Any advice on taking out a home loan in Singapore for a house in Australia?

[Barren Wuffet]

Has anyone here taken an Aussie Dollar home loan at Singaporean interest rates for a house in Australia?

Any advice, comments? Ta muchly.

[Mystery]

what how is that suppose to work ? you can either have Aussie $ interest or Singapore $ interest...

[Kubes.SG]

Barren:  you score a big FAIL with that question.

Mystery is appropriately mystified, as am I, as to how you can borrow AUDs at SGD rates. The world does not work like that.

If you want SGD interest rates, then borrow SGDs.  If you want to spend AUDs then convert your borrowed SGDs to AUDs.  Then you get into a whole new game of forex speculation, and waiting for the SG bank to make a margin call each time the AUD drops by a few % points against the SGD.  This a game only fools would play using big numbers when the AUD is at high levels like now.

So net, best to play this game when the AUD is really low, not really high.

[DangerMouse]

My god I agree with Kubes!

Think of it this way

Say AUD/SGD is currently 1

You borrow SGD 500k, convert to AUD 500k and buy a house in Aus

Over 25yrs, this will cost you about SGD2k a month in loan repayments. So this is AUD 2k a month

A year later, the AUD has weakened  AUD/SGD = 0.8

You monthly payments are still SGD2k, but now that equivalent to AUD2.5k (not good if you are paying from AUD income)

Of course if AUD strengthens then all is good, but as Kubes says AUD is high now... 

Google "carry trade" for a bit more background

[DangerMouse]

oops missed a bit..

So after 1 year, you need to sell the house. Prices haven't moved, so you get back AUD500k.  You still owe SGD500k though. You sell the AUD500k and get SGD 400k, leaving you SGD 100k short.. nasty

Even if you don't want to sell, there is a fair chance that if the AUD weakens significantly, that the bank will ask for additional cash anyway

[Barren Wuffet]

Okay, I didn't phrase it properly. I want to borrow Singapore dollars for a house in Australia that's in Australian dollars.

I gather Singaporean interest rates are low. Australian interest rates are around 7 percent. My income is in Aussie dollars. If the interest rates' difference is sizeable, then even a slight drop in Aussie dollar exchange rate may still be palateable given the higher Aussie dollar interest rate. no? yes?

[thrillseeker]

Barren, you want to borrow in SGD but you earn AUD. This is basically forex trading. If you can withstand the possible losses, for all means go for it, but just be aware of what you're walking into.

It pains me to say it but - as Danger said - Kubes is actually right on this one <ugh>.

[same as others]

This is a carry trade, otherwise known as fx punting, you save say 5% and hope fx doesn't go against you.

Btw check some historic rates, fx rates often move a LOT more than 5% a year.

Aud is fairly strong right now, then again so is sgd but the govt is managing it to appreciate.

[migomoako]

and wouldnt the bank ask for documents of the house you plan to buy before releasing the loan? i surmise they would be wanting to see singapore property docs rather than Aussie property...right?

[Kubes.SG]

Watch out for the margin call.  SG banks do this. 

It works like this:  You have borrowed SGD1.3mln to buy a house in AU valued at say AUD$1mln.  The SG Bank holds the house as security.   The AUD goes down in value by 10% (this can easily happen).  All of a sudden your house is worth 10% less in SGD and the risk of the bank has gone up.  They will call you and give you 5 days to pay SG130k to bring the values back into parity.  If you can't the money bank might foreclose on you.

Unless you have rapid and unlimited cash, then don't play this game.  Not when the AUD is at historical highs.

[DangerMouse]

and wouldnt the bank ask for documents of the house you plan to buy before releasing the loan? i surmise they would be wanting to see singapore property docs rather than Aussie property...right?

No, the Aussie banks here will lend S$ to fund the purchase of property in Aus.  Make sure you read the loan documentation to see under what conditions they can call for additional margin.  They might not ask you cash to bring the loan to bring the loan to value ratio to the desired level, but might well ask you to put the cash on deposit with them as additional security.  

[even more complicated]

And to further complicate matters, the MAS stipulates that any loan against a property issued in Singapore may not be for more than 80% of the value of the property.   This leaves you vulnerable and again open to margin calls if the value of the property suddenly falls.

[DangerMouse]

Er.. that actually makes it slighly less dangerous. If >80% loans were allowed, then you would be even more vulnerable to currency movements and since the bank would have even less security, they would be more likely to call for additional cash

[even more complicated]

The fact is, the MAS strictly enforce the 80% limit and margin calls are made.  This is not true of every jurisdiction when as long as the valuations are correct at the time of taking out the loan, it can run its course regardless of the subsequent value of the property.  So yes, it is another factor to consider and further complicates an already volatile situation.

[Alex78]

OP - National Australia Bank/Bank of New Zealand in Suntec City were very helpful when we had similar questions a couple of years ago.