35-year limit set on home loans

[Musicwhiz]

Anyone have friends who belong to this group?

Hi hyom,

I can relate what I know from my personal experience and my own social circle.

Currently, I have three friends who own an investment property (incidentally, they are all married with at least 2 kids). I do not know what is their refinancing schedule like but from what I understand it may be time for some of them to refinance in the next 1-2 years as they entered the market some time in 2010-2011. Assuming a three-year fixed rate loan (which is the common thing nowadays), it will begin to switch to floating rates probably some time in 2013-2014.

Sad to say I don't have much details about the location of properties, tenure, amount paid and other details; but I do recall one of them bought a condo for $1.2 million, and probably is on a 30-year mortgage.

What I can conclude is that it's pretty common nowadays for couples with kids in their 30s (my age group) to own one HDB and one investment property (condo), some even two! These are professionals who are holding good jobs (both husband and wife probably combined salary of $10,000 and more), educated and have to invest their money somewhere and have all chosen real estate.

Not sure if they will be affected, but I always assume people do their homework and ensure margin of safety.

[violinist]

What I can conclude is that it's pretty common nowadays for couples with kids in their 30s (my age group) to own one HDB and one investment property (condo), some even two! These are professionals who are holding good jobs (both husband and wife probably combined salary of $10,000 and more), educated and have to invest their money somewhere and have all chosen real estate.

We are not in your age group but we don't own one HDB and one investment property (condo) or even two. We are not pretty common.

[Musicwhiz]

We are not in your age group but we don't own one HDB and one investment property (condo) or even two. We are not pretty common.

You're not alone. Technically I don't own my HDB (as I am still paying my mortgage loan) and I also do not have any investment property.

Frankly, I admire people who are prudent and do not over-extend. I kinda feel Singaporeans are stretching it in most cases. What we see is only the illusion of affordability - dig deeper and many people are bleeding from multiple commitments and liabilities. I'd rather be free of all that worry.....

[RBM]

So what does this mean for SGX Property stocks and Banks?? I thought the following excerpt from today's DBS' Daily Traders Wire was worth sharing with forummers. Interesting to see that DBS' Bank Analyst predicts double-digit mortgage growth for 2012 and, if I read it correctly, not much impact on such growth in the coming couple of years. Also worth noting that UOB Bank has the highest mortgage exposure of Singapore's banks? ?...............

QUOTE
The Singapore government announced fresh mortgage curbs to cap upward price pressures caused by low interest rates and fast credit growth. Under the new MAS guidelines, maximum tenure for all new residential property and refinancing loans will be capped at 35 years for both individual and nonindividual borrowers effective 6 October 2012. In addition, loans with >30 years tenure will face tighter loan to value limits. For individual borrowers, if residential loan tenures are >30 years or if loan period extends beyond the retirement age of 65 years, loan-to-value (LTV) limit will be 40% for borrowers with outstanding residential loans and 60% for borrowers with no existing residential loans. For non-individual borrowers, LTV is lowered from 50% to 40%.

The new rules are aimed at increasing prudency as longer loan tenures amid a low interest rate environment effectively boost purchasers' purchasing power but downside risk is their inability to service mortgage installments when interest rates rise. Over the past 3 years, the average loan tenure for new residential properties have been increasing from 25 years to 29 years and more than 45% of new residential loans have tenures >30 years. Stay defensive ahead of year end; top picks are Frasers Centrepoint Trust, Suntec REIT, CapitaMalls Asia and Wing Tai.

In terms of impact on the banks, it was reported in Business Times that over 45% of new home loans have tenures exceeding 30 years, though banks have not disclosed mortgage loan tenures in their books. Mortgage loans have moderated since Aug-10. Our analyst expects mortgage loan growth to gradually reduce for the rest of the year but supported by drawdown from previous mortgage applications. She forecasts mortgage loans to grow at 10% for 2012. FY13-14F mortgage loan growth would likely reduce further as impact of the new measures kick-in. UOB has largest mortgage loan exposure while OCBC’s traction from Great Eastern and Bank of Singapore clearly differentiates itself with UOB. Prefer OCBC to UOB.
UNQUOTE

Not vested in any of the companies mentioned in the above article.

[Musicwhiz]

Hi RBM,

To answer your question, perhaps it will be good if we could breakdown the proportion of revenues/profits attributable to mortgage loans for the three big banks DBS, UOB and OCBC. Then we can see which will be impacted the most.

Another measure may be the Net Interest Income spread for mortgage loans, based on how much the bank is lending versus how much it gets for investing those funds. I suspect the spread here may not be very wide as some banks are lending at around 1+%, so there is not much room a large spread. Banks may be using mortgage loans for volume growth in loans, rather than extracting profitability from this segment. I suspect most of the profits could come from unsecured credit, credit card loans, car loans and corporate lending.

[edragon]

Imagine buying a 99 years LH investment property and renting it out for a return of 4% and losing out 1% in lease every year. After 35 years, the remaining lease is only 64 years when it will be difficult to re-finance. At this present cycle (index at 207 versus 100 at 4Q1998) risk reward is not attractive and there exist a good chance of the index going down from here. Precisely, the Govt wants to protect the current price from falling too much, new measures have to be rolled out. If prices fall too much, the first to book out will be the foreigners leaving the baby behind to the locals just like in Dubai.

[freedom]

Singapore residential mortgage is prime loan asset. It is difficult for the government to just direct the banks to raise the interest rate on residential mortgage when the market interest rate is as low as now.

lowering the leverage ratio is better for government to direct, such as raising downpayment and lowering the loan tenure and max loan.

[Temperament]

If bank interests rates goes up, will the property value drop or rise? :O

It should drop, if interest rates suddenly shoot up. Many people will not be able to service their mortgages. Foreclosure will be rampant. This is when the Vultures will swoop on the private properties. i think FT's Vultures will be most active at this time. i hope i have the capital then. But i don't think so.

Just look at US's rampant foreclosure. i think Some Singaporeans (who are living in US for some years) have become US's property's Vultures; even with some who have moved back to Singapore. Another words, they know what they are doing.

Do you know what you are doing? Or are you just speculating? If you are speculating, i think Singapore's REITS offer better safety and returns.
MHO

[Musicwhiz]

US Fed has promised to keep rates low till at least 2015. Problem is - is this cast in stone? If inflation rises quickly in USA and becomes rampant, Fed may be forced to increase rates ahead of time.

Just playing Devil's Advocate.

[corydorus]

I have been thinking about this for some time as well. It may not happen because US and Euro are still world consumer market.
Cost of goods will be driven lower for them to consume thus keeping inflation in-check. The thing that may toggle around is oil due to cartel.