Investment property finance

[B2Ler]

Is it possible to raise finance in SG to purchase residential investment property, with the financing relying on rental income, and the loan secured on the property?

I.e. financing arranged with no reference to the borrower's salary etc.

[Kubes.SG]

Is it possible to raise finance in SG to purchase residential investment property, with the financing relying on rental income, and the loan secured on the property?

I.e. financing arranged with no reference to the borrower's salary etc.

Theoretically that is possible given the artificially low mortgage interest rates today.  But there are very significant risks:

1) the property will decline in value and the bank will make a margin call to ensure their risk is always less that 80%
2) Mortgage interest rates will rise.  MAS is doing everything it can to keep a lid on them to ensure a soft-landing following the bubble
3) There is absolutely no guarantee that you will be able to get tenants at high rental rates.  The current rental property oversupply will increase substantially over the next 2-3 years.

All up, what you want to do is technically feasibly but practically impossible.

[Loan]

Correct me if I am wrong. My impression of your question is that is it possible to get bank to give your a bank loan without looking at your salary. This is not possible. Unless you are using 100% cash without bank loan. For bank loan to happen, the bank will look at your income. The bank has a certain formulation on loan. eg you are only allowed to borrow up to x% of your income and this x% is computed taking into consideration other loans such as car, other property,etc... Also, alot depends on your personal credit rating.

The bank will not based on projected rental income to give you a loan. That's too risky and we will have subprime issue if that happens.

[kaki11]

You are correct in some respects - there is no specialist buy to let lender in Singapore (like the erstwhile Northern Rock, Bradford&Bingley etc. in the UK) who deals with individuals but there are some larger corporate investment property businesses who get funding. The portfolio risk of the investment property company presumably offers banks some comfort compared with the small scale landlord.
If your proposal generates at least 1.5x interest cover, you have a spread of properties and the loan to (very conservative) value is <80% then you might get some expensive secured funding.
Otherwise, you might as well borrow money to buy a high yielding REIT, although the closest you can get to residential exposure is via a REIT of service apartments.   

[doubt its possible...]

from my experience, banks here are very conservative (and frankly that's not at all a bad thing...)

I wanted to borrow foreign currency, secured against S$ fixed deposit with a large safety margin to the bank (for example borrow US$50k secured against S$100k FD), so zero risk to the bank (unless S$ weakens massively against US$ to US$/S$ = 2.00, and even then, I would have accepted a margin call clause at say US$/S$=1.75), yet couldn't get any bank to agree to it, not even the foreign banks here.

[nope]

Is it possible to raise finance in SG to purchase residential investment property, with the financing relying on rental income, and the loan secured on the property?

I.e. financing arranged with no reference to the borrower's salary etc.

No, it's not compliant with MAS regulations.

[B2ler]

Thanks for the input, interesting.

Opportunity lies within 'impossibility'. Just like invesing in London property pre-1996.

Are these restrictive MAS regulations published on the web?

[possible...]

Yes it is possible (at least it was a couple of months back). But the bank would only loan you 60% of the valuation of the property or 70% if you deposit 1 year worth of installments with them. You would also need to open a "premier / priority" banking account with them (basically depositing a minimum of SGD200K).

[2Possible]

Hmmm... sounds fine. Do you know which banks offered/offer such finance?

My UK private bank has a branch here. If needs be I can go to them with my thoughts. But obviously if I know what was/is available in the general market here already, I know what I am pitching for.

[agent c]

it is possible to get financing for private property if the loan amount is 60% or lesser. so u need to pay 40% cash. and they do not need any references to your income etc. standard chartered bank for one has such a scheme.

[possible...]

u can try scb and hsbc.

[B2Ler]

Thanks very much for those tips. It is ironic that the two named banks are both English!

Back in mid-90's London it was similarly difficult to get finance for residential investment (prior to the advent of 'Buy-to-let' mortgages). My first batch of apartments were bought on a commercial loan at 75% LTV, with rent coverage of 130%. I remember it was a fixed rate loan at 8.99% (probably 2.5-3% over BBR), and the gross rental yield was 13%.

I could handle 60% LTV, in fact the requirement for 40% equity suggests that residential investment has quite a hurdle for entry. This only points to greater opportunity in my mind.