It’s all in the fine print

Source : Today – 22 Aug 2009

Landmark lawsuit over reverse mortgage dispute will set legal precedent here

IN A case that has been touted as the first of its kind in Singapore, a couple have sued NTUC Income for a reverse mortgage deal that turned sour, claiming that the insurer had wrongfully seized their home in 2006.

On Friday, NTUC Income filed its defence, setting the stage for a possible court showdown while maintaining that it is open to an out-of-court settlement.

In their suit, former flight engineer Derek Chua, 72, and his wife Colleen Ng, 57, claim that under a reverse mortgage scheme, Mr Chua could live in the property until he dies or sells it off. Also, the Chuas say in their suit, Income could not force them to repay the loan if it exceeded 80 per cent of the property’s market value.

A reverse mortgage works in the opposite way of a normal home loan. Designed to help those who are cash poor but asset rich, the scheme allows borrowers to receive monthly payouts until the owner dies or the property is sold, or when the tenure expires.

In Mr Chua’s case, the contract he signed with Income did not allow him to owe more than a loan-to-valuation (LTV) ratio of 80 per cent.

The Chuas’ property, at 3 Jalan Lye Kwee, was bought in 1975 and valued at $2.1 million in 1997. NTUC Income then lent the couple up to 80 per cent of the valuation, or $1.68 million. A sum of $2,000 was paid every month to the Chuas.

However, after the Sars crisis in 2003, the property’s value dropped to $1.1 million and the couple were told by Income that they had exceeded the 80 per cent limit. The firm asked Mr Chua to make a lump sum top-up payment of $46,000 to bring the LTV ratio back to within 80 per cent.

During this time, NTUC Income’s lawyers said, monthly payouts were still paid to the couple – although the sum was cut because of the drop in valuation.

In filing its defence, Income also claims that Mr Chua did not pay the top-up despite having been invited to discuss how he could bring the LTV ratio back to within 80 per cent.

The Chuas, NTUC Income alleges, had breached the terms in their mortgage contract, which entitles the insurer to take possession of the property.

NTUC Income adds that it had “granted indulgence” by allowing the couple to sell the property within a time frame, but this was not done as well.

When contacted by Weekend Today, Mr Jeffrey Lee, NTUC Income’s chief financial officer, said: “Even though we believe in the merits of our defence, we maintain a reconciliatory spirit and we continue to be open to exploring an out-of-court settlement.”

NTUC Income is represented by Senior Counsel Sundaresh Menon and Aurill Kam.

The Chuas, who are represented by Senior Counsel Michael Khoo, have 14 days to file a reply.

CapitaLand meets property valuers

Source : Business Times – 9 May 2009

CAPITALAND, Singapore’s biggest developer by market capitalisation, recently met property valuers to discuss the valuation process, sources told BT.

CapitaLand chief executive Liew Mun Leong chaired the meeting, which ran for more than an hour. About 40 people were present, including valuers and consultants from Singapore’s top property firms, a former chief valuer and CapitaLand employees.

BT believes Mr Liew was seeking to understand the methodology used to arrive at property valuations.

Asked about the meeting, a CapitaLand spokesman said the company has regular dialogues with partners and professional organisations involved in real estate, such as banks, architects, contractors, designers, accountants and valuers.

‘During these dialogues we exchange views about industry practices, market outlook and other general aspects,’ the spokesman said. ‘There are no direct references to our properties or projects.’

Most developers here have their investment projects revalued annually, and many include the revaluation gains and/or losses in their profit-and-loss figures.

In 2008, for example, worsening economic conditions put pressure on real estate values, and as a result there was a downward revaluations of some CapitaLand properties. CapitaLand recorded a fair value loss of $58.9 million in Q4 2008, mainly from the revaluation of its portfolio of investment properties held by subsidiaries in Australia.

Developers meet valuers in search for common ground

Source : Business Times - 29 Apr 2009

Developers last week held a meeting with valuers amid recent complaints in some quarters that conservative valuations have derailed some home sale deals as potential buyers could not secure the required loan quantum from banks.

BT understands that the valuers disagreed with the developers that their valuations had been too conservative, and that it was the banks that were just not lending.

‘Generally, if there are transactions, we’ll match (with valuations). It’s the banks that are more cautious about lending to certain profiles of borrowers like investors, especially if they are foreigners,’ a valuer told BT.

The valuers also raised issues that they had been facing in recent months, such as a dearth of comparable transactions, and explained the methods that they use to arrive at valuations in such situations.

‘We explained that some banks require valuers to look at three comparable transactions, and how we generally do not take into account outlier transactions that may perhaps reflect ‘depressed’ prices,’ another valuer said.

Sources say that the meeting was amicable, drawing more than 20 valuers and heads of property consulting groups and the executive committee members of the Real Estate Developers Association of Singapore led by its president, Simon Cheong.

When contacted, a Redas spokesman said: ‘We wanted to better understand issues that valuers may have in their day-to-day valuation and what else the profession may need from developers to enable them to give (as) updated and relevant (a) valuation as possible.

‘The discussions were general in nature and discrepancies in valuations in some instances were highlighted and analysed. Valuers shared with us some of the constraints they are facing such as the lack of or insufficient comparable sales data and other issues.

‘The session was fruitful as it helped us understand one another better and we agreed to look into areas where communication and interaction could be improved upon.’

A property consultant told BT that he found it odd that the same banks that were willing to give a 75 per cent or 80 per cent loan on a high-end residential unit when it was priced at $2,000 psf (thus assuming an exposure for about $1,500 to $1,600 psf) are now reluctant to give even 50 or 60 per cent loan when the property is going for a much lower price of $1,200 psf (which works out to $600-720 psf exposure for the bank).

‘It’s particularly difficult for foreign buyers, even PRs in some instances, to get loans for investment properties. Banks are more willing to lend to Singaporeans buying residential properties for owner occupation.

‘Some of the bigger banks should take the lead and be more proactive in lending to property buyers, not just for entry-level but also luxury homes, given that spot prices have already come off about 40 per cent.’

Agreeing, another valuer said: ‘We provide the valuations. It’s up to the banks whether they want to lend, and how much. It’s a commercial decision for them.’

Giving his take on the challenges facing the profession, a senior valuer said: ‘We have to be as level headed as possible and (assign) a sensible value. Valuers play a very important role in the financial system and economy, as we’re marking everybody’s asset values.’

This was the first time Redas has met valuers as a group, at least in recent years, and this follows its maiden meeting in November with analysts in stockbroking research houses covering the sector.

Redas also holds regular dialogues with government agencies such as Urban Redevelopment Authority, and Building and Construction Authority. ‘Such dialogues provide learning opportunities for Redas and promote better understanding across the industry leading to a healthy property market,’ the association’s spokesman added.

Property valuers feel the buzz

Source : Business Times - 14 Apr 2009

Recent strong home sales, refinancings help boost demand

Away from the glare of the market, valuations departments of property consultancy groups here have been quietly doing brisk business despite the property slump.

Valuers attribute this in part to a pick-up in sales at private residential property launches since February. Also contributing to demand are buyers who are getting loans for units bought earlier on Deferred Payment Schemes (DPS), and borrowers who are seeking better refinancing packages and switching banks.

Some property consultants say banks are requesting more frequent valuations of properties in their loans portfolio, given declining property values. ‘It’s not just for housing loans, but offices, factories, etc. I suppose banks have to monitor if the properties are in negative equity,’ says DTZ Southeast Asia’s CEO Ho Tian Lam.

Said Joseph Wong, OCBC Bank’s group chief credit officer (consumer credit risk), group risk management: ‘We conduct regular reviews on our loan portfolio which cover various factors including update of valuation of properties.’

Mr Ho said the volume of valuations at DTZ has risen more than 10 per cent in the past one or two months compared with the same year- ago period. The firm has redeployed two senior marketing executives from its investment sales department to its valuations department.

Knight Frank managing director Tan Tiong Cheng told BT the number of valuation instructions for private residential properties clinched by his firm has increased 36 per cent in Q1 this year compared with the preceding quarter. For March alone, the figure has gone up 59 per cent from the preceding month. These instructions, which are requested either by lending banks or borrowers, refer to paid valuations and not indicative ones, which are often provided to banks for free or for a token sum.

Jones Lang LaSalle’s head of valuation advisory services Tan Keng Chiam said his firm has seen a 10-20 per cent rise in the number of weekly valuation enquiries since late March compared with the January-February period. ‘But this has not translated to huge volumes of business,’ he added.

Mr Tan said there have been ‘more enquiries for refinancing purposes as well as a noticeable, though slight, increase related to home purchases’.

Despite higher business volumes, none of the firms, citing competition, has any plans to raise its valuation fees, which can be as little as $300 to $500 for valuing small apartments. Commercial buildings cost several thousands to tens of thousands of dollars to value, depending on the size and complexity of the valuation required, which also depends on the lender’s profile. Package fees for valuing an entire portfolio of buildings for a property group or real estate investment trust (Reit) can run into hundreds of thousands of dollars.

‘For Reits, in particular, valuations are a lot more meticulous. We have to go through individual tenancies and do more checks in general. And we don’t just use the comparables method but also discounted cashflow to arrive at the property valuations,’ Knight Frank’s Mr Tan said.

Most valuers BT spoke to say a key reason they have been kept busier lately is the gush of private residential property launches of affordably priced mass- market and small-sized apartments. With fewer launches these days offering DPS, buyers have to sign up for a housing loan soon after their purchase - whether they are opting for interest absorption or taking a normal progress payment scheme.

For projects sold earlier on DPS that are nearing completion (when DPS expires), buyers need to get their home loans in place, and this has also led to more valuations required, explains Mr Tan of Knight Frank.

In addition, the increase in primary market home sales by developers has spilled over into the secondary market, and this has been another source of higher demand for valuations.

The head of another property consulting group told BT that some real estate funds have been asking for monthly valuations of their property portfolio to ‘track the market more closely instead of relying just on annual valuations’.

DTZ’s Mr Ho says Reits seeking refinancing have also contributed to an increase in valuation requests at the firm.

Valuers note that besides Reits, other property owners who have opted to refinance mortgages - for their homes, for instance - because of more attractive packages offered by rival banks have also raised demand for valuation services.

DTZ’s Mr Ho said that the firm’s professional services - which besides valuation include research and consultancy, property management and project/ facilities management - account for about 30-40 per cent of revenue in normal times, with agency activities like property sales, leasing and investment sales taking the lead.

Property valuers feel the buzz

Source : Business Times - 14 Apr 2009

Away from the glare of the market, valuations departments of property consultancy groups here have been quietly doing brisk business despite the property slump.

Valuers attribute this in part to a pick-up in sales at private residential property launches since February. Also contributing to demand are buyers who are getting loans for units bought earlier on Deferred Payment Schemes (DPS), and borrowers who are seeking better refinancing packages and switching banks.

Some property consultants say banks are requesting more frequent valuations of properties in their loans portfolio, given declining property values. ‘It’s not just for housing loans, but offices, factories, etc. I suppose banks have to monitor if the properties are in negative equity,’ says DTZ Southeast Asia’s CEO Ho Tian Lam.

Said Joseph Wong, OCBC Bank’s group chief credit officer (consumer credit risk), group risk management: ‘We conduct regular reviews on our loan portfolio which cover various factors including update of valuation of properties.’

Mr Ho said the volume of valuations at DTZ has risen more than 10 per cent in the past one or two months compared with the same year- ago period. The firm has redeployed two senior marketing executives from its investment sales department to its valuations department.

Knight Frank managing director Tan Tiong Cheng told BT the number of valuation instructions for private residential properties clinched by his firm has increased 36 per cent in Q1 this year compared with the preceding quarter. For March alone, the figure has gone up 59 per cent from the preceding month. These instructions, which are requested either by lending banks or borrowers, refer to paid valuations and not indicative ones, which are often provided to banks for free or for a token sum.

Jones Lang LaSalle’s head of valuation advisory services Tan Keng Chiam said his firm has seen a 10-20 per cent rise in the number of weekly valuation enquiries since late March compared with the January-February period. ‘But this has not translated to huge volumes of business,’ he added.

Mr Tan said there have been ‘more enquiries for refinancing purposes as well as a noticeable, though slight, increase related to home purchases’.

Despite higher business volumes, none of the firms, citing competition, has any plans to raise its valuation fees, which can be as little as $300 to $500 for valuing small apartments. Commercial buildings cost several thousands to tens of thousands of dollars to value, depending on the size and complexity of the valuation required, which also depends on the lender’s profile. Package fees for valuing an entire portfolio of buildings for a property group or real estate investment trust (Reit) can run into hundreds of thousands of dollars.

‘For Reits, in particular, valuations are a lot more meticulous. We have to go through individual tenancies and do more checks in general. And we don’t just use the comparables method but also discounted cashflow to arrive at the property valuations,’ Knight Frank’s Mr Tan said.

Most valuers BT spoke to say a key reason they have been kept busier lately is the gush of private residential property launches of affordably priced mass- market and small-sized apartments. With fewer launches these days offering DPS, buyers have to sign up for a housing loan soon after their purchase - whether they are opting for interest absorption or taking a normal progress payment scheme.

For projects sold earlier on DPS that are nearing completion (when DPS expires), buyers need to get their home loans in place, and this has also led to more valuations required, explains Mr Tan of Knight Frank.

In addition, the increase in primary market home sales by developers has spilled over into the secondary market, and this has been another source of higher demand for valuations.

The head of another property consulting group told BT that some real estate funds have been asking for monthly valuations of their property portfolio to ‘track the market more closely instead of relying just on annual valuations’.

DTZ’s Mr Ho says Reits seeking refinancing have also contributed to an increase in valuation requests at the firm.

Valuers note that besides Reits, other property owners who have opted to refinance mortgages - for their homes, for instance - because of more attractive packages offered by rival banks have also raised demand for valuation services.

DTZ’s Mr Ho said that the firm’s professional services - which besides valuation include research and consultancy, property management and project/ facilities management - account for about 30-40 per cent of revenue in normal times, with agency activities like property sales, leasing and investment sales taking the lead.

Property buyers hit a bump on sliding valuations

Source : Business Times - 19 Feb 2009

Banks slash loan amounts before disbursing them

The rapid slide in property prices has resulted in some banks slashing the loan amount to borrowers just before it is disbursed. This has put property buyers in a quandary, forcing them to either top up the difference or pay a penalty for backing out of the loan offered.

And valuers have become the latest ‘villains’ as borrowers find it harder to get home loans to match their purchase prices. ‘I don’t tell people I’m a valuer,’ sighed Lydia Sng, Knight Frank executive director.

Bankers agree that the time lag between the loan offer and disbursement can result in a final smaller loan. The loan offer, while based on an indicative valuation, contains a clause that it is subject to a formal valuation.

But borrowers who want to cancel the loan are hit with a punitive 1-1.5 per cent cancellation fee. Also, by this time, it would be hard to back out because they would have already committed to the purchase of the property.

The wobbly market is not helping. A Citigroup report last month said that, in the high-end segment, properties have seen price corrections of about 35 per cent from a year ago and they could fall by another 30-40 per cent this year.

Ms Sng said the problem is with the valuation process. ‘They’ll give us a call with the address, we’ll give a range as we’ve not seen the property. It’s a bit like calling the doctor and telling him your symptoms and asking for a diagnosis,’ she said.

Gregory Chan, OCBC Bank head of secured lending, said: ‘It is possible to receive a lower formal valuation on a property compared to the initial indicative valuation. To mitigate this, as well as to ensure valuations are realistic, OCBC Bank does not rely solely on a single valuer for indicative valuations,’ said Mr Chan.

A DBS spokeswoman said the indicative value will be based on the information declared by the customer in the home loan application form.

‘In the event that the formal valuation is lower due to the wrong details provided on the property, the bank will have to take the lower of either the purchase price or valuation as per regulatory stipulations. As such, the buyers will be required to top up the difference between the purchase price and valuation in cash. If the borrowers decide to abort the purchase and cancel the loan at any point after loan acceptance, a cancellation fee will apply,’ said the DBS spokeswoman.

‘We monitor our panel of valuers regularly to ensure that valuations are always fair and based on current market values,’ said a United Overseas Bank (UOB) spokeswoman.

Jerry Tan, managing director of Jerrytan Residential Pte Ltd said his beef is that valuers sometimes look to non-comparable transactions to determine the price. But it could be comparing a five-star development to a three-star one, he said.

DTZ executive director Poh Kwee Eng said that if they were valuing a unit and there had not been a transaction in the same building for some time, they would look nearby, in similar developments. If the five-star unit was priced 20 per cent higher during last year’s red hot bull market compared to a three-star one, similar premiums would still hold.

‘Say, last year, your unit was sold at $1,000 per square foot and next door a unit went for 800 psf, there was a 20 per cent difference. So if the next-door unit is now selling at $500 psf, I would adjust your unit by 20 per cent upwards,’ explained Ms Poh.

Some banks are said to be staying clear of certain developments where there is a wide range of valuations such as The Sail with 1,111 units and Sentosa Cove.

UOB head of loans Kevin Lam declined to comment on specific projects but offered general observations about mortgages. ‘We have been conservative all along. With the recent further fall in prices, we have become even more careful,’ he said.

Knight Frank’s director of research and consultancy Nicholas Mak said valuations vary widely among the 1,111 units at the 63-storey The Sail. As for Sentosa Cove, ‘newer developments have better views or better designs. Some earlier projects didn’t have sea views,’ he said.

Some ground-floor condos sited between the landed homes with the sea front were not very different to condos on the mainland, said Mr Mak. ‘The value of a sea view alone is difficult to pin down,’ he said.

Credo Real Estate managing director Karamjit Singh said that The Sail and Sentosa Cove, as new markets which targeted foreigners, provided their own challenges. ‘The Sail was part of a new market that emerged as part of the development for the new downtown including the integrated resorts,’ said Mr Singh.

He said it takes time for prices to find their equilibrium, and they have not stabilised yet. ‘It’s a challenge everyone faces, including banks.’

Developers may want to take that haircut right away

Source : Business Times - 8 Jan 2009

PROPERTY consultancy groups have issued reports over the past couple of weeks reporting declines in Singapore residential property values, especially for the high-end segment, in 2008 - with pretty grim prognoses for 2009 too. This will mount pressure on listed property groups to make provisions for Singapore residential sites.

When listed property groups did not announce such provisions in their Q3 results last year, the thinking among analysts was that these companies would take haircuts in their books on their pricier residential sites only in second-half 2009, or even later.

DTZ recently published a report estimating a 21.6 per cent decline in average prime non-landed freehold private home prices in 2008 and predicted a further 15 to 20 per cent drop this year.

CB Richard Ellis last week also said that in 2008, average prices of new luxury homes under construction had slipped 30-35 per cent in prime districts 9 and 10 and by 10-13 per cent in Marina Bay and Sentosa Cove.

Developers could argue that while property consulting groups may talk about declines in property values, there has been a scarcity of transactions to confirm the declines.

Nonetheless, for companies that acquired sites at high prices which are above current values, there’s a case for booking the provisions in Q4 2008 - and moving on.

For one, most developers reported strong earnings in first-half 2008 that can help cushion against provisions on their Singapore residential landbank - if they choose to book them in their Q4 and full-year 2008 financial statements.

However, if they postpone the decision till 2009, the haircut could add further strain to bottomlines going ahead, which are already expected to weaken on the back of poor home sales, an all-round weaker economic showing and lower valuations for investment properties (these refer to assets like office buildings and shopping centres held for rental income). Right now the mood is so weak, that if developers were to announce provisions for their Q4 results, it would not dent sentiment much further. It may be better to flush out all the bad newsflow now.

Making provisions sooner also clears the decks for developers to price projects more attractively to tap any windows of opportunity to launch projects - and begin a new cycle of profit booking. As a big property group said over seven years ago when announcing massive residential provisions, the exercise provided it ‘pricing flexibility to generate cashflow’.

Beyond writing down sites to current values, at least one big developer in the past went a step further and provided more than it perhaps needed to.

This is what many analysts say CapitaLand did in August 2001, when it marked down the value of its residential assets, mostly landbank, by $508 million, in its half-year result statement.

Analysts said the group wrote down the value to below then market prices. In short, it overprovided. The group’s management refuted this point, but the strategy may be revisited by some property groups today spring cleaning their books.

Ask most property agents today and they’ll tell you potential buyers are asking at least 20-25 per cent off current property values before they will make a commitment. This is to cushion against future price falls. Indeed, expectations are running high among analysts for a further drop in home prices this year.

Given this scenario, some developers may find it sensible to mark down values of high-cost residential sites in one fell swoop (not just to current valuations but also to factor in likely future price movements), instead of making a series of piecemeal adjustments over a period of time.

Of course, such a strategy may be frowned upon as an exercise in earnings management in some quarters.

This time round, CapitaLand may not be the market leader in making provisions for its residential landbank.

Still, some analysts point out that breakeven costs for two sites it bought in 2007 - Farrer Court and Char Yong Gardens - are higher than what new projects on these sites would command today. Other listed property groups too acquired sites at steep prices during the property fever.

Examples include two 99-year leasehold condo plots on Sentosa Cove - the Beachfront Collection site that SC Global bought at $1,800 psf per plot ratio in 2007, and The Pinnacle Collection plot purchased by a Ho Bee and IOI Properties joint venture in early-2008 for $1,822 psf ppr.

The latter was the highest price paid for a condo site in the waterfront housing precinct. Then there was the 99-year leasehold Grangeford site, bought at $1,810 psf ppr by Overseas Union Enterprise in 2007.

In fact, a seasoned property agent says that pretty much most sites bought in 2007 would be below water today. There is indeed impetus for developers to make provisions.

However, there will be ramifications. Beyond issues of managing earnings, for some developers, there could be a real limit to how much they can write down their sites as provisions may trigger breaches in loan covenants. They may be asked by their banks to top up more equity.

That would stretch smaller developers, many of whom are already highly leveraged and cash strapped.

Deferred payment scheme: Averting a crisis

Source : Straits Times - 1 Dec 2008

Act now to contain any fallout from property purchases worth billions of dollars

IN many ways, the credit crisis crippling vast tracts of the global financial system resembles a guerilla war.

It is fiendishly difficult to work out exactly who the enemy is or where he might be lurking.

It is deeply frustrating. Each time a financial firestorm is doused, another even more intense blaze erupts.

Although there seems to be no imminent end to the crisis, there are many useful lessons to be learned from the calamity so far.

Take Citigroup’s recent painful experience, for example. The giant lender had to be saved from potential oblivion by a US government bailout after its share price collapsed, even though it was healthier than other global banks by many measures.

It is a sobering reminder that, in a climate of fear, it is wise to stay a few steps ahead of the crisis, keep tabs on possible flashpoints and defuse them before they become a full-blown crisis.

Until recently, Singapore had been in the fortunate position of having escaped much of the fallout from the crisis.

But since September, jobs have been lost and companies are struggling to rollover their loans. This came after the collapse of US investment bank Lehman Brothers sparked panic among banks, which then clamped down on lending activities.

The fallout has been felt most profoundly in the local property market where soaring prices last year attracted hordes of speculators snapping up condos in the hope of making a quick profit.

This sudden reversal has prompted analysts to raise concerns over possible systemic risks posed to banks from the downward spiral in property prices, given their big exposure to real estate loans.

Their biggest worry is focused on the record 14,811 private properties sold by developers to homebuyers last year.

Many of these flats were sold under a ‘deferred payment scheme’, introduced 10 years ago during the Asian financial crisis to help developers offload unsold properties and which was scrapped only in October last year.

This scheme enabled a homebuyer to pay only the stamp duty and 10 per cent of the purchase price upfront. The rest is paid only when the flat is given its temporary occupation licence (TOP).

At the height of the property market fever last year, the scheme was blamed for fuelling excessive speculation in sought-after condos because they could rapidly change hands several times as prices rose. All the speculator needed was the downpayment for the flat.

It is a completely different story now. By some measures, property prices have fallen back to the levels of last January. This means that many of last year’s new property launches are now under water, and current prices are likely to be less than what buyers paid last year.

Awkward questions are being asked, such as what will happen to buyers on the deferred payment scheme when the condos are completed next year.

Will they simply walk away - writing off their deposits as a loss - and leave the nightmare of reselling the property to the developer? This would depress an already falling property market still further.

And how about those buyers who had the foresight to arrange a bank loan? Will the bank insist on doing a fresh valuation of the property and offer a smaller loan amount? What happens if the buyer cannot make up the difference?

Nobody in the market knows exactly how many of these units were purchased on the deferred payment scheme. And when the scheme potentially covered billions of dollars’ worth of property purchases last year, it raises plenty of concerns.

In a climate of uncertainty, when even big banks can be rocked by a crisis of confidence, the guessing game played by analysts over the scale of this potential problem can easily spread fear among both banks and investors alike.

The Government has sensibly refrained from trying to talk up the property market. Instead it has stated openly that it cannot work against market forces and try to prop up prices artificially.

But it can get the various agencies to work together to produce a breakdown of the homebuyers on the deferred payment scheme - preferably by condo project - along with details of when the projects are likely to be completed.

This would enable all the interested parties - banks, developers and homebuyers - to make an informed decision on the seriousness of the problem and take measures to avert it.

It is very likely that the problem is not a big one and that the banks and developers have been scaring themselves unnecessarily.

Given the low interest rate environment, most genuine buyers may have already opted to make progressive payments as construction proceeds on their dream homes.

So long as they have a job and continue to service their monthly instalments promptly, they are still good credit risks, even though the value of their dream home may have fallen sharply.

But the manner in which the credit crisis has ambushed sound companies and brought them to their knees is scary.

Coming to grips with the deferred payment issue is an exercise worth doing. It will enable us to get ahead of the curve on the credit crisis for a change

Home loans harder to get as prices fall

Source : Sunday Times - 16 Nov 2008

Check if bank can meet unit’s valuation to avoid overpaying for the property
A couple of telling anecdotes illustrate the unexpected glitches that home buyers can face as property prices start to fall.

A Spring Grove condominium unit owner was denied the chance to take advantage of lower interest rates by refinancing his devalued property without coughing up more hard-earned cash.

The owner had to make up the shortfall because the reduced value of the Grange Road unit meant the bank could not extend a large enough loan.

Another buyer had to cancel his purchase recently after he learnt that banks’ valuation of the property was less than what he was supposed to pay.
The banks could not offer him the loan he needed as the collateral was inadequate.

This is the brave new world of home loans as property values fall amid the global financial crisis and banks tighten lending.

Banks are still dishing out home loans but are much more selective these days, mortgage consultants said. Banks can grant only up to 90 per cent of the purchase price or valuation, whichever is lower. So if the sale price of a property exceeds the valuation - which is determined by an independent professional - the buyer will have to make up the shortfall.

Amid poor demand and falling prices, banks are sticking to lower property valuations in anticipation of further price falls. ‘OCBC Bank engages independent, third-party valuers to determine the open market value of properties and there has been evidence of a fairly strong downward trend in property valuation,’ said its head of consumer secured lending Gregory Chan.
The buyer who cancelled his property deal realised that the yet-to-be-completed 1,000 sq ft condo unit was worth less than the $2 million he was going to pay.
‘No bank can match the property’s valuation as there was a recent sub-sale deal done at 15 per cent below the developers’ price of $2,000 per sq ft,’ said Mr Dennis Ng, spokesman for mortgage consultancy portal www.HousingLoanSG.com

Buyers can avoid overpaying for a property by checking to see if the banks can match the valuation to the property’s purchase price, he said.
In today’s market, those still keen on taking out a loan for a home they intend to live in should also know that most banks now prefer to offer up to only 80 per cent financing, said Ms Ally Yang, a chief mortgage consultant at www.homeloan.com.sg

OCBC Bank said it continues to offer housing loan packages for 80 per cent financing. It also offers 90 per cent financing on a case-by-case basis if the applicant meets its credit assessment criteria.

HSBC Singapore’s head of personal financial services, Mr Sebastian Arcuri, said: ‘Customers can still obtain home loans of up to 90 per cent valuation or purchase price if their financial profile can support it and their application meets the bank’s criteria.’

But there are signs that banks are starting to be more stringent in their credit criteria and they are very selective in granting a 90 per cent loan, said Mr Ng.
‘A 90 per cent home loan is now more selectively granted to consumers with very good profile who are buying a property as their first home.’

Investors will find it tougher to get a bigger loan these days. Banks used to offer more than 85 per cent financing for investment properties but all of them, except DBS Bank, no longer do so, said Ms Yang.

This means buyers have to be prepared to cough up more cash for investment property buys. Those looking at refinancing may be in for a surprise if they bought their properties in last year’s booming market.

The Spring Grove unit in question was bought by a South Korean expatriate for $2.58 million or $1,442 per sq ft on a floating rate package. He now pays 3.5 per cent interest on his 80 per cent loan and was looking to halve his interest payments by switching to a package pegged to the three- month Singapore Interbank Offered Rate, said Ms Yang.

But a check with two banks found that the valuation for his property was $2 million or $2.22 million. If he wants to refinance at these valuations, he would need to pay up to $180,000 to top up his loan, currently at $1.78 million.
Consumers seeking a loan for their property purchase should get prior approval or have more cash on hand. ‘They should approach a mortgage specialist for a joint assessment if they are unsure whether they can afford the home purchase,’ said OCBC’s Mr Chan. ‘Things are quite fluid these days so buyers should re-check their loan eligibility after one month,’ said Mr Ng.

One transparent valuation for property market price, please

Source : Straits Times - 5 Jul 2008

MS JANET Han, Secretariat, Singapore Institute of Surveyors & Valuers, defined very clearly what constitutes a property’s fair market value. Can Ms Han please explain why, when bankers in Singapore quote an independent valuation (based on a professional independent valuer’s opinion, presumably a member of the SISV) for a resale property for mortgage or re-mortgage purposes, the valuation is always at least 25 per cent lower (in some cases, 40 per cent) than recent actual sale value, yet the same bankers are always willing to accept a new (primary but pre-TOP) sale price as fair market valuation.

Contrary to Ms Han’s assurance that market price is set by the market, in the case of ‘banker’s’ valuation, the practice of always giving conservative valuation for mortgage purposes is allowing valuers to effectively set market prices with some unexpected consequences:

- Loan ratio offered by banks is not the 80 per cent of market price but effectively 80 per cent of 75 per cent or 60 per cent of market price.

- a property’s collateral value is artificially diminished.

I suggest that independent valuers should only have one transparent valuation for market price (value based on their professional expertise), and let the bank decide how much risk and buffer they need to set the loan ratio accordingly.

In the UK, Australia, NZ, etc, it is common practice for the buyer to pay for specific valuation by independent valuers (acceptable to the bank), and it is up to the bank to set loan per cent ratio accordingly based on the bank’s perception of risk, taking into account the buyer’s financial position, the bank’s loan quota, etc.

I believe that one market valuation will open up new opportunities for members of SISV and, more importantly, make the valuation more reliable.

James Lee

Rochor Rd hotel makes way for Downtown Line

Source : Business Times - 27 Jun 2008

Acquisition to accommodate station structures, the authorities say

CONSTRUCTION on the Downtown Line (Stage 1) has begun. And the first casualty will be the New Seventh Storey Hotel in Rochor Road.

A joint statement from the Land Transport Authority, Singapore Land Authority and Urban Redevelopment Authority yesterday said that the government intends to acquire the 38-room hotel to make way for the construction of the new underground station at Bugis.

‘Due to engineering constraints which cannot be avoided, the land currently occupied by the New Seventh Storey Hotel and part of the adjacent state land fronting Rochor Road is required,’ the statement said.

This is necessary to accommodate station structures and will also ‘enable comprehensive redevelopment of the area’.

After the acquisition, the 55-year-old hotel’s site will be amalgamated with an adjacent state site at North Bridge Road/Tan Queen Lan Street/Beach Road/Rochor Road. According to the draft Master Plan 2008, the parcel has a plot ratio of 4.2 and is zoned for both commercial and commercial/residential use.

No compensation figure for the hotel’s operators - understood to be descendents of Wee Thiam Siew, who also owned the Ban Leong Group - has been revealed. The government will peg this to market value, according to the provisions of the Land Acquisition Act.

An SLA spokesman said that an inquiry will be held, with input from the Chief Valuer to determine the market value.

Chesterton International senior executive director Chng Shih Hian said that the market value of the hotel will likely be based on the potential gross floor area of the site. He said that the recent tender price of $1,068.6 per square foot per plot ratio (psf ppr) for the nearby South Beach site in Beach Road could also be a factor in the valuation. But he noted that the Rochor Road site’s attributes - and constraints - are different.

Savills Singapore director Ku Swee Yong believes that the parcel is potentially ‘a very good site’ because of its proximity to the new Beach Road/Ophir-Rochor corridor. Already, office space at nearby Parkview Square is being leased at about $14 psf, he said.

Rochor Rd hotel makes way for Downtown Line

Source : Business Times - 27 Jun 2008

Acquisition to accommodate station structures, the authorities say

CONSTRUCTION on the Downtown Line (Stage 1) has begun. And the first casualty will be the New Seventh Storey Hotel in Rochor Road.

A joint statement from the Land Transport Authority, Singapore Land Authority and Urban Redevelopment Authority yesterday said that the government intends to acquire the 38-room hotel to make way for the construction of the new underground station at Bugis.

‘Due to engineering constraints which cannot be avoided, the land currently occupied by the New Seventh Storey Hotel and part of the adjacent state land fronting Rochor Road is required,’ the statement said.

This is necessary to accommodate station structures and will also ‘enable comprehensive redevelopment of the area’.

After the acquisition, the 55-year-old hotel’s site will be amalgamated with an adjacent state site at North Bridge Road/Tan Queen Lan Street/Beach Road/Rochor Road. According to the draft Master Plan 2008, the parcel has a plot ratio of 4.2 and is zoned for both commercial and commercial/residential use.

No compensation figure for the hotel’s operators - understood to be descendents of Wee Thiam Siew, who also owned the Ban Leong Group - has been revealed. The government will peg this to market value, according to the provisions of the Land Acquisition Act.

An SLA spokesman said that an inquiry will be held, with input from the Chief Valuer to determine the market value.

Chesterton International senior executive director Chng Shih Hian said that the market value of the hotel will likely be based on the potential gross floor area of the site. He said that the recent tender price of $1,068.6 per square foot per plot ratio (psf ppr) for the nearby South Beach site in Beach Road could also be a factor in the valuation. But he noted that the Rochor Road site’s attributes - and constraints - are different.

Savills Singapore director Ku Swee Yong believes that the parcel is potentially ‘a very good site’ because of its proximity to the new Beach Road/Ophir-Rochor corridor. Already, office space at nearby Parkview Square is being leased at about $14 psf, he said.

Rochor Rd hotel makes way for Downtown Line

Source : Business Times - 27 Jun 2008

Acquisition to accommodate station structures, the authorities say

CONSTRUCTION on the Downtown Line (Stage 1) has begun. And the first casualty will be the New Seventh Storey Hotel in Rochor Road.

A joint statement from the Land Transport Authority, Singapore Land Authority and Urban Redevelopment Authority yesterday said that the government intends to acquire the 38-room hotel to make way for the construction of the new underground station at Bugis.

‘Due to engineering constraints which cannot be avoided, the land currently occupied by the New Seventh Storey Hotel and part of the adjacent state land fronting Rochor Road is required,’ the statement said.

This is necessary to accommodate station structures and will also ‘enable comprehensive redevelopment of the area’.

After the acquisition, the 55-year-old hotel’s site will be amalgamated with an adjacent state site at North Bridge Road/Tan Queen Lan Street/Beach Road/Rochor Road. According to the draft Master Plan 2008, the parcel has a plot ratio of 4.2 and is zoned for both commercial and commercial/residential use.

No compensation figure for the hotel’s operators - understood to be descendents of Wee Thiam Siew, who also owned the Ban Leong Group - has been revealed. The government will peg this to market value, according to the provisions of the Land Acquisition Act.

An SLA spokesman said that an inquiry will be held, with input from the Chief Valuer to determine the market value.

Chesterton International senior executive director Chng Shih Hian said that the market value of the hotel will likely be based on the potential gross floor area of the site. He said that the recent tender price of $1,068.6 per square foot per plot ratio (psf ppr) for the nearby South Beach site in Beach Road could also be a factor in the valuation. But he noted that the Rochor Road site’s attributes - and constraints - are different.

Savills Singapore director Ku Swee Yong believes that the parcel is potentially ‘a very good site’ because of its proximity to the new Beach Road/Ophir-Rochor corridor. Already, office space at nearby Parkview Square is being leased at about $14 psf, he said.

Property values updated to match market rates

Source : Straits Times - 25 Jun 2008

I REFER to last Wednesday’s letter, ‘Property tax raised twice in a year’ by Mr Tan Wenfa.

Property tax is based on the annual value of a property, which is the estimated market rental of the property if it were to be let out. Annual values of properties need to be updated whenever they have become out of line with prevailing market rentals. Generally, the Inland Revenue Authority of Singapore reviews the annual values of properties every year.

The annual value of Mr Tan’s property was previously updated in September last year. Last month, the annual value had to be revised to reflect the prevailing market rentals for similar properties. The need to update the annual value of Mr Tan’s property is due to the increase in rentals for similar properties in the same estate between last year and this year.

We thank Mr Tan for the opportunity to clarify.

Deanna Choo (Ms)
Director, Corporate Communications Branch
Inland Revenue Authority of Singapore