Marine Parade condo prices head north

Source : The Edge – 18 Jan 2010

Private previews of The Shore Residences (the former Rose Garden enbloc site) by Far East Organization in December followed by an official launch on Jan 1 drew crowds to the showflat on weekends. The new 408-unit development opposite Katong Shopping Centre has seen close to 200 units sold at an average price of $1,175 psf as at last week.

What’s more, the project has also spurred renewed interest in the Marine Parade-Amber Road neighbourhood in East Coast, according to the URA Realis database of caveats lodged from Dec 18 to Dec 23.

The development that has seen close to half a dozen units change hands at prices ranging from $920 to $1,000 psf in December was the 612-unit Cote D’Azur, a 99-year leasehold condominium completed in 2004 by Fraser Centrepoint Homes. The highest transacted price at Cote D’Azur last month was for an 840 sq ft, fourth-floor apartment, which was sold for $840,000 ($1,000 psf), according to a Dec 1 caveat. The seller had bought the apartment only eight months earlier for $690,000, or $822 psf, hence seeing a 22% capital appreciation in that short period. It shows just how dramatic the turnaround in the market was last year.

Two 1,141 sq ft apartments — one on the 18th floor of Block 68 and the other on the seventh floor of Block 66 — were sold for $1.088 million ($954 psf) and $1.05 million ($920 psf), respectively in December. The owner of the 18th-floor unit had purchased it for $687,300 ($602 psf) in July 2002 when the project was first launched. Thus, the seller saw a 58.5% capital gain after seven years. Likewise, the owner of a seventhfloor unit had also purhased it from the developer for $662,070, or $580 psf, thus seeing a 58.6% gain over the same period.

Two fourth-floor apartments in Block 66 were sold in late December, according to caveats lodged on Dec 21 and 22. One was a 904 sq ft unit that was sold for $836,000 ($925 psf), while the other was a 1,539 unit that went for $1.52 million ($987 psf). The owner of the 904 sq ft unit had purchased it from the developer in August 2004 for $472,000, or $522 psf. At that time, the property market was at the bottom of the cycle, thus the owner saw a 77% gain from the sale after five years.

The owner of the 1,539 sq ft apartment had purchased the unit in July 2002, when the project was launched, for $854,340, or $555 psf. He enjoyed a 78% price appreciation after seven years.

Across the road from Cote D’Azur is the 546-unit freehold condo The Sea View by Wheelock Properties, which was completed in 2008. In December, two apartments at the high-end project were sold at prices in the $1,400 psf range.

A sixth-floor apartment of 1,410 sq ft at Block 37 of The Sea View was sold for $2 million ($1,418 psf). The last time the property changed hands was in a sub-sale in July 2006, when it was sold for $1.18 million ($838 psf). The first owner had purchased the unit for $1.08 million ($769 psf) when the project was first launched in July 2005.

A 19th-floor, 1,216 sq ft apartment at Block 31 of The Sea View was sold for $1.726 million ($1,420) in December. The owner had purchased the property in a sub-sale in April 2008 for $1.568 million ($1,290 psf).

Also in the neighbourhood is One Amber, a 562-unit development by joint developers UIC, Singapore Land and UOL Group. The project is expected to receive its temporary occupation permit in 1Q2010. The most recent transaction was that of a 15th-floor apartment in one of the four 23-storey blocks. The unit was sold for $1.47 million ($1,120 psf). The owner had purchased the 1,313 sq ft apartment for $1.01 million ($769 psf) in December 2006, hence enjoying a 46% gain.

From the transaction prices in the secondary market, it is clear that prices in the Marine Parade-Amber Road neighbourhood are heading back to the peak levels seen in mid-2007.

The dollars and sense of home loans

Get a package that matches your income profile and appetite for risk

Home buyers were recently advised not to throw caution to the wind in their anticipation of fulfilling the Singapore dream of snapping up a private unit.

The Monetary Authority of Singapore (MAS) earlier this month flagged two scenarios in which the private property sector could falter. Lately, it has levelled off somewhat, after a strong rebound.

MAS warned that property buyers could not assume that interest rates on home loans will stay at their current rock bottom levels indefinitely.

If the economy rebounds, interest rates are more likely to rise over the longer term, MAS cautioned.

This, in turn, would drive up monthly instalments on home loans that are not fixed.

If that happens, any home borrower who over-extended himself with a big loan could face serious problems.

The second scenario that MAS laid out: Home buyers could suffer losses from falling home prices as a result of a possible market correction if economic growth proves weaker than expected.

The Sunday Times takes a closer look at key factors to weigh up when taking out a home loan.

Affordability issues

In order to ensure prudent financial planning, Mr Dennis Ng, spokesman for www.HousingLoanSG.com – a mortgage consultancy portal – suggests that home buyers track their total monthly debt repayment obligations.

These repayments should not exceed 35 per cent of their household income.

For example, suppose your car loan instalment is $800, other monthly bills are $1,200 and your housing loan instalment is $3,000. That adds up to a total monthly debt repayment of $5,000.

Assume a monthly household income of $10,000.

That means half your income is going into debts. In the language of financial experts, that is called a debt-servicing ratio of 50 per cent.

That is not advisable as it is well above the maximum recommended debt-servicing ratio of 35 per cent.

Mortgage consultancy firm Global Creatif Financial helps its clients work out the maximum amount they can borrow. Firstly, it takes into account its clients’ individual and/or combined income (with spouse) derived from employment, trade, property or other income.

This amount would then be used to deduct monthly commitments including mortgage loans, car loans, bank loans, overdraft and credit card bills, said its managing director Annie Lim.

From there, Global Creatif calculates how much cash the client has left after fulfilling his monthly obligations. Using a desired loan term and an applied interest rate, it calculates the lump sum that the client can potentially borrow.

Another tip from Mr Ng is that prospective home buyers should not assess the affordability of a home they are eyeing by using current low interest rates.

Before the downturn in 2007, home loan interest rates were hovering at a higher rate of about 4 per cent.

So to be prudent, home buyers should calculate their instalments based on a higher interest rate of, say, 4 per cent instead. This would give them a better sense of whether they could afford the instalments if rates change.

Home buyers should set aside sufficient funds to meet future instalments should interest rates move up.

One’s long-term repayment ability should take into account the stability of your source of income and the available Central Provident Fund (CPF) savings for the down payment and monthly loan servicing, said a spokesman for United Overseas Bank (UOB).

Consider a 25-year housing loan of $500,000 at a current rate of 2 per cent.

If indeed rates rise to 4 per cent, then monthly mortgage instalments will jump 24.5 per cent or about $520.

Using the same rate revision, if the loan is a higher $800,000, the hike in monthly instalments is about $830.

If the property is meant for investment and you are using the rental earned to fund your monthly loan instalments, you might want to factor in a possible drop in rental rates, added Mr Ng.

This is because rental rates fluctuate and it is only prudent to be prepared for the possibility of lower rental income to ensure you can still afford the instalments if rental rates fall.

Mr Ng advised home buyers to factor in a possible 10 to 20 per cent drop in rental.

Let’s assume that the property is rented out at $3,000 a month. Rental falls of 10 and 20 per cent translate to lower rentals of $2,700 and $2,400, respectively.

Whether you are buying a house to live in or as an investment, it is prudent to have sufficient cash or CPF savings on standby to pay for at least six months of housing loan instalments in the event of unforeseen circumstances.

This means that if your loan instalment is $3,000, you should have $18,000 in cash and/or CPF monies set aside to cover six months of instalments.

Interest rates movement

Financial experts generally believe that home loan rates will stay low for the next six to 12 months.

Singapore home loan interest rates are very much affected by the Singapore Inter-bank Offered Rate (Sibor), pointed out Mr Ng. ‘Sibor is in turn affected by two factors, United States Federal Reserve interest rates and the liquidity in the Singapore banking system. And the US has indicated it is likely to keep interest rates low for the time being,’ he said.

Sibor is the interest rate at which banks lend to one another and is partly influenced by the supply of and demand for funds.

UOB said it expects Sibor rates to remain steady at the current level of 0.7 per cent for the next six months.

However, in the event that the US economy recovers, the US Federal Reserve might increase interest rates. If that happens in, say, about a year’s time, interest rates here would likely rise as well.

Mr Ng recalled that Sibor was 3.58 per cent in 2007 and above 2 per cent last year. It dropped below 1 per cent only this year when the US cut interest rates to a historic low of 0.25 per cent. For the last 10 months, it has been about 0.7 per cent. As a result, some consumers may have the misconception that Sibor is always below 1 per cent.

‘Consumers need to be mentally prepared for Sibor to go up to 2 per cent in more than one year’s time,’ he cautioned.

Another indication that home loan rates are likely to remain low, at least in the coming months, is the introduction of low one-year fixed rate packages by the financial institutions, said Ms Lim.

‘The general sentiment in the market is that rates will remain low for the next 12 months,’ she said.

Whether rates will indeed start creeping upwards a year from now depends on how long it takes for the global economy to right itself, but Ms Lim is certain that rates will move upwards more than three years from now.

Fixed or variable home loan packages

Naturally, the benefit of a fixed package is certainty: You know how much your instalments are for a set period.

The key difference between most fixed rate and variable packages is that the former comes with a lock-in period where you are penalised for any premature exit from the package.

Variable packages usually do not impose a lock-in period. Therefore they are recommended for clients who are not sure if they would be holding on to their properties. A no-lock-in package is deemed to be more suitable as the home buyer is not slapped with a penalty payment if he sells his property and redeems his loan. Also, variable packages tend to feature lower interest rates than most fixed rate packages, noted Ms Lim.

‘These variable packages are also suitable for clients who feel that they are comfortable with any short-term fluctuations and/or feel that rates will generally remain low in the short term,’ she added.

However, a variable rate, as the name implies, means that the bank can change the interest rate any time. For example, a three-month rate would re-set every three months. At the end of each three-month period, it could be higher or lower and you would pay more or less accordingly.

Fixed rate packages are suitable for clients who want certainty and peace of mind, and are not comfortable with rate fluctuations.

If you are unlikely to sell your house in the next three years, Mr Ng suggested that now might be a good time to lock in the low interest rates. You might want to consider fixing interest rates for the next two to three years.

Looking at present circumstances, both Mr Ng and Ms Lim would go for variable packages with no lock-in, as the sentiment is that rates would remain low at least for the next one year.

‘Since Sibor is unlikely to go up in the next six to 12 months, one might be better off opting for a one-month or three-month Sibor package. In the event that the Sibor starts rising, one can opt to switch to a 12-month Sibor package,’ said Mr Ng.

One-month Sibor is currently at 0.4375 per cent, three-month Sibor is 0.68 per cent while 12-month Sibor is 0.9 per cent. So if you choose the latter, you might end up paying more interest while interest rates are still low.

Source : Sunday Times – 22 Nov 2009