Now, deferred payments with a twist

[aaaaaaaaaa]

Now, deferred payments with a twist

Credit-worthy buyers offered loans with no interest and instalment payment until TOP

By SIOW LI SEN


(SINGAPORE) The deferred payment scheme may have been banned, but something strikingly similar is doing the rounds to help developers sell their properties.

The interest absorption scheme (IAS) and the zero instalment scheme allow the buyer to make a 20 per cent downpayment - and then pay nothing until the temporary occupation permit, which may still be up to three years down the road.

Maybank, OCBC Bank and United Overseas Bank (UOB) are currently offering the scheme. Standard Chartered Bank is launching it soon, according to Dennis Khoo, its general manager of lending. Interestingly, DBS Bank has decided to stop offering such schemes.

The deferred payment scheme was banned by the government last October to dampen excessive speculation. It was offered by buyers and you did not even have to qualify as a borrower to buy property worth millions of dollars - as long as you had funds for the downpayment.

Under the new schemes, the buyers have to sign up to a bank loan for the property. 'The buyer has to be credit-worthy,' said Nicholas Mak, Knight Frank's director of research and consultancy. Once the creditworthiness is established, the buyer pays nothing more till TOP. During that period, it is the developer that pays interest to the bank, under the IAS.

Some small projects such as Chepstow Ville and Lynwood Grove are practically sold out after resorting to the IAS. However, the developer of another project who asked not to be named said the IAS has not helped his sales and he thinks it is the pricing that could be critical.

DBS Bank used to offer a zero instalment home loan scheme until TOP to buyers. The results were not always clear-cut. At the preview period of the 724-unit Livia, 160 units were sold in early July when DBS Bank offered a zero instalment home loan scheme. Subsequently, sales at the Livia slowed down and by end-July, it had sold 301 units, according to the latest data from the URA.

DBS said that the bank no longer offers the scheme. 'We had targeted the HDB upgraders on a project-by-project basis,' said Koh Kar Siong, DBS' head of deposits and secured loans. Some observers say such schemes could come back to bite the banks if the value of the properties fall. Last month, Citi analyst Wendy Koh said she expects a 20-30 per cent price correction for high-end properties from their recent peak, and reckons the mid-tier is likely to decline 10-20 per cent.

Said Helen Neo, Maybank Singapore head of consumer banking: 'Our credit assessment policy has always been to ensure that the buyer has the capacity to repay. It boils down to repayment capability.'

Kevin Lam, UOB head of loans, said the assessment of the customer is key. 'If the profile of the customer is good for a regular loan, he is good enough for this.' He also noted that the risks to the developer is lower with the IAS because the bank will disburse the loan to the developer according to the progressive payment schedule during construction. 'Unlike the deferred payment scheme, the developer gets no money from the buyers during the construction period.'

Gregory Chan, OCBC Bank head of secured lending, noted: 'Under the interest absorption scheme, the bank will not be exposed to additional risk as loan applicants are assessed based on their ability to repay both the principal and the subsequent instalments.'
     

[determined to crash]

You have to hand it to Singapore banks. They are so keen to emulate the US finance sector they wont rest until they have their own sub prime crisis.

Whty would you buy now when the bottom of the Singapore market is probably 2010?

[Kubes.SG]

This sounds like a bit of pyramid scheme.  Who wins?   I can only see losers in the current economic climate. 

I guess this is an indirect way of getting around the credit crunch for the developers and spreading the risk for the bankers.  Presume the banks view this as a lower risk by securing their loans against the assets of 100 little guy investors who have put their HDB flats and Mercs down as collateral.  Therefore the banks might be able to recover a large amount when it all collapses.  On the other hand if they just gave the $150M to the developer and he goes bankrupt it is nearly all lost and little to recover.    So they are not putting all their eggs in one basket.

Lets do the very basic numbers.  Say it is $2M loan facility, at 3.5% over 3 years until TOP.  That's $210k in interest payments that need to be made, meaning the price of the property must be been inflated by at least that much to make this scheme viable.   This just sounds like stupidity to me, especially in a declining market.

[tell me when?]

You have to hand it to Singapore banks. They are so keen to emulate the US finance sector they wont rest until they have their own sub prime crisis.

Whty would you buy now when the bottom of the Singapore market is probably 2010?

Which part of 2010? What will the economic indicators be?  How would I know when the bottom is here?  I mean, all you so-called gurus can talk so much about this and that, but you don't have a clue when it really counts.

[2010 a good bet]

2010 is a good bet for picking the bottom of the Singapore property market for the following reasons.

1. Singapore property cycle lags behind the western markets by 2-3 years and the last bubble was artifically engineered by the cheap availability of cash rather than driven by market fundamentals.

2. Singapore is at the absolute bottom of the interest rate cycle so the only way interest rates can move now is up.

3. DPS buyers who bought in the peak in 2007 will have to finance the TOP in 2010 so we will see a massive dumping of staock at the same time of a general oversupply

4. The rental market will continue to slowly decline as Singapore feels the effects of the global slow down. Note the 24% crash of July exports.

5. All of this adds up to a serious property crash as higher interest rates, over supply declining rental returns and DPS dumpers all hit the market at once. Cash up.

[toKubes]

Kubes -

I used to think you were smart and Greenspan's nephew or relative...however, the below comment is really ignorant..bordering on stupidity...

would it not just mean that the instead of funding the construction through a 'developer' loan, the developer is now funding it through utilisation of the credit of the buyer....its should not change the pricing of the unit (in other words, the funding cost of a unit is already built in as a cost in the construction). Kubes - you have lost your touch mate...

"Lets do the very basic numbers.  Say it is $2M loan facility, at 3.5% over 3 years until TOP.  That's $210k in interest payments that need to be made, meaning the price of the property must be been inflated by at least that much to make this scheme viable.   This just sounds like stupidity to me, especially in a declining market."

[shifts the risk]

The point is the risk is shifted from the developers whose stock prices and therefore capital is crashing, onto the small time investor with security.

I see Kubes point its a good one.

[Singapore Subprime]

The point is the risk is shifted from the developers whose stock prices and therefore capital is crashing, onto the small time investor with security.

I see Kubes point its a good one.

Yup...It's becoming like Singapore's very own subprime market. Singapore always copies the financial innovations from Western markets, albeit several years behind...So while the subprime situation in the US and UK is unravelling and perhaps, might see an end in the next year or so, Singapore's is just starting...

[Never ever]

The point is the risk is shifted from the developers whose stock prices and therefore capital is crashing, onto the small time investor with security.

I see Kubes point its a good one.

Yup...It's becoming like Singapore's very own subprime market. Singapore always copies the financial innovations from Western markets, albeit several years behind...So while the subprime situation in the US and UK is unravelling and perhaps, might see an end in the next year or so, Singapore's is just starting...

Subprime will never happen in Singapore because it is managed by more intelligent leaders unlike in USA.

[All clowns]

You have to hand it to Singapore banks. They are so keen to emulate the US finance sector they wont rest until they have their own sub prime crisis.

Whty would you buy now when the bottom of the Singapore market is probably 2010?

Which part of 2010? What will the economic indicators be?  How would I know when the bottom is here?  I mean, all you so-called gurus can talk so much about this and that, but you don't have a clue when it really counts.

If these clowns had a clue, they would be billionaires. The very fact they are wasting their time in this forum sounding like Gurus and giving unsolicited silly advice shows these are the last people one should listen to.

[Took so long]

Kubes -

I used to think you were smart and Greenspan's nephew or relative...however, the below comment is really ignorant..bordering on stupidity...

would it not just mean that the instead of funding the construction through a 'developer' loan, the developer is now funding it through utilisation of the credit of the buyer....its should not change the pricing of the unit (in other words, the funding cost of a unit is already built in as a cost in the construction). Kubes - you have lost your touch mate...

"Lets do the very basic numbers.  Say it is $2M loan facility, at 3.5% over 3 years until TOP.  That's $210k in interest payments that need to be made, meaning the price of the property must be been inflated by at least that much to make this scheme viable.   This just sounds like stupidity to me, especially in a declining market."

It took you so long to find out how STUPID Kubes is?

[Self praise]

The point is the risk is shifted from the developers whose stock prices and therefore capital is crashing, onto the small time investor with security.

I see Kubes point its a good one.

You are Kubes praising yourself. Good try

[The idiots back]

Under the names of:
Self praise
Took so long
All clowns
Never ever

He's managed to make himself look even more stupid by picking up on something that itself wasn't well thought-out.

Read carefully - THIS. SCHEME. MOVES. THE. RISK. FROM. THE. DEVELOPER. TO. THE. BUYER.

THE. BUYER. WILL. SIMPLY. PICK. UP. THE. COST. OF. BORROWING. MONEY. THROUGH. A. HIGHER. UNIT. PRICE.

[Smart Govt]

The point is the risk is shifted from the developers whose stock prices and therefore capital is crashing, onto the small time investor with security.

I see Kubes point its a good one.

Yup...It's becoming like Singapore's very own subprime market. Singapore always copies the financial innovations from Western markets, albeit several years behind...So while the subprime situation in the US and UK is unravelling and perhaps, might see an end in the next year or so, Singapore's is just starting...

Subprime will never happen in Singapore because it is managed by more intelligent leaders unlike in USA.

That's a very huge assumption...don't just believe in what you want to believe, look at what is happening or about to happen and form your own conclusions. Having a smart govt doesn't mean that shit doesn't happen. Your dog probably see you as God, and will always be there for him, feed him and take him to the vet when he is sick, but you know that even though you are smarter than your dog, you still can't prevent his death. So the best way is not to let your dog know the truth..Sometimes, being oblivious is bliss.

Our govt may be smart, but they are not that smart. Else they won't be so clueless whether in salvaging CPF as a social security, boosting birth rates, getting Singaporeans to speak decent English, or be more gracious and courteous, or resorting to importing en masse cheap foreign labour to boost GDP growth and tossing their lot with casinos and IRs (and along with it, prostitution, money laundering, racketeering etc), or choosing the easy way out of adopting Macau's or Monaco's formula to success rather than Denmark's and Finland which are far superior...In case you haven't noticed, our country is a lot filthier than before, our police force is exhausted and over-extended, and there are more frequrent violent crimes now. How this can be equated to progress is beyond me.

But it's good to know that at least, the govt's social conditioning and brainwashing has been very successful on a huge part of the population.

[toKubes]

As I noted before - after this comment from Kubes, I cannot really take his one-sided analysis at face value...he generally talks like he understands the market better than most others...however, as noted by others, his analysis is tilted to his bear view....rather than trying to see a more balanced view....

On the Singapore SubPrime risk - well, it seems that putting 20% upfront in the interest absorption method is quite prudent - does anyone know, if the buyer is subject to any other checks(i.e. whether they can service the loan). In the US the subprime loans involved, "no deposit down" and lending of 110% of purchase price - this seems quite different....any intelligent thoughts?