want you to re-furbish it, and it can cost $$$. Don't forget stamp duty, lawyer's fees, fire insurance, surveying cost, etc.

DON'T RISK IT, get pre-approved loans first before signing the option to purchase.

Valuing A Property - A layman's approach

quote: "Success is a thought process"

Recently Straits Times pointed out that many condominiums do not have enough car parks. I would have to agree that CAR PARKS space as one of the Valuing criteria.

CAR PARKS ADEQUACY
Car parks are important as many people who stay in Condominiums may own multiple cars. During festive seasons when their family and friends visit, having no car parks is quite inconvenient. One friend said, "After I have moved into this condo, I have no more friends and my family cannot visit me, unless they take the taxi."

However I strongly believe that buyers do NOT sufficiently value this aspect when buying a property or left it too late. Only when the problem surfaced when they cannot even find parking lots when they started to realize this problem. Once the problem is publicized and known, it can and will impact the property value. It is not immediately.

Your thoughts?

Valuing A Property - A layman's approach

quote: "Success is a thought process"

Success is a thought process."

What explains the price differential between 2 adjacent properties? Often you will see 2 adjacent properties sometimes a big enough price gap to warrant a big WHY.


Say for example, Condo 1 is asking an average price of S$900 psf and Condo 2 is asking a S$1200 psf.

What could be the reason???

Here are some possible explanations: -

SIZE
1. Condo 1 offers bigger units and Condo 2 offers smaller units. Towards the pricier end of properties, affordability is an issue. For example: -
Condo1 unit sizes may be in the average of 1500 square feet (10.76 sq feet = 1 sq meter). That means that an average unit would cost around S$1.35m.
Condo2 unit sizes may be around 700 to 800 square feet. That means an average unit would cost S$960k.

AGE
2. If size is not an dissimilar, Condo 1 may be older than Condo 2. Newer units generally command a premium as their design tends to be more up to date with current trends. Over time, property value tends to become higher, therefore newer properties tend to have better finishing, technologies (intercom systems), lighting, marble floors, feature walls, large lobbies, Bigger and faster lifts, air-con lobbies, nicely manicured gardens, etc. You name it, they have it. You are paying for the luxurious lifestyle. Good marbles and feature walls can cost upwards of 30 to 100 dollars (per sq feet).

LOCATION
3. Even if a property is across 1 road, the feel and surrounding attributes may be totally different. In feng shui, the road cuts across the "chi" 气 of the area. That may also explain the price differences. An example of that is Garden Vista a 99 years development (by Far East) in Dunearn Road, the going rates in 2006 were $850 to $900 psf and in 2007 and 2008, Far East was asking $1350 psf onwards. But across the road/highway is Sherwood towers, it is going for $400-$700 psf tops (and it is either Free Hold or 999 years). Location effect, in this case, garden vista is "Bukit Timah" while Sherwood towers is "Beauty world" branded, but of course more factors are at play.

LAND ATTRIBUTES
4. Two developments side by side may have similar finishing, however one may have a stream or is hilly and the other is flat. If developed and planned nicely, the rolling and hilly terrain may enhance the feeling of space and conveys a sense of well-being. As a result, people may like it more and are happy to part with more of their hard-earned money.

DESIGN ATTRIBUTES
5. Not all developments are the same. Different design appeal to different people. As Singapore is generally land scarce, properties are becoming expensive. Older designs used to have balconies. As Singaporeans become more and more utilitarian, the balconies disappeared to become part of the living space. Hence those without Balconies are more highly valued. Of late, as more and more developments are built without Balconies, developments with Balconies are making a come-back due to demand from certain segment of the home buyers who cherished the balconies, they are priced at a premium.

6. Some designs are awkward, they deliberately squeeze out 4 rooms when it should only comfortably have only 3 rooms. There are several twists and turns, corridors are long and space is "wasted". This is because you cannot really put anything along the corridor. Therefore the place feels smaller than it actually is. Though this kind of design may find some fans, it is generally not well liked by the Space minded and bargain hunting Singaporean home buyer.

FENG SHUI
7. Feng Shui, an age old art of harmonious living. More and more people are subscribing to this school of thought. And Feng Shui plays a big part in the valuation of a property. Even if you do not believe in it, many others do. It will eventually affect the price of your property either positively or negatively.

CONNECTIVITY
8. Properties near to major roads, bus stations and train stations are generally valued more. There are about 750,000 cars in a population of 4.6m. About 1 in 6 people own a car. But other family members still need to go to work, go to school, go to buy stuff and run errants, so connectivity is still very important. Despite Singapore's small size and famed public transport system, some private residential areas are a bit off the beaten track. If they are near to public transportation nodes, they are generally of the 99 year lease hold type.

VICINITY
9. Most good properties have good connectivity, but also great vicinity. The locality is near the Sea, near a nice lake, the hills, the forest or near heavily forested areas with lots of shade and foliage. Bukit Timah is one such place, East Coast park, Katong, Siglap, Yio Chu Kang are other such areas.

SCHOOLS
10. In Singapore, most children of school going age (6 to 7 years old) will have to go to Primary school. Being the usual KIASU (a hokkien word to describe, "Afraid to lose out") Singaporean parents, most parents will try to get their children to the best Primary Schools. And in Singapore, priority is given to families living within 1 km of the primary school (subject to the family having stayed there 2 years prior to the registration exercise). With good Primary schools within 1 km, most properties within 1km of the school is highly sought after.

AMENITIES
11. Singaporeans hate to walk. For an average foreigner, it would seem surprising that Singaporeans generally do not have the same sense of distance compared to a foreigner. So there is a premium to be near to the super markets, wet markets, shops and shopping centers.

LAND TITLE
12. In Singapore, most people prefer Free Hold land followed by 999 years lease hold and the least liked is 99 years. For some people from Hong Kong or China for instance, they do not seem to understand what is the big deal about 99 years and Free Hold, because no bodies lives that long. But I tell you, in Singapore, most people prefer Free Hold and that is a fact. If they did not buy free hold properties, it is usually a matter of budget constraint.

13. There is also a difference between Free Hold Strata titled land and Free Hold land with individual title deeds. Though the difference is not always reflected in the price of a property. Free Hold Land has more intrinsic value generally as it cannot be over-written by a majority vote. Strata titled land with properties on it, means that each property owner owns a "share" of the land that their property sits on. And older properties over 20 years old have Strata title laws that governs it, as long as 80% or more vote to demolish or sell the property, even the dissenting 20% of property owner will have to agree. In other words, you have no control over your home, even if you do NOT want to sell it, you may be force to sell it if the majority opts to sell or re-develop it.

FACILITIES AND SIZE OF THE DEVELOPMENT
14. A development needs to be of a certain size in land area in order to economically provide all the facilities. A full facility condominium (Condo) will have facilities such as: -
Swimming pool
Jacuzi pool
Gymnasium
Sauna room
tennis court
exercise bay
children playground
function room
Barbeque pits
Squash court (most condos do not provide this now)

The facilities differential will be create a price differential in 2 different developments.


LAND VALUE VERSUS PROPERTY VALUE
15. Property and buildings depreciate. Fittings degenerate, paints peel. The once sought after property is no longer deemed HOT. However, in land scarce Singapore with an expansive immigration policy, more population and lesser and lesser land is a recipe for higher land prices. Land appreciate, buildings depreciate.

16. Singapore is a country where the government likes to micro manage. Some call it good governance, others call it, "they plug every loop hole". So developers cannot buy large tracks of land and keep it till it appreciate. This is because the Government levies development charge and penalties on delay of building the "proposed" building and/or amenities. So that is out of the question.

However, there are many good gems out there that are DIRTY and OLD and FORGOTTEN. Many old buildings that sit on rather good land asking very reasonable prices.

Why is there such a price differential given that those are gems???

This is because buying and staying in a property is an emotional process. Many gems are over-looked because they are
simply "Dirty and NOT polished". It's definitely a different decision altogether. In this case, this property may be an
investment gem, but not a lifestyle gem, unless you can do some modifications work to it.


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