Tuesday, December 9, 2008

Get The Low-Down On Home Loan Top-Ups

Source : The Business Times, December 8, 2008

Banks don't usually ask for fresh valuations despite price slide

With the slide in property prices and a looming long economic downturn, some borrowers may be forgiven if they harbour thoughts of getting calls from their banks to top up their home loans.

But banks told BT that as long as borrowers are current in their monthly loan instalments, they will not ask for fresh valuations which could then lead to a top-up.

A DBS Bank spokeswoman says a key consideration when granting loans is the repayment ability of the customer.

'As such, when the customers are promptly servicing their monthly repayments, the bank will not usually require the customer to top-up the housing loan.'

Even those who took up loans on the deferred payment scheme (DPS) need not worry about the fall in the value of their homes, she says.

'Customers who took up loans on the deferred payment scheme would have had the approval granted based on the valuations at the point of the submission of their loan applications. And likewise, the approval will take into account the repayment ability of the customer.

'By the same token, when the loan is disbursed, as long as the customer can meet the monthly repayment amounts, the bank will not usually take any other course of action against the customer, even if valuations of these properties are now lower than that at the time of purchase.'

In reply of BT queries, a Monetary Authority of Singapore spokeswoman says non-performing housing loans are currently low.

'While we expect these to rise, the increase will not be significant,' she says.

'Banks in Singapore do not generally repossess a property once a loan is in default. Repossession is usually a final step after exhausting other avenues with the borrower, such as restructuring the loan,' she adds.

The MAS, however, does not intervene in such commercial decisions by the banks, she adds.

A United Overseas Bank spokeswoman says it is currently not the bank's practice to require a fresh valuation for DPS properties.

DPS borrowers typically begin paying their instalments some two years after they bought their homes.

Some observers are expecting a rash of defaults on the part of DPS buyers when the properties are completed and loan drawdowns begin.

Vibha Coburn, Citibank's head of secured finance solutions, says it is not the bank's usual practice to ask for top-ups in the case of existing borrowers who are servicing their loans on an ongoing basis.

'While we may conduct valuations on properties held within our loans portfolio, these would form part of our internal portfolio management and due diligence processes,' she says.

The UOB spokeswoman says the bank periodically reviews its mortgage portfolio, including the update of property values.

More Hotels, Rooms Amid Global Gloom

Source : The Straits Times, Dec 9, 2008

But hoteliers hope to woo customers by offering more bang for the buck

ABOUT 10 new hotels offering some 5,100 rooms are expected to open next year despite news that Singapore's hotel industry is labouring amid the global economic downturn.

The buildings, conceptualised during a more prosperous period, face a difficult task ahead of filling up their rooms. However, hoteliers say there is still business to be done despite the gloom.

'Ideally, we want to open in more favourable times,' said Mr Puneet Dhawan, general manager of the 500-room Ibis hotel, which is scheduled to open early next year. 'But we are still optimistic because people are coming to Singapore. We just have to offer them more bang for their buck.'

The optimism comes at a trying time for the industry. Visitor arrivals have been declining since June as travellers cut back on trips in the face of a worldwide recession.

October saw 8 per cent fewer visitors to Singapore than the same month last year - the biggest year-on-year drop of this year.

In the last year, hotel room occupancy rates islandwide have slid about 10 percentage points to about 80 per cent. The country has over 30,000 rooms.

Hotels slated to open next year range from the Marina Bay Sands integrated resort to mid-range establishments

like the Park Hotel Clarke Quay. The number of openings is comparable to the last few years.

Among the new additions is the five-star Capella Hotel in Sentosa, which is scheduled to open in March. While its daily rates will be between $600 and $800, a spokesman said the hotel will be able to pull in business and luxury travellers because demand for posh rooms remains strong.

Still, hotel analysts predict that 2009 will be a tough year. Ms Chee Hok Yean, executive vice-president and head of corporate advisory for Jones Lang LaSalle Hotels, said occupancy rates will likely drop to between 70 and 75 per cent and room rates will remain flat.

The new properties, she said, will have to work harder to make their mark. 'Competition will be tough next year and hotels have to be constantly aware of the market condition and their competitors.'

The lull in visitors has prompted some hotels to publicise below-market rates even before they open their doors.

The three-star Ibis, which is scheduled to open in February in Bencoolen Street, is offering rooms for $148++ per night - almost 25 per cent lower than the average for mid-range hotels.

Mr Dhawan said the promotion is designed to appeal to budget-conscious travellers, adding there will always be a market for hotels like his. 'During times of recession, people tend to trade down, so it is a good time for a property like ours to open.'

However, Mr Klaus Kohlmayr, director of service at hotel consultancy Integrated Decisions and Systems International, advised against cutting prices.

He said hotels 'which discount almost always lose money' as there is no guarantee they will get better occupancy. His advice is for hoteliers to establish closer partnerships with the local community.

With the declining tourism numbers, hotels are looking at the local market to boost occupancy. Mr Cheng Chee Chiang is the general manager of home-grown firm Santa United, which plans to open a 74-room hotel in Bugis early next year.

He said the hotel, the Santa Grand, may introduce special weekend packages for locals.

Time To Put An Official Number To DPS Units

Source : The Business Times, December 9, 2008

THE deferred payment scheme (DPS) was introduced more than 10 years ago in the middle of the 1997 Asian financial crisis, which dented interest in Singapore's property market.

Developers welcomed the scheme. The DPS allowed home buyers to put down just 10 per cent or 20 per cent of the purchase price when buying a property, with the rest due only after a project obtained its Temporary Occupation Permission (TOP).

The premise behind the DPS was to allow buyers, especially HDB upgraders, to buy a private home in advance of their HDB flats reaching the five-year minimum occupancy period.

However, during the recent property boom, the DPS gave both investors and speculators a window to bet on a rise in property prices. They did not have to secure any form of financing upfront, which meant that the banks' traditional role in measuring credit risk was effectively bypassed.

Securing loans

But questions are now being asked of many of the properties bought in the recent property boom using the DPS before it was suspended in October 2007. With the bulk of the property launches in 2007 due for TOP in 2009 and 2010, the tighter credit market and more stringent lending terms have made it harder for these buyers to secure loans.

'In cases where the property is still 'in the money' and the buyer can't secure a loan, we think the buyer would turn to the secondary market to exit the property,' said OCBC Investment Research analyst Foo Sze Ming. 'However, for properties that are not 'in the money', buyers may have to sell at lower prices or worse, default on the purchase.'

If many buyers end up defaulting, it will end up hurting the overall property market, depressing prices even further as supply increases. Developers' operating cashflow and earnings will also come under pressure.

Estimating the impact

Given the consequences, estimating how big an impact the DPS will have has become the preoccupation of market watches and analysts in recent weeks.

But they do so with patchy data and many assumptions. To begin with, many of the homes initially sold under the scheme have been re-sold on the subsale market, which means that they are no longer under the DPS. So an assumption has to be made there. In a Dec 3 report, DBS Vickers Research analyst Adrian Chua looked at the subsale status of projects likely to obtain TOP in 2009 and compared the figure to the total number of units sold in the development.

'This gives us an indication on the number of units potentially still under the DPS, given that many developers take the prudent approach of not extending the DPS to secondary buyers (from subsale transactions),' he said.

Using this method, he estimated that some 50 per cent of units in CapitaLand projects expected to obtain TOP in 2009 - including RiverGate and Riveredge - were under the DPS. He used this figure to calculate the impact of both a 10 per cent default and a 20 per cent default on CapitaLand's FY2009 earnings per share, operating cash flow, net gearing and interest cover.

His conclusion was that CapitaLand and five other developers - City Developments, Ho Bee Investment, Keppel Land, UOL Group and Wing Tai - are not likely to be too badly hit even under a 20 per cent default scenario.

But other analysts have made their own assumptions and have come up with more dire predictions. Some have cited the DPS issue hanging over the heads of developers here when issuing 'sell' calls on property stocks. These negative reports have spread fear among investors and could cause jittery banks to withhold financing to developers.

Differing views

The wide spectrum in views highlights the problem - right now, no one knows how many units are still on the now-defunct DPS, and consequently, how badly developers will be hurt if some buyers walk away from their deals. One property consultant put the number of units still on the DPS at about 4,000-5,000. But the figure is still an estimate.

What is needed is for the authorities to sit down with the developers to pin down an exact figure to the number of units still on the DPS in projects obtaining TOP in 2009 and 2010, preferably project by project.

If the problem is not as bad as it's now made out to be by some (which is what the developers are telling analysts and banks behind closed doors), then such a disclosure can only be good for all parties involved - developers, investors, home buyers, banks and the authorities, who have been working to ensure stability in the property market.

Property Agents Say More Private Homes On Sale Amid Downturn

Source : Channel NewsAsia, 09 December 2008

Property agents said there's been an eight per cent jump in the number of private homes being put up for sale recently compared to previous two quarters.

HSR Property Consultants said about half of the sellers have bought units under the Deferred Payment Scheme.

The scheme which was scrapped last October allowed homebuyers to delay payments on new property until it is completed.

Eric Cheng, executive director, HSR Property Consultants, said: "They are afraid that the current loans may not sustain the current price which they bought. There's also concern that the banks may not want to loan them at least an 80 per cent loan. So they are afraid they have to top up more cash."

But calculations show that these sellers will still make marginal profits or break even if they cash in on their properties now.

Agents at ERA agree that concerns over the fallout from the Deferred Payment Scheme are legitimate but over-rated.

That's because many investors would have already sold their units when prices peaked towards the end of last year.

Homebuyers are also unlikely to forfeit deposits on new units as they are legally bound to buy them.

However, there is no data available on the number of transactions sealed under the Deferred Payment Scheme.

Agents expect the market to hold up without heading to a fire sale situation where assets go at 20 to 30 per cent below valuation.

Eugene Lim, associate director, ERA Asia Pacific, said: "There are cases of fire sales but they are confined to sellers who generally need to raise cash fast. For example, they may be running a business and run into some cashflow problems."

Despite the negative sentiment, market players said there's still demand for properties especially those that are realistically priced. These are sold at between three and five per cent below market value. - CNA/vm