Bank lending to the property sector continued to accelerate in October, growing at the fastest annual pace in eight years, according to new data from the Singapore central bank yesterday.
Overall loans growth in the banking sector also picked up in October, the latest estimates from the Monetary Authority of Singapore (MAS) show.
Loans to the broad property sector, comprising consumer home loans and business loans to the building and construction industry, reached $105.7 billion at end-October - up 18.1 per cent from a year ago.
The year-on-year expansion was the fastest since October 1999, when property-related lending grew by 19.5 per cent.
Over the month, property-related loans grew 3.2 per cent from $102.4 billion at end-September, the fastest monthly pace since Nov 1998.
Consumer home loans, which include mortgages as well as short-term ‘bridging loans’ offered by banks to buyers of new homes who are waiting to receive the cash from selling another property, grew 14.3 per cent from a year ago to $71.8 billion, the fastest since October 2004. Over the month, the growth was 1.9 per cent, slightly slower than the 2 per cent growth in September.
Much of the period covered by latest data precedes the government’s withdrawal on Oct 26 of the deferred payment scheme for private property purchases, which was aimed at discouraging speculative buying.
David Conner, chief executive of OCBC Bank, said at the release of the group’s third-quarter results on Nov 6 that he expects to see an increase in demand for mortgages over the next two years, partly due to the withdrawal of the scheme, as buyers of new private homes will now have to pay a larger portion of the cost of a property while it is being built instead of deferring payments until the building is completed.
Meanwhile, loans to businesses in the building and construction sector rose 27.1 per cent over the year - the fastest since December 1996 - and 6 per cent over the month to $33.9 billion at end-October.
Total customer deposits grew 20.8 per cent over the year to $311.9 billion at end-October, while total loans grew just 15.5 per cent to $224.1 billion.
On a monthly basis, however, loans growth has outpaced growth in deposits since June. Over the month of October, loans grew 2.4 per cent compared to 1 per cent for deposits.
With the rapid expansion in loans, the ratio of loans to deposits in the banking system has recovered slightly to 71.8 per cent at the end of October, after falling as low as 67.1 per cent at end-May - the lowest in the published MAS data series, which started in Jan 1991.
Overall, loans to businesses grew at a faster pace than consumer loans, both on a monthly basis and when compared to a year ago.
Loans to businesses grew 18.5 per cent over the year and 2.6 per cent over the month to $120.1 billion. Other than the building and construction industry, the rapid growth in business loans was mainly due to expansion in loans to financial institutions and to the transport, storage and communications sector.
Meanwhile, consumer loans expanded 12.2 per cent over the year and 2.2 per cent over the month to $103.9 billion, driven mainly by the surge in home loans. Share financing and credit card lending also continued to grow, although these account for less than 8 per cent of total consumer loans.
The number of credit cards in circulation grew 15.3 per cent over the year and 2.4 per cent over the month to 4.45 million at end-October, excluding supplementary cards. But the total credit card rollover balance - that portion of the credit card debt that is subject to interest charges - dipped slightly over the month to $2.85 billion.
Source : Business Times - 1 Dec 2007
Showing posts with label Finance. Show all posts
Showing posts with label Finance. Show all posts
Saturday, December 1, 2007
Monday, November 26, 2007
Raffles City law firm of missing lawyer Zulkifli Amin to report missing monies and stalled deals.
MORE clients have shown up at the Raffles City law firm of missing lawyer Zulkifli Amin to report missing monies and stalled deals.
Mail company manager John Sasayiah, one of at least four who had lodged complaints to police, told The Straits Times yesterday that some $26,000 was due to him from the sale of his Casablanca condominium in Woodlands.
The cheque bounced when he tried to cash it on Wednesday, and yesterday he learnt that Mr Zulkifli - from the law firm Sadique Marican & ZM Amin - had gone missing.
On Thursday, a couple reported that a cheque for $40,000 due to them, also proceeds from a property sale, had bounced.
Yesterday, more than a dozen other clients showed up at the law firm to make inquiries over their property deals that had stalled.
One client told The Straits Times she was frustrated as she understood the firm’s clients’ account had been frozen as investigations continued.
This could result in the property deal being affected if the required funds are not transferred in time.
Mr Zulkifli is understood to have skipped town on Wednesday. Money from the firm’s account is missing and the authorities are trying to establish the extent of the losses.
A Law Society spokesman said yesterday that the firm reported it ‘had discovered shortfalls and discrepancies in the client account of the firm’ following which the police were called in.
He added that the society was also conducting an inspection of the firm’s clients’ account and, jointly with the firm, advises those who have suffered losses to lodge police reports.
This appears to be the first case of a lawyer snitching funds from the clients’ account since rules were tightened earlier this year requiring two signatures for the withdrawal of sums exceeding $30,000.
Lawyers contacted said the latest incident has cast doubts on the effectiveness of the enhanced rules.
Legal officer Thomas Loh said the problem was not with the enhanced rules but with the conveyancing deals.
Ninety per cent of the incidents so far involved property deals.
What was needed was to stop the practice of placing the option fees, amounting to up to 10 per cent of the property deal, in the law firm’s clients’ account.
Instead, he suggested that it should be a cashier’s order held by the bank providing the housing loan, to be released when the sale was completed.
‘The money, when kept in the clients’ account for about three months, is open to plunder,’ he added.
Former Law Society president Peter Low said ‘the rules should be reviewed if need be’.
Lawyers who knew Mr Zulkifli, or ‘Zul’ as they called him, were shocked at the news of his disappearance.
One of them, a former classmate, said he was a ‘friendly and approachable’ person who always had a ready smile for every one.
Another lawyer said he was very interested in football and used to play regularly with his classmates and friends until his work took up most of his time.
Source : Straits Times - 24 Nov 2007
Mail company manager John Sasayiah, one of at least four who had lodged complaints to police, told The Straits Times yesterday that some $26,000 was due to him from the sale of his Casablanca condominium in Woodlands.
The cheque bounced when he tried to cash it on Wednesday, and yesterday he learnt that Mr Zulkifli - from the law firm Sadique Marican & ZM Amin - had gone missing.
On Thursday, a couple reported that a cheque for $40,000 due to them, also proceeds from a property sale, had bounced.
Yesterday, more than a dozen other clients showed up at the law firm to make inquiries over their property deals that had stalled.
One client told The Straits Times she was frustrated as she understood the firm’s clients’ account had been frozen as investigations continued.
This could result in the property deal being affected if the required funds are not transferred in time.
Mr Zulkifli is understood to have skipped town on Wednesday. Money from the firm’s account is missing and the authorities are trying to establish the extent of the losses.
A Law Society spokesman said yesterday that the firm reported it ‘had discovered shortfalls and discrepancies in the client account of the firm’ following which the police were called in.
He added that the society was also conducting an inspection of the firm’s clients’ account and, jointly with the firm, advises those who have suffered losses to lodge police reports.
This appears to be the first case of a lawyer snitching funds from the clients’ account since rules were tightened earlier this year requiring two signatures for the withdrawal of sums exceeding $30,000.
Lawyers contacted said the latest incident has cast doubts on the effectiveness of the enhanced rules.
Legal officer Thomas Loh said the problem was not with the enhanced rules but with the conveyancing deals.
Ninety per cent of the incidents so far involved property deals.
What was needed was to stop the practice of placing the option fees, amounting to up to 10 per cent of the property deal, in the law firm’s clients’ account.
Instead, he suggested that it should be a cashier’s order held by the bank providing the housing loan, to be released when the sale was completed.
‘The money, when kept in the clients’ account for about three months, is open to plunder,’ he added.
Former Law Society president Peter Low said ‘the rules should be reviewed if need be’.
Lawyers who knew Mr Zulkifli, or ‘Zul’ as they called him, were shocked at the news of his disappearance.
One of them, a former classmate, said he was a ‘friendly and approachable’ person who always had a ready smile for every one.
Another lawyer said he was very interested in football and used to play regularly with his classmates and friends until his work took up most of his time.
Source : Straits Times - 24 Nov 2007
Wednesday, November 14, 2007
What should I consider about buying a house and financing it?
KEVIN LAM discusses five key areas that your home loan banker would be looking very closely at
THIS has been a special year for the property market. Not since the early 1990s has there been such euphoria about the property market - long queues at property launches, stories of someone we know making fast money by ‘flipping’ new property purchases in a matter of weeks, even days. Many people who have yet to join the party have been wondering if they should also jump on to the property bandwagon.
With the latest government measures to discontinue the deferred payment scheme, some measure of stability should return to the market such that even as prices continue to go up given our transformation into a global city, it would rise in a more measured manner.
For those who need to think very carefully about the finer details of taking out a loan with a bank to finance what would be one of the biggest financial commitments, you may want to consider some finer details as part of your overall decision-making process.
What should I consider about buying a house and financing it?
In Singapore, we have seen two boom-and-bust cycles of property price peaks and troughs in the past 17 years. While many people may think that we are currently in the midst of a boom, many others remain cautious and conservative about making a property financing commitment, and rightly so. The first and most important thing potential home owners should be looking at when they consider buying a house and taking up a mortgage to finance it is this - are you over-stretching yourself? To answer this, you have to look at five key areas that your banker would probably be also looking very closely at:
Quantum of financing: Since July 2005, the Monetary Authority of Singapore (MAS) has liberalised the quantum of financing for housing loans, up to 90 per cent loan-to-value (LTV). This means that as a home buyer, the minimum that one needs to raise is 10 per cent of the value of the property and the cash component can be a minimum 5 per cent with the balance of 5 per cent made up from the Central Provident Fund (CPF).
Typically, because the capital and credit cost associated with granting these higher quantum loans are higher, these loans come with higher interest rates when compared to 80 per cent LTV loans. In this market, a comfortable level for financing for banks would generally be at 80 per cent quantum of financing. This means that home buyers must have a minimum of 5 per cent cash and 15 per cent CPF lump-sum from their CPF Ordinary Account. For a $1 million property, this works out to $50,000 in cash and $150,000 in CPF OA monies, or if one prefers, this amount could be paid in cash.
With more cash upfront, this is generally viewed more favourably by the banker, that is, if you could use more than the minimum 5 per cent cash. For example, if there are two borrowers looking for 90 per cent financing, both of equal standing, the one who can put up the entire 10 per cent in cash downpayment, would be better positioned from a bank’s credit standpoint than the other who uses 5 per cent cash and 5 per cent CPF monies. More cash upfront shows more commitment from the potential customer, and this would generally put your financing request in a better light.
Likewise, if a potential customer has the ability to fork out up to 30 per cent or more, cash or CPF down payment, and request only 70 per cent financing, he or she can be more confident of your request for financing.
Employment profile: The potential customer’s employment status is also one of the most important considerations to review when taking out a housing loan. He or she should consider the stability of his/her employment, regardless of whether the potential customer is a working employee or self-employed.
Typically two years of qualified income coming from the same employer or same source of business should be a good indication of the borrower’s employment profile. On the other hand, if a borrower changes jobs frequently, even with higher income, it may be viewed by banks as being less secure and stable in employment.
Income and your CPF reserve: In home financing, one of the key commitments is to ensure that monthly housing loans instalments remain uninterrupted and consistent.
As a good rule-of-thumb, if housing loan instalments are kept to below 40 per cent of a person’s monthly income, the borrower would be better positioned in his/her monthly servicing ability. This is especially so if the borrower’s monthly CPF OA contribution is able to fund a good part of the housing loan instalment.
It would also be a prudent measure to have a reserve of at least six to 12 months of monthly instalments in the CPF OA. This provides more cushion should there be a change in a borrower’s employment status, and he/she needs time to find another job. This means that when one uses CPF for the initial downpayment, it is important to be conservative and keep a reserve, rather than using up all of one’s CPF for downpayment. As one goes through the sums for mortgage financing, one will realise that income, CPF resources, employment profile, and the quantum of financing are all inter-related. Any home buyer should sit down and work out the numbers to ask the question: ‘Am I over-stretching myself financially?’
Interest rate, monthly instalment and rental yields: One of the key considerations in taking a housing loan is interest rate. However, borrowers almost always ask the wrong question with regards to interest rate. ‘How low is your interest versus other banks?’ is the typical question.
Consider this alternative thinking; instead of asking how low a bank’s interest rates are, borrowers should seriously consider the exact opposite: ‘How high can interest rates be, while I can still afford the housing loan payment? Look at the accompanying table and consider various scenarios, such as a higher interest rate (note that the SGD mortgage interest rate is one of the lowest in the region) and whether a borrower can continue to service the loan, even if interest rate would double. Not possible?
Those of us who can remember the 1990s recall that housing loan rates were once at 8 per cent. These difficult economic periods when interest went up were often accompanied by periods where people found the stability of their income at risk. So, under such circumstances, if you were to lose your job, do you have sufficient reserves to last - and for how long?
This is where the difference of taking a fixed or a floating rate should be reviewed. Floating rates, while lower, do not have the stability of fixed rate loans. So a borrower may want to consider taking a two-in-one loan where a borrower can combine both fixed and floating rate loans in one mortgaged property. For example, the UOB two-in-one loan.
With rising rental yields, many are also thinking of buying a property as an investment which they intend to rent out to cover mortgage payments. Here. the question to ask would be: ‘Would I still be all right if rental should fall by half?’ Rents go up quickly due to shortage of housing, especially for foreigners with good housing budgets, but they can drop as quickly if there is a downturn.
In the current climate, these may seem faraway possibilities, but whether you are buying for your own stay, or for investment - consider the various scenarios and do your sums carefully.
Your credit performance: One of the other lesser known issues one should consider before taking up a housing loan is credit performance. In Singapore, all your credit performance in terms of number of loans applied for, whether for housing, cars, credit cards or other loans is stored in the Credit Bureau. When you apply for a loan, you would have signed a consent for your bank to obtain a copy of your credit performance.
Some borrowers have been caught in a situation where they committed to a property by paying the option money, only to find that when they apply for a loan, their application is either turned down, or their request for financing reduced. This could be due the credit history, showing a habitual lateness for other loans. These information are transparent across banks, and a borrower would be advised to get a home financing in-principle approval before committing to a property. One of the ways to ensure that one is not ‘caught’ by credit performance is to ensure that payment is prompt in the borrower’s other loan repayments.
Many people think that housing loans are commodity products, but that cannot be further from the truth. In a very competitive market like Singapore where rates are so low, banks have learnt to compete not by price competition, but through value-added features.
All said, it is key for every potential home buyer to do some homework. Ask yourself if you have the resources both now and in the future to service the mortgage for the amount of loan you intend to take to buy that property. As daunting an exercise as this may be, it is one exercise that we must spend time pondering. At the end of the day, there is no free lunch.
Kevin Lam is head, loans division, United Overseas Bank
Source : Business Times - 14 Nov 2007
THIS has been a special year for the property market. Not since the early 1990s has there been such euphoria about the property market - long queues at property launches, stories of someone we know making fast money by ‘flipping’ new property purchases in a matter of weeks, even days. Many people who have yet to join the party have been wondering if they should also jump on to the property bandwagon.
With the latest government measures to discontinue the deferred payment scheme, some measure of stability should return to the market such that even as prices continue to go up given our transformation into a global city, it would rise in a more measured manner.
For those who need to think very carefully about the finer details of taking out a loan with a bank to finance what would be one of the biggest financial commitments, you may want to consider some finer details as part of your overall decision-making process.
What should I consider about buying a house and financing it?
In Singapore, we have seen two boom-and-bust cycles of property price peaks and troughs in the past 17 years. While many people may think that we are currently in the midst of a boom, many others remain cautious and conservative about making a property financing commitment, and rightly so. The first and most important thing potential home owners should be looking at when they consider buying a house and taking up a mortgage to finance it is this - are you over-stretching yourself? To answer this, you have to look at five key areas that your banker would probably be also looking very closely at:
Quantum of financing: Since July 2005, the Monetary Authority of Singapore (MAS) has liberalised the quantum of financing for housing loans, up to 90 per cent loan-to-value (LTV). This means that as a home buyer, the minimum that one needs to raise is 10 per cent of the value of the property and the cash component can be a minimum 5 per cent with the balance of 5 per cent made up from the Central Provident Fund (CPF).
Typically, because the capital and credit cost associated with granting these higher quantum loans are higher, these loans come with higher interest rates when compared to 80 per cent LTV loans. In this market, a comfortable level for financing for banks would generally be at 80 per cent quantum of financing. This means that home buyers must have a minimum of 5 per cent cash and 15 per cent CPF lump-sum from their CPF Ordinary Account. For a $1 million property, this works out to $50,000 in cash and $150,000 in CPF OA monies, or if one prefers, this amount could be paid in cash.
With more cash upfront, this is generally viewed more favourably by the banker, that is, if you could use more than the minimum 5 per cent cash. For example, if there are two borrowers looking for 90 per cent financing, both of equal standing, the one who can put up the entire 10 per cent in cash downpayment, would be better positioned from a bank’s credit standpoint than the other who uses 5 per cent cash and 5 per cent CPF monies. More cash upfront shows more commitment from the potential customer, and this would generally put your financing request in a better light.
Likewise, if a potential customer has the ability to fork out up to 30 per cent or more, cash or CPF down payment, and request only 70 per cent financing, he or she can be more confident of your request for financing.
Employment profile: The potential customer’s employment status is also one of the most important considerations to review when taking out a housing loan. He or she should consider the stability of his/her employment, regardless of whether the potential customer is a working employee or self-employed.
Typically two years of qualified income coming from the same employer or same source of business should be a good indication of the borrower’s employment profile. On the other hand, if a borrower changes jobs frequently, even with higher income, it may be viewed by banks as being less secure and stable in employment.
Income and your CPF reserve: In home financing, one of the key commitments is to ensure that monthly housing loans instalments remain uninterrupted and consistent.
As a good rule-of-thumb, if housing loan instalments are kept to below 40 per cent of a person’s monthly income, the borrower would be better positioned in his/her monthly servicing ability. This is especially so if the borrower’s monthly CPF OA contribution is able to fund a good part of the housing loan instalment.
It would also be a prudent measure to have a reserve of at least six to 12 months of monthly instalments in the CPF OA. This provides more cushion should there be a change in a borrower’s employment status, and he/she needs time to find another job. This means that when one uses CPF for the initial downpayment, it is important to be conservative and keep a reserve, rather than using up all of one’s CPF for downpayment. As one goes through the sums for mortgage financing, one will realise that income, CPF resources, employment profile, and the quantum of financing are all inter-related. Any home buyer should sit down and work out the numbers to ask the question: ‘Am I over-stretching myself financially?’
Interest rate, monthly instalment and rental yields: One of the key considerations in taking a housing loan is interest rate. However, borrowers almost always ask the wrong question with regards to interest rate. ‘How low is your interest versus other banks?’ is the typical question.
Consider this alternative thinking; instead of asking how low a bank’s interest rates are, borrowers should seriously consider the exact opposite: ‘How high can interest rates be, while I can still afford the housing loan payment? Look at the accompanying table and consider various scenarios, such as a higher interest rate (note that the SGD mortgage interest rate is one of the lowest in the region) and whether a borrower can continue to service the loan, even if interest rate would double. Not possible?
Those of us who can remember the 1990s recall that housing loan rates were once at 8 per cent. These difficult economic periods when interest went up were often accompanied by periods where people found the stability of their income at risk. So, under such circumstances, if you were to lose your job, do you have sufficient reserves to last - and for how long?
This is where the difference of taking a fixed or a floating rate should be reviewed. Floating rates, while lower, do not have the stability of fixed rate loans. So a borrower may want to consider taking a two-in-one loan where a borrower can combine both fixed and floating rate loans in one mortgaged property. For example, the UOB two-in-one loan.
With rising rental yields, many are also thinking of buying a property as an investment which they intend to rent out to cover mortgage payments. Here. the question to ask would be: ‘Would I still be all right if rental should fall by half?’ Rents go up quickly due to shortage of housing, especially for foreigners with good housing budgets, but they can drop as quickly if there is a downturn.
In the current climate, these may seem faraway possibilities, but whether you are buying for your own stay, or for investment - consider the various scenarios and do your sums carefully.
Your credit performance: One of the other lesser known issues one should consider before taking up a housing loan is credit performance. In Singapore, all your credit performance in terms of number of loans applied for, whether for housing, cars, credit cards or other loans is stored in the Credit Bureau. When you apply for a loan, you would have signed a consent for your bank to obtain a copy of your credit performance.
Some borrowers have been caught in a situation where they committed to a property by paying the option money, only to find that when they apply for a loan, their application is either turned down, or their request for financing reduced. This could be due the credit history, showing a habitual lateness for other loans. These information are transparent across banks, and a borrower would be advised to get a home financing in-principle approval before committing to a property. One of the ways to ensure that one is not ‘caught’ by credit performance is to ensure that payment is prompt in the borrower’s other loan repayments.
Many people think that housing loans are commodity products, but that cannot be further from the truth. In a very competitive market like Singapore where rates are so low, banks have learnt to compete not by price competition, but through value-added features.
All said, it is key for every potential home buyer to do some homework. Ask yourself if you have the resources both now and in the future to service the mortgage for the amount of loan you intend to take to buy that property. As daunting an exercise as this may be, it is one exercise that we must spend time pondering. At the end of the day, there is no free lunch.
Kevin Lam is head, loans division, United Overseas Bank
Source : Business Times - 14 Nov 2007
Even high net worth individuals (HNWI) go to financial institutions for loans, which might seem strange since they are presumably cash-rich.
They make sense to short-term investors and individuals who are high income earners and in high tax brackets, says BEN FOK
CONSUMERS are constantly bombarded with offers of loans, overdrafts, credit cards and instalment plans that promise instant gratification.
We cannot avoid debt entirely, especially when it comes to acquiring the big ticket items, and not all debt is bad. But those who borrow must be prudent and know that they can make the repayments.
Even high net worth individuals (HNWI) go to financial institutions for loans, which might seem strange since they are presumably cash-rich. But there are situations where it is worthwhile for the HNWI to borrow instead of paying with their own cash.
Some financial institutions offer interest-only loans targeted at the HNWIs. With such loans, you only repay the interest, not the principal, so the loan balance remains unchanged. Most interest-only loans offered by financial institutions are associated with the purchase of property.
Interest-only loans make sense to individuals who are high income earners and in high tax brackets. The benefit comes from being able to save on tax on rental income. That’s because the interest portion of loan instalments for rental properties is tax deductible.
This package also works well for short-term investors. By repaying only the interest, investors fork out less cash each month, until they sell the property. As a result, they may be able to invest in two properties instead of one.
But interest-only loans are not for the long term, because at the end of the loan period, the payment is raised to the fully amortising level. If you’re still in your home at the end of the interest-only period, you’ll have to start paying off the principal. The payments will be considerably larger because they’ll be amortised over a shorter period. For example, if your interest-only option lasts for five years and you have a 30-year loan, your principal payments will be calculated on a 25-year term.
Drawbacks of interest-only mortgages:
You could experience payment shock. As mentioned earlier, your monthly payment will go up - sometimes by 30 per cent or more - when you start paying off the principal. And if the end of your interest-only period coincides with an upward adjustment in your mortgage rate, you could face an even sharper hike in monthly payments.
You’re more vulnerable if your home value declines. Many borrowers with interest-only loans assume home price appreciation will help them build equity in their homes. In recent years, that’s been a good bet. But rising interest rates could deflate real estate values in some high-cost areas.
It’s best to get a reputable financial institution to run the numbers for you and spell out the worst-case scenarios.
Equity provides a cushion against falling home values. Without it, you could find yourself owing more on your mortgage than your home is worth. If you sell, the proceeds won’t cover your loan balance, which means you’ll have to come up with money from another source. One way to avoid this problem is to make a good-sized downpayment on your mortgage.
Advantages of interest-only mortgages:
You have more flexibility. Some interest-only borrowers can afford a larger mortgage payment but their priority is to beef up their retirement nestegg or build up their emergency funds. Once they’ve accomplished those goals, they often decide to increase their mortgage payments.
Increasing your monthly payments will build equity and lessen payment shock when you’re required to start paying off the principal. If you’re interested in this option, make sure your loan doesn’t contain pre-payment penalties.
Interest-only mortgages are complicated, so make sure you understand the pitfalls before you sign anything.
And don’t rely on the financial institutions to figure out how much you can afford to borrow. A lender may not take into account all of your future expenses, such as child’s university fees or support of an elderly parent.
What worries me is Singaporeans taking two or more mortgages in a rising market. As property prices rise, the dollar amount also rises in line with higher selling prices. Affordability becomes an issue. You’re in the best position to know what your financial obligations are, so get a mortgage you can afford. How much should one borrow? There are two ratios that financial advisers commonly use:
Debt to asset ratio which is total debt/total assets. This ratio should be 50 per cent or less;
Debt servicing ratio which is total monthly loan repayment/monthly take-home pay. This ratio should be 35 per cent or less.
After all, wealth equals assets less debt. It is built up over the years by accumulating assets and paying down debt, especially mortgage debt. When you pay down the balance of your mortgage, you are increasing your wealth by reducing debt. But an interest-only mortgage does not increase wealth in that way.
Of course, you may be increasing your wealth by accumulating assets instead. If that’s your plan and you have determined that it is more effective in building wealth during the interest-only period than paying down mortgage debt, fine. But paying down mortgage debt is the most effective way to build wealth, especially in today’s financial environment. Four dangers related to borrowing too much:
It can become a habit; It takes away money from other important needs;
Your credit rating will be damaged if you don’t pay the bills;
It can lead to high interest payments that are harder to make.
Three situations where it’s better to avoid borrowing:
Paying your everyday expenses;
Covering optional spending;
Borrowing when you know you can’t afford the payments
It’s not a good idea to borrow a lot thinking that you will just pay the minimum back each month. It may take a long time to get out of debt and you’ll end up paying a lot of interest. Also, if you have one late payment, your credit rating may suffer and you’ll be charged penalties.
At the end of the day, paying down a loan is the best option, because once it’s paid it remains paid.
Ben Fok is CEO, Grandtag Financial Consultancy (Singapore) Pte Lt.
Source : Business Times - 14 Nov 2007
CONSUMERS are constantly bombarded with offers of loans, overdrafts, credit cards and instalment plans that promise instant gratification.
We cannot avoid debt entirely, especially when it comes to acquiring the big ticket items, and not all debt is bad. But those who borrow must be prudent and know that they can make the repayments.
Even high net worth individuals (HNWI) go to financial institutions for loans, which might seem strange since they are presumably cash-rich. But there are situations where it is worthwhile for the HNWI to borrow instead of paying with their own cash.
Some financial institutions offer interest-only loans targeted at the HNWIs. With such loans, you only repay the interest, not the principal, so the loan balance remains unchanged. Most interest-only loans offered by financial institutions are associated with the purchase of property.
Interest-only loans make sense to individuals who are high income earners and in high tax brackets. The benefit comes from being able to save on tax on rental income. That’s because the interest portion of loan instalments for rental properties is tax deductible.
This package also works well for short-term investors. By repaying only the interest, investors fork out less cash each month, until they sell the property. As a result, they may be able to invest in two properties instead of one.
But interest-only loans are not for the long term, because at the end of the loan period, the payment is raised to the fully amortising level. If you’re still in your home at the end of the interest-only period, you’ll have to start paying off the principal. The payments will be considerably larger because they’ll be amortised over a shorter period. For example, if your interest-only option lasts for five years and you have a 30-year loan, your principal payments will be calculated on a 25-year term.
Drawbacks of interest-only mortgages:
You could experience payment shock. As mentioned earlier, your monthly payment will go up - sometimes by 30 per cent or more - when you start paying off the principal. And if the end of your interest-only period coincides with an upward adjustment in your mortgage rate, you could face an even sharper hike in monthly payments.
You’re more vulnerable if your home value declines. Many borrowers with interest-only loans assume home price appreciation will help them build equity in their homes. In recent years, that’s been a good bet. But rising interest rates could deflate real estate values in some high-cost areas.
It’s best to get a reputable financial institution to run the numbers for you and spell out the worst-case scenarios.
Equity provides a cushion against falling home values. Without it, you could find yourself owing more on your mortgage than your home is worth. If you sell, the proceeds won’t cover your loan balance, which means you’ll have to come up with money from another source. One way to avoid this problem is to make a good-sized downpayment on your mortgage.
Advantages of interest-only mortgages:
You have more flexibility. Some interest-only borrowers can afford a larger mortgage payment but their priority is to beef up their retirement nestegg or build up their emergency funds. Once they’ve accomplished those goals, they often decide to increase their mortgage payments.
Increasing your monthly payments will build equity and lessen payment shock when you’re required to start paying off the principal. If you’re interested in this option, make sure your loan doesn’t contain pre-payment penalties.
Interest-only mortgages are complicated, so make sure you understand the pitfalls before you sign anything.
And don’t rely on the financial institutions to figure out how much you can afford to borrow. A lender may not take into account all of your future expenses, such as child’s university fees or support of an elderly parent.
What worries me is Singaporeans taking two or more mortgages in a rising market. As property prices rise, the dollar amount also rises in line with higher selling prices. Affordability becomes an issue. You’re in the best position to know what your financial obligations are, so get a mortgage you can afford. How much should one borrow? There are two ratios that financial advisers commonly use:
Debt to asset ratio which is total debt/total assets. This ratio should be 50 per cent or less;
Debt servicing ratio which is total monthly loan repayment/monthly take-home pay. This ratio should be 35 per cent or less.
After all, wealth equals assets less debt. It is built up over the years by accumulating assets and paying down debt, especially mortgage debt. When you pay down the balance of your mortgage, you are increasing your wealth by reducing debt. But an interest-only mortgage does not increase wealth in that way.
Of course, you may be increasing your wealth by accumulating assets instead. If that’s your plan and you have determined that it is more effective in building wealth during the interest-only period than paying down mortgage debt, fine. But paying down mortgage debt is the most effective way to build wealth, especially in today’s financial environment. Four dangers related to borrowing too much:
It can become a habit; It takes away money from other important needs;
Your credit rating will be damaged if you don’t pay the bills;
It can lead to high interest payments that are harder to make.
Three situations where it’s better to avoid borrowing:
Paying your everyday expenses;
Covering optional spending;
Borrowing when you know you can’t afford the payments
It’s not a good idea to borrow a lot thinking that you will just pay the minimum back each month. It may take a long time to get out of debt and you’ll end up paying a lot of interest. Also, if you have one late payment, your credit rating may suffer and you’ll be charged penalties.
At the end of the day, paying down a loan is the best option, because once it’s paid it remains paid.
Ben Fok is CEO, Grandtag Financial Consultancy (Singapore) Pte Lt.
Source : Business Times - 14 Nov 2007
Saturday, November 10, 2007
The introduction of ‘landlord insurance’ in Singapore, which is something that is being offered in Australia.
With the growing property rental market in Singapore, it may be time to look at more ways to protect the interests of both landlords and tenants.
This was the opinion of some viewers who wrote in after a landlord was interviewed on Get Rea!, a Channel NewsAsia’s current affairs programme.
In the Get Rea! episode, “Just Follow The Law”, it was a case of a Singaporean landlord living in Australia who had problems with a difficult tenant in Singapore.
Among other things, the tenant refused to let the landlord’s property agent arrange for a joint inspection of the premises towards the end of the lease.
So the inspection was carried out at midnight on the last day itself.
The property was left in such a mess that the two months security deposit was forfeited.
The landlord, Sharon de Souza, suggested the introduction of ‘landlord insurance’ in Singapore, which is something that is being offered in Australia.
She said: “Landlord insurance essentially gives you coverage. They will cover up to A$5,000 of your legal fees if you have to engage a lawyer to get rental back or claim for damages. Also, if you’ve lost rental income because of a delinquent tenant, the policy - based on what policy type you take - will cover part of your rental.”
While insurance companies that were contacted declined to comment, saying they were not familiar with the proposal, the Institute of Estate Agents (IEA) thinks the suggestion is worth considering.
Jeff Foo, President of Institute Of Estate Agents, said: “Landlords buy the insurance to cover themselves against loss of income, damage, malicious damage to their property, theft and perhaps legal fees. But a lot of this will depend on supply and demand because a month’s rental will go into paying for the premium of such policies. But it may not be a bad idea.”
Ms de Souza had also suggested that property agents be paid their commissions on a staggered, monthly basis, instead of a total sum upfront once the Tenancy Agreement is signed.
However, property agents told Channel NewsAsia that adopting such a system is harder in Singapore.
Vincent Chong of Colliers International explained: “It’s because generally, our rental rates are relatively low for the lower end of the market. For instance, if it’s a S$2,000 rent and it’s spread over 24 months, it’s going to be less than S$100 per month for the property agent. But of course, if the rental prices are in the region of S$20,000, it would be possible for agents to accept a kind of staggered commission.”
There was also a suggestion on how landlords could deal with difficult tenants, especially when it is a long-distance relationship.
“We suggest to the landlord that they engage a Property Managing Agent to do the day-to-day running of the lease, which includes collection of the rent, maintenance of the air-conditioning,” said Mr Chong.
Engaging such a Lease Management Agent could cost you 10 percent of your monthly rental fee, although some property agencies offer it free-of-charge to landlords as a value-added service.
As for the tenants, Low Swee Kim, Vice-President of Institute of Estate Agents, said: “We have a Small Claims Tribunal where tenants or landlords can go to resolve their disputes. They don’t need to pay any high legal fees because they don’t need to be represented by lawyers. They can go anytime when they have a dispute during the tenancy; they don’t have to wait till the end of the tenancy period.”
But as in any relationship, sometimes all it takes to close the door on a nasty chapter, is simply by talking it out.
Source : ChannelNewsAsia - 8 Nov 2007
This was the opinion of some viewers who wrote in after a landlord was interviewed on Get Rea!, a Channel NewsAsia’s current affairs programme.
In the Get Rea! episode, “Just Follow The Law”, it was a case of a Singaporean landlord living in Australia who had problems with a difficult tenant in Singapore.
Among other things, the tenant refused to let the landlord’s property agent arrange for a joint inspection of the premises towards the end of the lease.
So the inspection was carried out at midnight on the last day itself.
The property was left in such a mess that the two months security deposit was forfeited.
The landlord, Sharon de Souza, suggested the introduction of ‘landlord insurance’ in Singapore, which is something that is being offered in Australia.
She said: “Landlord insurance essentially gives you coverage. They will cover up to A$5,000 of your legal fees if you have to engage a lawyer to get rental back or claim for damages. Also, if you’ve lost rental income because of a delinquent tenant, the policy - based on what policy type you take - will cover part of your rental.”
While insurance companies that were contacted declined to comment, saying they were not familiar with the proposal, the Institute of Estate Agents (IEA) thinks the suggestion is worth considering.
Jeff Foo, President of Institute Of Estate Agents, said: “Landlords buy the insurance to cover themselves against loss of income, damage, malicious damage to their property, theft and perhaps legal fees. But a lot of this will depend on supply and demand because a month’s rental will go into paying for the premium of such policies. But it may not be a bad idea.”
Ms de Souza had also suggested that property agents be paid their commissions on a staggered, monthly basis, instead of a total sum upfront once the Tenancy Agreement is signed.
However, property agents told Channel NewsAsia that adopting such a system is harder in Singapore.
Vincent Chong of Colliers International explained: “It’s because generally, our rental rates are relatively low for the lower end of the market. For instance, if it’s a S$2,000 rent and it’s spread over 24 months, it’s going to be less than S$100 per month for the property agent. But of course, if the rental prices are in the region of S$20,000, it would be possible for agents to accept a kind of staggered commission.”
There was also a suggestion on how landlords could deal with difficult tenants, especially when it is a long-distance relationship.
“We suggest to the landlord that they engage a Property Managing Agent to do the day-to-day running of the lease, which includes collection of the rent, maintenance of the air-conditioning,” said Mr Chong.
Engaging such a Lease Management Agent could cost you 10 percent of your monthly rental fee, although some property agencies offer it free-of-charge to landlords as a value-added service.
As for the tenants, Low Swee Kim, Vice-President of Institute of Estate Agents, said: “We have a Small Claims Tribunal where tenants or landlords can go to resolve their disputes. They don’t need to pay any high legal fees because they don’t need to be represented by lawyers. They can go anytime when they have a dispute during the tenancy; they don’t have to wait till the end of the tenancy period.”
But as in any relationship, sometimes all it takes to close the door on a nasty chapter, is simply by talking it out.
Source : ChannelNewsAsia - 8 Nov 2007
Friday, November 2, 2007
Indonesian Investor Disappointed With Local Banks in Malaysia
Indonesian Investor Disappointed With Local Banks
By Mohd Haikal Isa
JOHOR BAHARU, Nov 2 (Bernama) -- An Indonesian investor who has invested significantly to buy four units of properties in two strategic locations in Johor Baharu, says he is changing his plans to invest millions of ringgit here, claiming he faced too many problems with the local banks here.
The investor's representative, Zufri Kaharuddin Mohd Nazir, 41, said the Indonesian investor, currently based in Singapore faced difficulties getting loans from banks here to proceed with his investment plans, although he had paid in cash RM460,000 to a local property company.
The money was the deposit for the said properties, valued at RM4.7 million.
"Since having signed the sale and purchase agreement late last year, the investor has approached almost all the local banks and it has been a dead-end for him. The banks have put up various reasons for refusing him the loan, such as being a foreign citizen, not having any achievement record and without monthly income," Zufri told Bernama here recently.
Zufri said the large amount of cash paid as deposit for the properties was already sufficient proof of the investor's financial standing to pay back any future bank loan.
The investor, who had requested for anonymity due to business reasons, is said to currently own a portfolio of real estate investments covering property assets in Germany, London, Indonesia and Singapore.
Zufri, who is a local businessman, claimed that among the properties owned by the investor included seven condominiums in Singapore worth more than SG$1 million each.
"The investor is among an elite group of Indonesians who took the decision to transfer their wealth to Singapore from Indonesia amid the unsteady economic and political climate in Indonesia during the late 90s and early 2000.
"Due to his standing as a property investor and his strong financial background, Singapore authorities accorded him permanent resident status," he further said.
As for his investment in Johor, Zufri said if the property sale and purchase agreement had been completed, the investor had intended to build a hotel close to the Hospital Sultan Ismail (HSI) to cater to relations of local patients admitted in the hospital as well as visiting Indonesians seeking treatment at the hospital.
He also planned to build a showroom for a popular car brand at one of the tourist spots here,
"But with the experience he has had with local banks, he has given up. He now wants to withdraw his investment plans here and focus on other countries," he said.
He also alleged that the investor in the beginning had been given the assurance that it would be easy and he would have no problem getting a loan from the local bank when he initiated the move to buy the property.
But the loan issue has yet to be resolved and the investor is in fear of losing his deposit as well, he said.
-- BERNAMA
By Mohd Haikal Isa
JOHOR BAHARU, Nov 2 (Bernama) -- An Indonesian investor who has invested significantly to buy four units of properties in two strategic locations in Johor Baharu, says he is changing his plans to invest millions of ringgit here, claiming he faced too many problems with the local banks here.
The investor's representative, Zufri Kaharuddin Mohd Nazir, 41, said the Indonesian investor, currently based in Singapore faced difficulties getting loans from banks here to proceed with his investment plans, although he had paid in cash RM460,000 to a local property company.
The money was the deposit for the said properties, valued at RM4.7 million.
"Since having signed the sale and purchase agreement late last year, the investor has approached almost all the local banks and it has been a dead-end for him. The banks have put up various reasons for refusing him the loan, such as being a foreign citizen, not having any achievement record and without monthly income," Zufri told Bernama here recently.
Zufri said the large amount of cash paid as deposit for the properties was already sufficient proof of the investor's financial standing to pay back any future bank loan.
The investor, who had requested for anonymity due to business reasons, is said to currently own a portfolio of real estate investments covering property assets in Germany, London, Indonesia and Singapore.
Zufri, who is a local businessman, claimed that among the properties owned by the investor included seven condominiums in Singapore worth more than SG$1 million each.
"The investor is among an elite group of Indonesians who took the decision to transfer their wealth to Singapore from Indonesia amid the unsteady economic and political climate in Indonesia during the late 90s and early 2000.
"Due to his standing as a property investor and his strong financial background, Singapore authorities accorded him permanent resident status," he further said.
As for his investment in Johor, Zufri said if the property sale and purchase agreement had been completed, the investor had intended to build a hotel close to the Hospital Sultan Ismail (HSI) to cater to relations of local patients admitted in the hospital as well as visiting Indonesians seeking treatment at the hospital.
He also planned to build a showroom for a popular car brand at one of the tourist spots here,
"But with the experience he has had with local banks, he has given up. He now wants to withdraw his investment plans here and focus on other countries," he said.
He also alleged that the investor in the beginning had been given the assurance that it would be easy and he would have no problem getting a loan from the local bank when he initiated the move to buy the property.
But the loan issue has yet to be resolved and the investor is in fear of losing his deposit as well, he said.
-- BERNAMA
How to be a buy-to-let survivor
The future of buy-to-let
Amateur landlords refuse to panic in the face of higher mortgage repayments and a cooling property market
Image :1 of 6
Judith Heywood, Lorna Blackwood and Lucy Alexander
RATES are rising, rents are falling, which is all bad news for the 400,000 buy-to-let investors in Britain. Or is it? As the growth in house prices slows down – or stalls in many parts of the country – investors can no longer count on paper profits to console them as they meet the cost of maintaining a portfolio. Many may rue the aggressive remortgaging that released profits to buy yet more homes, rather than retaining a buffer zone of equity to protect them in hard times.
But, even as interest rates seem certain to rise further – the National Association of Estate Agents reports that rents are up just 1.8 per cent – buy-to-let property owners are keeping their nerve. Almost all of those interviewed by Bricks and Mortar are philosophical about having to subsidise property investments, as rents fail to reflect higher house prices; they say that their homes are a long-term investment.
Take Shiona Goodman, below, who with her husband Geoff invested £100,000 of savings in a small home to help their children. Counting their blessings that their own West Sussex home had almost tripled in value in a decade, the couple decided that a property investment would help to make sure that their children, aged 10 and 6, would also one day be able to get on the ladder. They were willing to sacrifice plans for a holiday home to achieve that.
Fiona Leteney needed a home for her divorce settlement, but was priced out of Stoke-on-Trent. Determined to find a means to bolster her pension savings, she found an apartment in Florida within her price range. Even as the shine comes off the US market, Leteney sees the long-term value of hanging in.
How to be a buy-to-let survivor
Even many of the most aggressive investors remain confident. Laurent Ezekiel has built up a portfolio of ten flats – not including his home – in just four years. But, as he explains on page 18, he has left enough equity in each apartment to ensure he can remain calm amid the current talk of slowdown. Like many who have made lavish paper profits, Ezekiel is aware that, should he sell, the capital gains liabilities will be more overwhelming that any shortfall in rent. Ezekiel is one of the investors who think prices may continue to rise – it’s difficult to see a slowdown when sealed bids are still common in the East London areas he invests in, he says. That may discourage the readers engaged in furious debate on Times Online this week, many of whom argue that fewer investors will mean more hope for priced-out owner-occupiers.
They will be further cast down to know there are even now rays of light for investment buyers: the latest quarterly survey of Association of Residential Lettings Agents members, out next week, shows that tenant demand is rising in 70 per cent of Central London agencies, the highest level recorded. This, with confidence in the South East, will help to push rents up, easing the plight of buy-to-let investors.
THE CONCERNED PARENT
SHIONA GOODMAN, below, and her husband Geoff have been so alarmed at the upwards trajectory of the property market that they recently bought a £250,000 house for their children, aged 10 and 6. The couple don’t expect that Isobel and Alexander will ever live in the two-bed new-build in Haywards Heath, Mid Sussex, but hope that it will one day fund the children’s first steps on the property ladder. Until then, they will let it.
The Goodmans, who live in Cuckfield, West Sussex, had been considering buying a holiday property in Portugal but decided that the family home would be a better investment because it could be rented year-round. They put £100,000 of savings down and believe that rent will cover the £150,000 mortgage.
Shiona believes that they have “been very lucky with property”. They sold a three-bedroom townhouse in Fulham and bought their 1920s family home for £325,000 a decade ago. It is now worth £900,000. But they have no plans to build up a buy-to-let portfolio. Shiona says: “We are not big risk takers. I would not like to buy another property unless we had some money to put down and we would have to save that first.”
THE DJ’S OTHER JOB
THE radio DJ Dr Luuurve is otherwise known as Ambrose Harcourt, right, and, when not playing songs and dispensing advice on radio stations such as Sovereign and Arrow FM, he has been building a buy-to-let portfolio worth £1.5 million.
Harcourt, in his fifties, bought a two-bed flat in Brighton eight years ago when such properties cost £70,000. “I bought in Brighton because I knew it well. I knew that it was about to become a city and that prices would go up,” he says. It was a wise decision: Brighton is the city with the fastest-rising property prices. , Since then, Harcourt has focused on buying two-bedroom flats, which he thinks are most easily let, in areas such as London, Brighton and Crawley, which offer good transport links and relatively high rents, and more recently, former show homes on Barratt developments.
To manage his portfolio, Harcourt relies on an accountant, bookkeeper and lettings agents. He believes that property is a safe home for his money – including proceeds from his PR business – but will wait until the interest-rate outlook is clearer before buying more, though “if I found a good deal I would go ahead”, he adds.
THE PENSION SAVERS
GARY and Jenny Boreham, right, bought their first buy-to-let property in late 2001. “A lack of confidence in company pensions made us look at buy-to-lets,” he says.
They paid £106,000 for a one-bedroom maisonette in Leatherhead, Surrey, and have enjoyed a steady rental income from it since. So much so that in 2005 they decided to buy another property in the same development. “This one cost us £140,000 but it came with a bit of land,” says Gary, who thinks the two properties are now worth £180,000 and £190,000 respectively.
The couple also bought in Spain, but with the Spanish market flat they decided not to let it and instead use it as a holiday home.
The Borehams, both in their forties, look at the properties as a long-term investment and say there are plenty of tenants to be found in the Surrey area. They are happy to keep the houses for 20 years or so, providing the rental market stays healthy. However, they won’t be adding to their portfolio. “It’s far too expensive to buy any more and it isn’t worth our while – we are just breaking even on what we have.”
THE US INVESTOR
FIONA LETENEY, left, a self-employed consultant from Salford, was prepared to invest in an apartment in Florida without seeing it or having visited the US. But at the last minute she lost her nerve. “I flew in on a Friday and out on Monday and stayed in a similar apartment,” she says. “It confirmed the good impression I had from the brochures.”
Leteney, 48, had been planning to invest in a terrace house in Stoke-on-Trent and to let it to students at the nearby university. She had anticipated spending £40,000, but when her divorce settlement came through, in 2004, the price of the properties in her former home town had doubled in a year.
She discovered the $135,000 (£68,000) apartment in a refurbished Hilton hotel near Kissimmee through Currencies Direct, a foreign exchange company that she uses in her e-learning business. She was won over by the fact that the flat required no work and was overseen by a management company, which has secured “90 per cent occupancy from day one”. “I am on my own, and I have a business to run and there’s only a certain number of hours in any one day.”
Leteney is considering investing in another property, but would now consider buying in Salford Quays, where she lives, where prices are being boosted by an influx of BBC workers. “I had looked at things like shares and ISAs. Buying property was about not putting all my eggs in one basket,” she says.
Although property prices have been faltering in Florida and across the US, Leteney believes that her apartment, bought in 2005, has held its value, particularly because it is so close to Disney World. As a long-term investor she is prepared to ride out any temporary storms and, at times, to subsidise costs.
Buying and getting a mortgage, in her case for a 20-year term, in the US proved surprisingly trouble-free: “In America they don’t look at the person, they look at the property, so you can be 60, 70 or 80 years old and still get a mortgage. I have a personal banker with SunTrust bank who replies to e-mails within hours. I wish I had that kind of relationship with a bank in the UK.”
THE PROPERTY MAN
WHEN Sanjay Arora, above, moved house in West London in 1999 he became an “accidental landlord”. He decided to let his former home rather than sell, and it went well. So he began to buy more properties in Berkshire and Middlesex.
Arora worked as a manager in a City accountancy firm and spent his evenings and weekends fulfilling his duties as a landlord. “I did the full management and rent collection myself,” he says. “Then in 2005 I started buying properties all around the country – Manchester, Leeds, Liverpool, Birmingham – and the travelling became too much.” In August 2005 he gave up his job and concentrated on buying properties for resale at a profit, or to rent – now he has a portfolio of 32 properties.
Arora is aware that he picked a good time to invest and anyone starting today as a buy-to-let landlord may not be so fortunate. “I was lucky to start buying my properties a few years ago. A one-bed flat I bought for £90,000 in 2002 sold last year for £140,000, and the original £120,000 house I moved from in 1999 was sold last year for £225,000.”
He admits that rising interest rates are a headache: “The fixed-rate mortgages I took out five years ago are coming to an end, so I will have to remortgage or stay on high rates, and there’s no loan out there that matches my current deal.” But the threatened Revenue crackdown on landlords does not worry him: “As an accountant, I’ve always done my own tax returns and know the rules. However, I do know of landlords who don’t think they have to declare their rental income because their yields don’t cover their mortgage repayments. They’re banking on capital appreciation – but you have to hang on to your property to ensure that.”
He is sanguine about the future: “Property has proved to be better investment than the stock market, and I am positive it will continue to do so.”
THE NEW LANDLORD
ANDREA JAKES, right, is a novice landlord. The 28-year-old accountant from Hertfordshire is about to take the step of buying a home with her boyfriend. But instead of selling her own two-bedroom flat, she has decided to enter the buy-to-let market. “I didn’t have much choice,” she confesses. “The penalties to get out of my mortgage were so high (£3,000-£4,000), it seemed the obvious thing to do.”
Andrea bought the flat three years ago for £120,000 and believes it is worth about £135,000 on today’s market. She has had letting agents view the flat and received a good response, saying that it should rent out quickly. She also feels that holding on to the property means that she has something to fall back on, a comfort blanket of sorts, and also helps with the pension.
If buy-to-let laws change radically and it all seems more hassle than it’s worth she has decided to sell it. But for now, she is happy to keep her options open and to hold on to her property.
Amateur landlords refuse to panic in the face of higher mortgage repayments and a cooling property market
Image :1 of 6
Judith Heywood, Lorna Blackwood and Lucy Alexander
RATES are rising, rents are falling, which is all bad news for the 400,000 buy-to-let investors in Britain. Or is it? As the growth in house prices slows down – or stalls in many parts of the country – investors can no longer count on paper profits to console them as they meet the cost of maintaining a portfolio. Many may rue the aggressive remortgaging that released profits to buy yet more homes, rather than retaining a buffer zone of equity to protect them in hard times.
But, even as interest rates seem certain to rise further – the National Association of Estate Agents reports that rents are up just 1.8 per cent – buy-to-let property owners are keeping their nerve. Almost all of those interviewed by Bricks and Mortar are philosophical about having to subsidise property investments, as rents fail to reflect higher house prices; they say that their homes are a long-term investment.
Take Shiona Goodman, below, who with her husband Geoff invested £100,000 of savings in a small home to help their children. Counting their blessings that their own West Sussex home had almost tripled in value in a decade, the couple decided that a property investment would help to make sure that their children, aged 10 and 6, would also one day be able to get on the ladder. They were willing to sacrifice plans for a holiday home to achieve that.
Fiona Leteney needed a home for her divorce settlement, but was priced out of Stoke-on-Trent. Determined to find a means to bolster her pension savings, she found an apartment in Florida within her price range. Even as the shine comes off the US market, Leteney sees the long-term value of hanging in.
How to be a buy-to-let survivor
Even many of the most aggressive investors remain confident. Laurent Ezekiel has built up a portfolio of ten flats – not including his home – in just four years. But, as he explains on page 18, he has left enough equity in each apartment to ensure he can remain calm amid the current talk of slowdown. Like many who have made lavish paper profits, Ezekiel is aware that, should he sell, the capital gains liabilities will be more overwhelming that any shortfall in rent. Ezekiel is one of the investors who think prices may continue to rise – it’s difficult to see a slowdown when sealed bids are still common in the East London areas he invests in, he says. That may discourage the readers engaged in furious debate on Times Online this week, many of whom argue that fewer investors will mean more hope for priced-out owner-occupiers.
They will be further cast down to know there are even now rays of light for investment buyers: the latest quarterly survey of Association of Residential Lettings Agents members, out next week, shows that tenant demand is rising in 70 per cent of Central London agencies, the highest level recorded. This, with confidence in the South East, will help to push rents up, easing the plight of buy-to-let investors.
THE CONCERNED PARENT
SHIONA GOODMAN, below, and her husband Geoff have been so alarmed at the upwards trajectory of the property market that they recently bought a £250,000 house for their children, aged 10 and 6. The couple don’t expect that Isobel and Alexander will ever live in the two-bed new-build in Haywards Heath, Mid Sussex, but hope that it will one day fund the children’s first steps on the property ladder. Until then, they will let it.
The Goodmans, who live in Cuckfield, West Sussex, had been considering buying a holiday property in Portugal but decided that the family home would be a better investment because it could be rented year-round. They put £100,000 of savings down and believe that rent will cover the £150,000 mortgage.
Shiona believes that they have “been very lucky with property”. They sold a three-bedroom townhouse in Fulham and bought their 1920s family home for £325,000 a decade ago. It is now worth £900,000. But they have no plans to build up a buy-to-let portfolio. Shiona says: “We are not big risk takers. I would not like to buy another property unless we had some money to put down and we would have to save that first.”
THE DJ’S OTHER JOB
THE radio DJ Dr Luuurve is otherwise known as Ambrose Harcourt, right, and, when not playing songs and dispensing advice on radio stations such as Sovereign and Arrow FM, he has been building a buy-to-let portfolio worth £1.5 million.
Harcourt, in his fifties, bought a two-bed flat in Brighton eight years ago when such properties cost £70,000. “I bought in Brighton because I knew it well. I knew that it was about to become a city and that prices would go up,” he says. It was a wise decision: Brighton is the city with the fastest-rising property prices. , Since then, Harcourt has focused on buying two-bedroom flats, which he thinks are most easily let, in areas such as London, Brighton and Crawley, which offer good transport links and relatively high rents, and more recently, former show homes on Barratt developments.
To manage his portfolio, Harcourt relies on an accountant, bookkeeper and lettings agents. He believes that property is a safe home for his money – including proceeds from his PR business – but will wait until the interest-rate outlook is clearer before buying more, though “if I found a good deal I would go ahead”, he adds.
THE PENSION SAVERS
GARY and Jenny Boreham, right, bought their first buy-to-let property in late 2001. “A lack of confidence in company pensions made us look at buy-to-lets,” he says.
They paid £106,000 for a one-bedroom maisonette in Leatherhead, Surrey, and have enjoyed a steady rental income from it since. So much so that in 2005 they decided to buy another property in the same development. “This one cost us £140,000 but it came with a bit of land,” says Gary, who thinks the two properties are now worth £180,000 and £190,000 respectively.
The couple also bought in Spain, but with the Spanish market flat they decided not to let it and instead use it as a holiday home.
The Borehams, both in their forties, look at the properties as a long-term investment and say there are plenty of tenants to be found in the Surrey area. They are happy to keep the houses for 20 years or so, providing the rental market stays healthy. However, they won’t be adding to their portfolio. “It’s far too expensive to buy any more and it isn’t worth our while – we are just breaking even on what we have.”
THE US INVESTOR
FIONA LETENEY, left, a self-employed consultant from Salford, was prepared to invest in an apartment in Florida without seeing it or having visited the US. But at the last minute she lost her nerve. “I flew in on a Friday and out on Monday and stayed in a similar apartment,” she says. “It confirmed the good impression I had from the brochures.”
Leteney, 48, had been planning to invest in a terrace house in Stoke-on-Trent and to let it to students at the nearby university. She had anticipated spending £40,000, but when her divorce settlement came through, in 2004, the price of the properties in her former home town had doubled in a year.
She discovered the $135,000 (£68,000) apartment in a refurbished Hilton hotel near Kissimmee through Currencies Direct, a foreign exchange company that she uses in her e-learning business. She was won over by the fact that the flat required no work and was overseen by a management company, which has secured “90 per cent occupancy from day one”. “I am on my own, and I have a business to run and there’s only a certain number of hours in any one day.”
Leteney is considering investing in another property, but would now consider buying in Salford Quays, where she lives, where prices are being boosted by an influx of BBC workers. “I had looked at things like shares and ISAs. Buying property was about not putting all my eggs in one basket,” she says.
Although property prices have been faltering in Florida and across the US, Leteney believes that her apartment, bought in 2005, has held its value, particularly because it is so close to Disney World. As a long-term investor she is prepared to ride out any temporary storms and, at times, to subsidise costs.
Buying and getting a mortgage, in her case for a 20-year term, in the US proved surprisingly trouble-free: “In America they don’t look at the person, they look at the property, so you can be 60, 70 or 80 years old and still get a mortgage. I have a personal banker with SunTrust bank who replies to e-mails within hours. I wish I had that kind of relationship with a bank in the UK.”
THE PROPERTY MAN
WHEN Sanjay Arora, above, moved house in West London in 1999 he became an “accidental landlord”. He decided to let his former home rather than sell, and it went well. So he began to buy more properties in Berkshire and Middlesex.
Arora worked as a manager in a City accountancy firm and spent his evenings and weekends fulfilling his duties as a landlord. “I did the full management and rent collection myself,” he says. “Then in 2005 I started buying properties all around the country – Manchester, Leeds, Liverpool, Birmingham – and the travelling became too much.” In August 2005 he gave up his job and concentrated on buying properties for resale at a profit, or to rent – now he has a portfolio of 32 properties.
Arora is aware that he picked a good time to invest and anyone starting today as a buy-to-let landlord may not be so fortunate. “I was lucky to start buying my properties a few years ago. A one-bed flat I bought for £90,000 in 2002 sold last year for £140,000, and the original £120,000 house I moved from in 1999 was sold last year for £225,000.”
He admits that rising interest rates are a headache: “The fixed-rate mortgages I took out five years ago are coming to an end, so I will have to remortgage or stay on high rates, and there’s no loan out there that matches my current deal.” But the threatened Revenue crackdown on landlords does not worry him: “As an accountant, I’ve always done my own tax returns and know the rules. However, I do know of landlords who don’t think they have to declare their rental income because their yields don’t cover their mortgage repayments. They’re banking on capital appreciation – but you have to hang on to your property to ensure that.”
He is sanguine about the future: “Property has proved to be better investment than the stock market, and I am positive it will continue to do so.”
THE NEW LANDLORD
ANDREA JAKES, right, is a novice landlord. The 28-year-old accountant from Hertfordshire is about to take the step of buying a home with her boyfriend. But instead of selling her own two-bedroom flat, she has decided to enter the buy-to-let market. “I didn’t have much choice,” she confesses. “The penalties to get out of my mortgage were so high (£3,000-£4,000), it seemed the obvious thing to do.”
Andrea bought the flat three years ago for £120,000 and believes it is worth about £135,000 on today’s market. She has had letting agents view the flat and received a good response, saying that it should rent out quickly. She also feels that holding on to the property means that she has something to fall back on, a comfort blanket of sorts, and also helps with the pension.
If buy-to-let laws change radically and it all seems more hassle than it’s worth she has decided to sell it. But for now, she is happy to keep her options open and to hold on to her property.
“Look at what has happened to pensions over my working lifetime – the Robert Maxwell affair and Equitable Life, in which I had my own fingers burnt
How to use your home as a pension fund
With planning - and luck - a home can become your investment for retirement, says Fred Redwood
SINCE the rainy day in August 1980 when Dr Chris Blockley first set eyes on his house, Colts Bushes in Rowhook, West Sussex, the property has become the dentist’s family home and his place of work. Now it is to serve its most important function – it is to be his pension fund.
“I’m one of the lucky ones who borrowed as much as possible in the 1980s,” he says. “Now I’m left with a mortgage of less than 10 per cent of the value of my house. Realising that equity will help fund my retirement.” Many other owners of expensive homes are doing the same. According to the estate agent Savills, a wish to “downsize” is the reason behind 30 per cent of sales in the country-house market – little wonder when you consider how dramatically houses such as Blockley’s have appreciated in value.
The three-bedroom house that Blockley, 63, bought with his wife, Sally, 53, cost just £77,000 27 years ago. It is now on the market for £1.65 million. The house was by no means a show home in 1980, however. “The worst thing about it was the kitchen, which was painted bright orange and had what I’d call that ‘hacienda’ look,” says Mrs Blockley. “The dining room was painted bright red and on the stairs there was a curling, wrought-iron, shiny black balustrade. That’s to say nothing of the goats and geese all wandering around outside. Think Darling Buds of May. . .”
Yet Blockley could see the potential. It had five acres of paddock and two acres of woodland, which would prove to be ideal for his growing family. He has two sons: Justin, now 34, and Kyle, 31, from his first marriage and two more – Charles, 24, and William, 21 – from his marriage to Sally. “We were able to race gocarts,” says Blockley. “There was lots of room for cricket and football – it was a marvellous place for growing boys to let off steam.”
Despite being rather poky inside, with obvious cosmetic flaws, Colts Bushes was “mendable”. Remedial work began in 1982, when Blockley had a surgery built onto the house with a bedroom above it at a cost of £20,000. In 1989 a sizeable kitchen extension was built at a cost of another £20,000. At around the same time a study was built between the house and the barn outside, costing £10,000 and in the early 1990s a car port was built, costing £6,000. Blockley’s total outlay on the house has been £133,000.
The property has been transformed. There is a lovely, low-ceilinged, “cottagey” drawing room with a big fireplace and French doors leading out to the grounds, a quite formal dining room and a farmhouse kitchen. There’s also a family/sitting room and a dentist’s surgery that could easily be turned into a study. Upstairs there are six bedrooms, and outside is a tennis court, an entertainment barn for parties and a stable block.
Blockley was fortunate to buy in this area when he did, because the Surrey/Sussex borders around Horsham were just becoming extremely fashionable. In the 1980s it became known as the “rock star” belt. Eric Clapton was there, as were Phil Collins and Mike Rutherford of Genesis, Kenny Jones of the Small Faces and the record producer Glyn Johns. The area’s employment prospects also improved, notably when Sun Alliance moved its main office to Horsham, which created yet more demand for homes.
Now Blockley is planning a comfortable retirement, which will involve downsizing. He expects to spend about £800,000 on a new home; the rest he will add to his pension fund and put aside for the boys.
“I have calculated that I’ll need around £50,000 a year to keep ticking over,” he says. “I have a holiday home in Spain which cost me €300,000 some years ago, so my main luxury will be spending time there on a regular basis.” His two elder sons are now property owners themselves – Justin lives in Ascot and Kyle has an apartment in Singapore. However, William and Chris are both living at home at present and Blockley anticipates giving them a helping hand onto the property ladder. He has already signed over the ownership of the property in Spain to the boys, and if one of them so wished he could get a low-interest euro mortgage using the house as collateral.
If need be, Blockley will help more directly. “I’d question whether pension funds will adequately meet the needs of the younger generation,” he says. “Look at what has happened to pensions over my working lifetime – the Robert Maxwell affair and Equitable Life, in which I had my own fingers burnt. I’ll do what I can to help get the boys on the property ladder. Is there a pension fund that would have paid me the £1.5 million that I have made from this property over the past 27 years? I don’t think so.” Colts Bushes, Rowhook, West Sussex: Browns Estate Agents,
With planning - and luck - a home can become your investment for retirement, says Fred Redwood
SINCE the rainy day in August 1980 when Dr Chris Blockley first set eyes on his house, Colts Bushes in Rowhook, West Sussex, the property has become the dentist’s family home and his place of work. Now it is to serve its most important function – it is to be his pension fund.
“I’m one of the lucky ones who borrowed as much as possible in the 1980s,” he says. “Now I’m left with a mortgage of less than 10 per cent of the value of my house. Realising that equity will help fund my retirement.” Many other owners of expensive homes are doing the same. According to the estate agent Savills, a wish to “downsize” is the reason behind 30 per cent of sales in the country-house market – little wonder when you consider how dramatically houses such as Blockley’s have appreciated in value.
The three-bedroom house that Blockley, 63, bought with his wife, Sally, 53, cost just £77,000 27 years ago. It is now on the market for £1.65 million. The house was by no means a show home in 1980, however. “The worst thing about it was the kitchen, which was painted bright orange and had what I’d call that ‘hacienda’ look,” says Mrs Blockley. “The dining room was painted bright red and on the stairs there was a curling, wrought-iron, shiny black balustrade. That’s to say nothing of the goats and geese all wandering around outside. Think Darling Buds of May. . .”
Yet Blockley could see the potential. It had five acres of paddock and two acres of woodland, which would prove to be ideal for his growing family. He has two sons: Justin, now 34, and Kyle, 31, from his first marriage and two more – Charles, 24, and William, 21 – from his marriage to Sally. “We were able to race gocarts,” says Blockley. “There was lots of room for cricket and football – it was a marvellous place for growing boys to let off steam.”
Despite being rather poky inside, with obvious cosmetic flaws, Colts Bushes was “mendable”. Remedial work began in 1982, when Blockley had a surgery built onto the house with a bedroom above it at a cost of £20,000. In 1989 a sizeable kitchen extension was built at a cost of another £20,000. At around the same time a study was built between the house and the barn outside, costing £10,000 and in the early 1990s a car port was built, costing £6,000. Blockley’s total outlay on the house has been £133,000.
The property has been transformed. There is a lovely, low-ceilinged, “cottagey” drawing room with a big fireplace and French doors leading out to the grounds, a quite formal dining room and a farmhouse kitchen. There’s also a family/sitting room and a dentist’s surgery that could easily be turned into a study. Upstairs there are six bedrooms, and outside is a tennis court, an entertainment barn for parties and a stable block.
Blockley was fortunate to buy in this area when he did, because the Surrey/Sussex borders around Horsham were just becoming extremely fashionable. In the 1980s it became known as the “rock star” belt. Eric Clapton was there, as were Phil Collins and Mike Rutherford of Genesis, Kenny Jones of the Small Faces and the record producer Glyn Johns. The area’s employment prospects also improved, notably when Sun Alliance moved its main office to Horsham, which created yet more demand for homes.
Now Blockley is planning a comfortable retirement, which will involve downsizing. He expects to spend about £800,000 on a new home; the rest he will add to his pension fund and put aside for the boys.
“I have calculated that I’ll need around £50,000 a year to keep ticking over,” he says. “I have a holiday home in Spain which cost me €300,000 some years ago, so my main luxury will be spending time there on a regular basis.” His two elder sons are now property owners themselves – Justin lives in Ascot and Kyle has an apartment in Singapore. However, William and Chris are both living at home at present and Blockley anticipates giving them a helping hand onto the property ladder. He has already signed over the ownership of the property in Spain to the boys, and if one of them so wished he could get a low-interest euro mortgage using the house as collateral.
If need be, Blockley will help more directly. “I’d question whether pension funds will adequately meet the needs of the younger generation,” he says. “Look at what has happened to pensions over my working lifetime – the Robert Maxwell affair and Equitable Life, in which I had my own fingers burnt. I’ll do what I can to help get the boys on the property ladder. Is there a pension fund that would have paid me the £1.5 million that I have made from this property over the past 27 years? I don’t think so.” Colts Bushes, Rowhook, West Sussex: Browns Estate Agents,
Tuesday, October 30, 2007
THE Government is watching the property market ‘carefully’ and taking steps to ensure it does not overheat.
THE Government is watching the property market ‘carefully’ and taking steps to ensure it does not overheat.
It will inject more prime office space into the market over the next two to three years, said Prime Minister Lee Hsien Loong yesterday.
And for those worried they have ‘missed the boat’ in the current residential property boom, he had this message: Don’t worry, there is enough land for affordable housing for all Singaporeans.
Speaking at the NTUC National Delegates Conference, Mr Lee highlighted two property segments ‘of concern’: prime office space and residential property.
Office rents have soared with strong economic growth, he noted. The financial and business services sectors are expanding, while many new businesses are moving in from the region and the West.
‘They’re wanting to grow their business in Singapore and we’re unable to meet it,’ said Mr Lee.
To ease the squeeze, the Government will increase supply. ‘We hope we’ll be able to inject more office space into the market over the next two or three years, not just to stabilise the office space market but provide the capacity so lots more businesses can come set up in Singapore and grow our economy.’
In the home market, Mr Lee noted the scrapping of the Deferred Payment Scheme for buyers of upcoming private homes.
No longer can they just fork out 10 or 20 per cent of the price and defer payment of the rest till the project is done. Now, they have to make periodic payments as construction progresses.
Mr Lee said the move will ‘help to dampen excessive speculation and inject some reality into the market’.
He reiterated that the Government ‘is committed to keeping housing affordable for all Singaporeans.’
The HDB is building more flats. The Government will offer more land for executive condominiums to help middle-income families who do not qualify for HDB flats.
‘We’re convinced we will be able to provide good housing for all Singaporeans over the medium to long term. There is enough land in Singapore. There is no need for anybody to get alarmed that this is the last chance and, if you don’t get on, you’ll miss the boat,’ said Mr Lee.
Looking ahead, the Government will continue to ‘make sure the property market stays in balance over the long term’, he added.
Source : Straits Times - 30 Oct 2007
It will inject more prime office space into the market over the next two to three years, said Prime Minister Lee Hsien Loong yesterday.
And for those worried they have ‘missed the boat’ in the current residential property boom, he had this message: Don’t worry, there is enough land for affordable housing for all Singaporeans.
Speaking at the NTUC National Delegates Conference, Mr Lee highlighted two property segments ‘of concern’: prime office space and residential property.
Office rents have soared with strong economic growth, he noted. The financial and business services sectors are expanding, while many new businesses are moving in from the region and the West.
‘They’re wanting to grow their business in Singapore and we’re unable to meet it,’ said Mr Lee.
To ease the squeeze, the Government will increase supply. ‘We hope we’ll be able to inject more office space into the market over the next two or three years, not just to stabilise the office space market but provide the capacity so lots more businesses can come set up in Singapore and grow our economy.’
In the home market, Mr Lee noted the scrapping of the Deferred Payment Scheme for buyers of upcoming private homes.
No longer can they just fork out 10 or 20 per cent of the price and defer payment of the rest till the project is done. Now, they have to make periodic payments as construction progresses.
Mr Lee said the move will ‘help to dampen excessive speculation and inject some reality into the market’.
He reiterated that the Government ‘is committed to keeping housing affordable for all Singaporeans.’
The HDB is building more flats. The Government will offer more land for executive condominiums to help middle-income families who do not qualify for HDB flats.
‘We’re convinced we will be able to provide good housing for all Singaporeans over the medium to long term. There is enough land in Singapore. There is no need for anybody to get alarmed that this is the last chance and, if you don’t get on, you’ll miss the boat,’ said Mr Lee.
Looking ahead, the Government will continue to ‘make sure the property market stays in balance over the long term’, he added.
Source : Straits Times - 30 Oct 2007
THE property sector is agog at the Government’s withdrawal of the deferred payment option for buyers. Should the industry be surprised? Dismayed?
THE property sector is agog at the Government’s withdrawal of the deferred payment option for buyers. Should the industry be surprised? Dismayed? Hardly. Developers and property consultancies, not to forget flip artistes, had for a couple of months been expecting the guillotine to drop as the data showed an impressive churn rate in sub-sales of condominiums was holding even after an assurance was given of adequate supply. The fact that supply has a gestation of about two years has been the inherent weakness of moves to pace the market evenly. These have included land sales and raised development charges. National Development Minister Mah Bow Tan was the model of caution when saying the scrapping of deferred payments was called for as there were ’signs’ real estate was overheating. He has to balance nurturing sentiment in a sector recovering from a decade-long slump, while punishing the cowboys whose punts drive up property prices which in turn feed through to business costs. Prowling speculators, the prime target of the move, should have been chased off months ago. They serve no verifiable market function except to warp prices and cause anxiety to serious purchasers. Speculators’ influence on price in premium developments has been noted by developers. The move to discourage speculation indicates the Government figures the line between a stable market and bubble conditions is being crossed.
Would this be enough? What if the speculative element is barely blunted? The time lag between the downpayment and the first progress payments is long enough for those with a decent cash reserve to continue playing the system. Third-quarter URA data showed a drop of one-third in primary market sales over the previous quarter, part of the worldwide fallout on account of the United States sub-prime mortgage crisis. But prices still climbed by 8.3 per cent. Little wonder then that the trade might be bracing itself for the Government’s use of a blunt tool, the return of the capital gains tax last seen in the 1996 boom. Such a tax used in tandem with an end to deferred payments is sure to knock out speculators. But, careful. It can be the imperceptible tip into a wholesale withdrawal by institutional buyers, foreign individual purchasers as well as local and foreign group investors who are key elements in holding real estate values. The last time it was used to cool the market, it came ahead of an unforeseen downturn. The combined effect sent the market into an unintended chill, from which it has taken a long time to recover. So, for now, watch if speculators who exhibit nothing but dollar signs and a smirk on their faces make a dash for the door.
Source : Straits Times - 30 Oct 2007
Would this be enough? What if the speculative element is barely blunted? The time lag between the downpayment and the first progress payments is long enough for those with a decent cash reserve to continue playing the system. Third-quarter URA data showed a drop of one-third in primary market sales over the previous quarter, part of the worldwide fallout on account of the United States sub-prime mortgage crisis. But prices still climbed by 8.3 per cent. Little wonder then that the trade might be bracing itself for the Government’s use of a blunt tool, the return of the capital gains tax last seen in the 1996 boom. Such a tax used in tandem with an end to deferred payments is sure to knock out speculators. But, careful. It can be the imperceptible tip into a wholesale withdrawal by institutional buyers, foreign individual purchasers as well as local and foreign group investors who are key elements in holding real estate values. The last time it was used to cool the market, it came ahead of an unforeseen downturn. The combined effect sent the market into an unintended chill, from which it has taken a long time to recover. So, for now, watch if speculators who exhibit nothing but dollar signs and a smirk on their faces make a dash for the door.
Source : Straits Times - 30 Oct 2007
THE axing of the deferred payment scheme for homebuyers hit home with a vengeance yesterday when property shares dived while the rest of the market
THE axing of the deferred payment scheme for homebuyers hit home with a vengeance yesterday when property shares dived while the rest of the market soared.
The big guns felt the most pain. City Developments fell 50 cents, or 3.1 per cent, to $15.80. Allgreen Properties was down nine cents, or 5.1 per cent, to $1.69, while Wing Tai Holdings lost 18 cents, or 5 per cent, to $3.44.
Their operations are more centred on the local market, and so they seem to be more vulnerable to a change in financing conditions.
By contrast, CapitaLand, which has extensive overseas operations, rose five cents to $8.10 after falling 20 cents initially.
Analysts remain confident that the selldown was just a knee-jerk reaction to the Government’s surprise move on Friday night. It scrapped the deferred payment scheme, requiring buyers of uncompleted homes to make progressive payments rather than letting them delay the bulk of their payments.
Citigroup analyst Wendy Koh said this will likely affect only a small group of HDB upgraders who cannot afford two mortgages.
It should not affect first-time homebuyers whose ‘affordability remains strong’, she added.
Ms Koh also noted that the run-up in the residential property market is well-supported by strong fundamentals. These include high economic growth, rising rental rates, and a tight supply of new properties coming onto the market.
However, DBS Vickers said that removing deferred payment would dampen home sales as potential buyers might have seen the scheme as a way to come out with a smaller initial outlay in capital.
It also believed the move will curb speculative buying on high-end properties.
Equally bearish is CIMB-GK, which said yesterday that selling prices may fall by 10 to 15 per cent as the speculative froth is removed.
And the worst hit may be the mass market where buyers are ‘typically more cost-sensitive and reliant on deferred payment’.
Investors will not have missed the irony of yesterday’s share market action.
While property was suffering, the rest of the market in Singapore and around the region climbed, cheered by hopes that the United States Federal Reserve will cut interest rates by at least 0.25 percentage point tomorrow. Its aim: to shore up the US property market.
Source : Straits Times - 30 Oct 2007
The big guns felt the most pain. City Developments fell 50 cents, or 3.1 per cent, to $15.80. Allgreen Properties was down nine cents, or 5.1 per cent, to $1.69, while Wing Tai Holdings lost 18 cents, or 5 per cent, to $3.44.
Their operations are more centred on the local market, and so they seem to be more vulnerable to a change in financing conditions.
By contrast, CapitaLand, which has extensive overseas operations, rose five cents to $8.10 after falling 20 cents initially.
Analysts remain confident that the selldown was just a knee-jerk reaction to the Government’s surprise move on Friday night. It scrapped the deferred payment scheme, requiring buyers of uncompleted homes to make progressive payments rather than letting them delay the bulk of their payments.
Citigroup analyst Wendy Koh said this will likely affect only a small group of HDB upgraders who cannot afford two mortgages.
It should not affect first-time homebuyers whose ‘affordability remains strong’, she added.
Ms Koh also noted that the run-up in the residential property market is well-supported by strong fundamentals. These include high economic growth, rising rental rates, and a tight supply of new properties coming onto the market.
However, DBS Vickers said that removing deferred payment would dampen home sales as potential buyers might have seen the scheme as a way to come out with a smaller initial outlay in capital.
It also believed the move will curb speculative buying on high-end properties.
Equally bearish is CIMB-GK, which said yesterday that selling prices may fall by 10 to 15 per cent as the speculative froth is removed.
And the worst hit may be the mass market where buyers are ‘typically more cost-sensitive and reliant on deferred payment’.
Investors will not have missed the irony of yesterday’s share market action.
While property was suffering, the rest of the market in Singapore and around the region climbed, cheered by hopes that the United States Federal Reserve will cut interest rates by at least 0.25 percentage point tomorrow. Its aim: to shore up the US property market.
Source : Straits Times - 30 Oct 2007
Units are in projects that had approval; developers may opt not to do so though.
Units are in projects that had approval; developers may opt not to do so though.
UP TO 7,750 unsold homes could still be available for purchase under the deferred payment scheme, even though it was scrapped last week.
The Urban Redevelopment Authority (URA) said these units are in developments that already have approval for the scheme, but which have not sold out yet.
On Friday night, the Government scrapped deferred payments with immediate effect, saying it was no longer relevant given the now-buoyant property market.
The scheme was introduced 10 years ago when the market was down. It allowed homebuyers to defer the bulk of a home’s purchase price until it was completed, which could be up to a few years later.
But the scheme was seen as encouraging speculation, as buyers could profit by reselling their homes before completion without much capital outlay.
Now, buyers will have to make progressive payments as construction proceeds.
The ending of the scheme is seen as a way to cool the hot property market. All developments that had not obtained approval for the scheme by last Friday can no longer offer it.
As at last Friday, 320 out of 443 licensed developers had approval to offer deferred payments for their projects, said the URA yesterday.
And about 140 of these developers still have a total of 7,750 residential units left unsold, it added.
But it is now up to the developers if they want to offer homebuyers the option of using the scheme, URA said.
The units include some in Bukit Sembawang’s 102-unit Paterson Suites in Paterson Road and its 123-unit Vermont on Cairnhill. Ho Bee offers the scheme for the 51 unsold homes in Turquoise, its 91-unit project in Sentosa Cove.
Buyers can also look to CapitaLand’s 327-unit Seafront @ Meyer in Meyer Road, which has 68 units left.
Developers which have approval for the scheme but have yet to start sales include Voda Land, for its 114-unit Amber Residences in Amber Road.
Even before deferred payments were axed, some developers had already dropped it of their own accord or never offered it. Those that did usually added a premium of 3 to 5 per cent of a home’s price to purchases under the scheme.
Many property analysts believe the withdrawal of the deferred payment scheme is likely to hit sentiment only in the short term. They point to factors such as robust demand, low interest rates and favourable sales even when developers do not offer the scheme.
Citigroup economist Chua Hak Bin said ending the scheme seems justified on prudential grounds. ‘There are growing signs of speculation, price distortions and accelerating mortgage growth,’ he wrote in a report.
‘Risk of a property glut longer-term cannot be ruled out if the boom is left unchecked.’
Source : Straits Times - 30 Oct 2007
UP TO 7,750 unsold homes could still be available for purchase under the deferred payment scheme, even though it was scrapped last week.
The Urban Redevelopment Authority (URA) said these units are in developments that already have approval for the scheme, but which have not sold out yet.
On Friday night, the Government scrapped deferred payments with immediate effect, saying it was no longer relevant given the now-buoyant property market.
The scheme was introduced 10 years ago when the market was down. It allowed homebuyers to defer the bulk of a home’s purchase price until it was completed, which could be up to a few years later.
But the scheme was seen as encouraging speculation, as buyers could profit by reselling their homes before completion without much capital outlay.
Now, buyers will have to make progressive payments as construction proceeds.
The ending of the scheme is seen as a way to cool the hot property market. All developments that had not obtained approval for the scheme by last Friday can no longer offer it.
As at last Friday, 320 out of 443 licensed developers had approval to offer deferred payments for their projects, said the URA yesterday.
And about 140 of these developers still have a total of 7,750 residential units left unsold, it added.
But it is now up to the developers if they want to offer homebuyers the option of using the scheme, URA said.
The units include some in Bukit Sembawang’s 102-unit Paterson Suites in Paterson Road and its 123-unit Vermont on Cairnhill. Ho Bee offers the scheme for the 51 unsold homes in Turquoise, its 91-unit project in Sentosa Cove.
Buyers can also look to CapitaLand’s 327-unit Seafront @ Meyer in Meyer Road, which has 68 units left.
Developers which have approval for the scheme but have yet to start sales include Voda Land, for its 114-unit Amber Residences in Amber Road.
Even before deferred payments were axed, some developers had already dropped it of their own accord or never offered it. Those that did usually added a premium of 3 to 5 per cent of a home’s price to purchases under the scheme.
Many property analysts believe the withdrawal of the deferred payment scheme is likely to hit sentiment only in the short term. They point to factors such as robust demand, low interest rates and favourable sales even when developers do not offer the scheme.
Citigroup economist Chua Hak Bin said ending the scheme seems justified on prudential grounds. ‘There are growing signs of speculation, price distortions and accelerating mortgage growth,’ he wrote in a report.
‘Risk of a property glut longer-term cannot be ruled out if the boom is left unchecked.’
Source : Straits Times - 30 Oct 2007
Wednesday, October 24, 2007
The property tax bills for many hotels here will go up by at least 33 per cent starting next year as the taxman tweaks his calculations.
The property tax bills for many hotels here will go up by at least 33 per cent starting next year as the taxman tweaks his calculations.
The rate for hotels remains at 10 per cent of annual value (AV). But the formula to calculate the AV itself is set to undergo a change.
Starting next year, the AV for the rooms component of all hotels will be calculated as 20 per cent of their previous year’s gross room receipts. And from 2009, this rate will be raised further to 25 per cent of the preceding year’s takings.
Effectively, it means that most major hotels will shell out more, said industry watchers. Currently, the AV for gazetted hotels that have not been leased out by their owners - apparently the majority of big hotels in town fall in this category - is 15 per cent of the previous year’s gross room receipts. When this rate is raised to 20 per cent next year, it straightaway means that the AV for rooms alone will work out to a third more than it is now. There will be a further jump in 2009.
That’s not all. From next year, estimated market rent will form the basis for determining the AV for a hotel’s food & beverage (F&B) areas. Currently, the AV is calculated as 5 per cent of the preceding year’s gross F&B receipts. Other lettable areas in a hotel will continue to be assessed based on estimated current market rent.
The new formula for determining AV will apply uniformly to all licensed hotels, whether they are gazetted or not and let out or not, a spokeswoman for the Inland Revenue Authority of Singapore (IRAS) told BT. Currently, the AV for some categories of hotels is based on the estimated current market rent for rooms, F&B areas and other lettable areas.
So from next year the rooms component of property tax for gazetted hotels that are not leased out will increase by 33 per cent, assuming the same gross receipts, said the IRAS spokeswoman. But some hotels in the other category may see a slight drop in property tax.
‘However, the actual impact on each hotel’s property tax bill may vary depending on its gross receipts,’ she added.
Industry players said that the increase in AV for F&B areas could be even steeper. This will especially be the case for five-star properties with substantial ballroom and function-room facilities.
‘This is because the ballrooms will now be assessed for property tax, regardless of whether they are occupied or not,’ explains the CFO of a major hotel in the Orchard Road belt, who forecasts a 200 per cent increase in AV for the F&B areas of his hotel under the new formula.
Or as DTZ Debenham Tie Leung executive director (consultancy and statutory valuation) Ng Poh Chue puts it: ‘The market-rent approach does not give consideration to low-occupancy periods for ballrooms and function rooms.’
The CFO of the major Orchard Road hotel estimates that on the whole (rooms, F&B and other areas), the AV for his hotel will go up by nearly 60 per cent from next year and by more than 90 per cent from 2009 - other things remaining the same.
Some market watchers say that the hikes will eat into hotel owners’ bottom lines at a time when operating costs including labour have also been on the rise.
The Singapore Hotel Association said it is currently gathering feedback from its members.
IRAS’s spokeswoman said that both the Ministry of Trade and Industry and the Singapore Tourism Board were consulted and their feedback was taken into account, including phasing in the change over a two-year period instead of an immediate change.
She pointed out that the current formula to compute AV of hotels was introduced in 1986. ‘The 15 per cent on room receipts and 5 per cent on F&B receipts were found to be a close proxy to the standard valuation method, that is, estimated current market rent. This is the method of determining AV for other classes of property, such as residential, commercial and industrial.
‘However, given the passage of over 20 years, an update in the formula for computing hotels’ AV is needed to ensure it reflects an AV that does not vary too widely from one that is based on standard valuation method, as analysed from rentals paid for hotels that have been let,’ she explained.
As for changing the method of assessing AV for F&B areas to estimated market rent instead of a percentage of F&B receipts, IRAS said: ‘Restaurants and food outlets are widely tenanted today. So the AVs of such properties are easily determined from comparable market rents.’
However, Jones Lang LaSalle Hotels (Asia) EVP Chee Hok Yean had a different take. ‘The change will likely introduce more room for dispute due to the fact that most hotel F&B outlets are not leased to third parties, so there may not be (enough) precedent rentals. F&B outlets in hotels don’t enjoy the same traffic flow as restaurants in malls, hence there must be a distinction when comparing current market rents in these two types of properties,’ Ms Chee reasons.
Another issue is that not all hotel F&B space such as banquet halls and meeting rooms will be used on a daily basis and the authorities will have to allow for vacancy for these unoccupied periods. ‘That will create more admin work for the hotels when making submissions to IRAS,’ she added.
IRAS collected $37.3 million property tax on hotels for the year ended Dec 31, 2006, up from $33.4 million in the preceding year.
Source : Business Times - 23 October 2007
The rate for hotels remains at 10 per cent of annual value (AV). But the formula to calculate the AV itself is set to undergo a change.
Starting next year, the AV for the rooms component of all hotels will be calculated as 20 per cent of their previous year’s gross room receipts. And from 2009, this rate will be raised further to 25 per cent of the preceding year’s takings.
Effectively, it means that most major hotels will shell out more, said industry watchers. Currently, the AV for gazetted hotels that have not been leased out by their owners - apparently the majority of big hotels in town fall in this category - is 15 per cent of the previous year’s gross room receipts. When this rate is raised to 20 per cent next year, it straightaway means that the AV for rooms alone will work out to a third more than it is now. There will be a further jump in 2009.
That’s not all. From next year, estimated market rent will form the basis for determining the AV for a hotel’s food & beverage (F&B) areas. Currently, the AV is calculated as 5 per cent of the preceding year’s gross F&B receipts. Other lettable areas in a hotel will continue to be assessed based on estimated current market rent.
The new formula for determining AV will apply uniformly to all licensed hotels, whether they are gazetted or not and let out or not, a spokeswoman for the Inland Revenue Authority of Singapore (IRAS) told BT. Currently, the AV for some categories of hotels is based on the estimated current market rent for rooms, F&B areas and other lettable areas.
So from next year the rooms component of property tax for gazetted hotels that are not leased out will increase by 33 per cent, assuming the same gross receipts, said the IRAS spokeswoman. But some hotels in the other category may see a slight drop in property tax.
‘However, the actual impact on each hotel’s property tax bill may vary depending on its gross receipts,’ she added.
Industry players said that the increase in AV for F&B areas could be even steeper. This will especially be the case for five-star properties with substantial ballroom and function-room facilities.
‘This is because the ballrooms will now be assessed for property tax, regardless of whether they are occupied or not,’ explains the CFO of a major hotel in the Orchard Road belt, who forecasts a 200 per cent increase in AV for the F&B areas of his hotel under the new formula.
Or as DTZ Debenham Tie Leung executive director (consultancy and statutory valuation) Ng Poh Chue puts it: ‘The market-rent approach does not give consideration to low-occupancy periods for ballrooms and function rooms.’
The CFO of the major Orchard Road hotel estimates that on the whole (rooms, F&B and other areas), the AV for his hotel will go up by nearly 60 per cent from next year and by more than 90 per cent from 2009 - other things remaining the same.
Some market watchers say that the hikes will eat into hotel owners’ bottom lines at a time when operating costs including labour have also been on the rise.
The Singapore Hotel Association said it is currently gathering feedback from its members.
IRAS’s spokeswoman said that both the Ministry of Trade and Industry and the Singapore Tourism Board were consulted and their feedback was taken into account, including phasing in the change over a two-year period instead of an immediate change.
She pointed out that the current formula to compute AV of hotels was introduced in 1986. ‘The 15 per cent on room receipts and 5 per cent on F&B receipts were found to be a close proxy to the standard valuation method, that is, estimated current market rent. This is the method of determining AV for other classes of property, such as residential, commercial and industrial.
‘However, given the passage of over 20 years, an update in the formula for computing hotels’ AV is needed to ensure it reflects an AV that does not vary too widely from one that is based on standard valuation method, as analysed from rentals paid for hotels that have been let,’ she explained.
As for changing the method of assessing AV for F&B areas to estimated market rent instead of a percentage of F&B receipts, IRAS said: ‘Restaurants and food outlets are widely tenanted today. So the AVs of such properties are easily determined from comparable market rents.’
However, Jones Lang LaSalle Hotels (Asia) EVP Chee Hok Yean had a different take. ‘The change will likely introduce more room for dispute due to the fact that most hotel F&B outlets are not leased to third parties, so there may not be (enough) precedent rentals. F&B outlets in hotels don’t enjoy the same traffic flow as restaurants in malls, hence there must be a distinction when comparing current market rents in these two types of properties,’ Ms Chee reasons.
Another issue is that not all hotel F&B space such as banquet halls and meeting rooms will be used on a daily basis and the authorities will have to allow for vacancy for these unoccupied periods. ‘That will create more admin work for the hotels when making submissions to IRAS,’ she added.
IRAS collected $37.3 million property tax on hotels for the year ended Dec 31, 2006, up from $33.4 million in the preceding year.
Source : Business Times - 23 October 2007
Tuesday, October 16, 2007
'Tags' to protect content
SINGAPORE: Even before the recent Michael Moore-directed documentary, Sicko, was released in American cinemas in June, thousands of people around the world had already watched it weeks earlier — for free, and in the comfort of their own homes, no less.
They did so on YouTube, the widely popular video-sharing website, which hosted on its server a bootleg copy of the film in its entirety that was uploaded by one of its users.
Such an occurrence is common in today's digital age, and the issue of copyright infringement looks set to continue to dominate the legal landscape around the world.
On the second day of the International Bar Association Conference 2007 yesterday at the Suntec Convention Centre, intellectual property lawyer Richard Raysman — a guest speaker from New York — engaged an audience of about 70 people in a discussion about content liability.
With 100 million videos being watched on YouTube every day, critics have argued that a fair number of these are breaking copyright laws worldwide.
A suggestion bandied about to help battle the pirates was for content providers to "tag" their materials, which would allow service providers such as YouTube and Google Video to run a search and sieve out copyrighted files before uploading them.
Mr Raysman noted how quickly the service providers dismissed the idea.
"They are upset because it means incurring extra costs. They say it's not their job to do editorial work. They want to be protected because they are distributors, not publishers, and this is frustrating for the content providers," he said.
But it will "take quite some time" for the courts to draw up the legal interpretations to keep up with the latest technological innovations, according to Mr Raysman.
Still, he urged copyright owners to continue to put pressure on websites and the authorities because new media such as YouTube are here to stay.
"There are tens of thousands of other sites out there that host copyrighted material. There has to be some law to determine the rights of copyright owners."
Another speaker, Ms Alexandra Neri, a lawyer from Paris, said that coming up with new laws was one thing, but enforcing them effectively would be a different matter altogether.
In Singapore, it is against the Copyright Act to engage in online piracy.
In 2005, three men aged 16 to 22 were arrested in their homes for sharing over 20,000 pirated digital music files in a chat channel.
Last October, content owners banded together and reported 25 offenders to the police for trading songs and movies illegally online.
Offenders face jail terms of up to five years and fines of up to $100,000.
And although having just a couple of songs in your hard drive may not be enough to warrant a criminal offence, it can attract civil liabilities when infringement is established.
- TODAY/yb
They did so on YouTube, the widely popular video-sharing website, which hosted on its server a bootleg copy of the film in its entirety that was uploaded by one of its users.
Such an occurrence is common in today's digital age, and the issue of copyright infringement looks set to continue to dominate the legal landscape around the world.
On the second day of the International Bar Association Conference 2007 yesterday at the Suntec Convention Centre, intellectual property lawyer Richard Raysman — a guest speaker from New York — engaged an audience of about 70 people in a discussion about content liability.
With 100 million videos being watched on YouTube every day, critics have argued that a fair number of these are breaking copyright laws worldwide.
A suggestion bandied about to help battle the pirates was for content providers to "tag" their materials, which would allow service providers such as YouTube and Google Video to run a search and sieve out copyrighted files before uploading them.
Mr Raysman noted how quickly the service providers dismissed the idea.
"They are upset because it means incurring extra costs. They say it's not their job to do editorial work. They want to be protected because they are distributors, not publishers, and this is frustrating for the content providers," he said.
But it will "take quite some time" for the courts to draw up the legal interpretations to keep up with the latest technological innovations, according to Mr Raysman.
Still, he urged copyright owners to continue to put pressure on websites and the authorities because new media such as YouTube are here to stay.
"There are tens of thousands of other sites out there that host copyrighted material. There has to be some law to determine the rights of copyright owners."
Another speaker, Ms Alexandra Neri, a lawyer from Paris, said that coming up with new laws was one thing, but enforcing them effectively would be a different matter altogether.
In Singapore, it is against the Copyright Act to engage in online piracy.
In 2005, three men aged 16 to 22 were arrested in their homes for sharing over 20,000 pirated digital music files in a chat channel.
Last October, content owners banded together and reported 25 offenders to the police for trading songs and movies illegally online.
Offenders face jail terms of up to five years and fines of up to $100,000.
And although having just a couple of songs in your hard drive may not be enough to warrant a criminal offence, it can attract civil liabilities when infringement is established.
- TODAY/yb
Get your CPF Savings out of the OA/SA
Get your CPF Savings out of the OA/SA AccountsOctober 16, 2007 at 10:20 pm · Filed under Investments
Real money down the drain. Lots of Singaporeans (and PR’s), 90% in fact, are losing out in passive income by keeping their CPF (Central Provident Fund) savings in the government default fund. Yep, official records show that as of December 2006, only 10% of CPF funds have been invested while another S$79 billion is retained in the OA and SA accounts.
While its “safer” and easier to just leave the money in the default fund, it also means that you probably won’t have enough to retire comfortably on if you only have a single source of income that is less than $5,000 a month, which is the case for the majority of Singaporeans.
So it makes sense to take some time to study how to invest a portion of your OA and SA funds in a wide range of capital market instruments. We’ve consistently made 10-20% returns over the years with minimal investment effort after initial studies. The government allows: fixed deposits, bonds, property funds, equities, annuities, endowment policies, unit trusts, investment-linked insurance policies (ILPs), exchange traded funds and my personal favourite gold (with limits)- although now it’s reaching a pretty high point but still $100 to go to reach its historical high. (Side note: I had asked my students in the beginning of the year (2007) and again a few months back to buy anytime it dipped below $650. I don’t know if anyone listened.)
If its just too overwhelming, you don’t have the time, just can’t quite make heads and tails out of investment instruments then do yourself a favour & get a financial advisor. And please, don’t talk to the ones who are selling insurance, the pay out is peanuts and really not worth it. You should look into managed funds with global portfolios
Real money down the drain. Lots of Singaporeans (and PR’s), 90% in fact, are losing out in passive income by keeping their CPF (Central Provident Fund) savings in the government default fund. Yep, official records show that as of December 2006, only 10% of CPF funds have been invested while another S$79 billion is retained in the OA and SA accounts.
While its “safer” and easier to just leave the money in the default fund, it also means that you probably won’t have enough to retire comfortably on if you only have a single source of income that is less than $5,000 a month, which is the case for the majority of Singaporeans.
So it makes sense to take some time to study how to invest a portion of your OA and SA funds in a wide range of capital market instruments. We’ve consistently made 10-20% returns over the years with minimal investment effort after initial studies. The government allows: fixed deposits, bonds, property funds, equities, annuities, endowment policies, unit trusts, investment-linked insurance policies (ILPs), exchange traded funds and my personal favourite gold (with limits)- although now it’s reaching a pretty high point but still $100 to go to reach its historical high. (Side note: I had asked my students in the beginning of the year (2007) and again a few months back to buy anytime it dipped below $650. I don’t know if anyone listened.)
If its just too overwhelming, you don’t have the time, just can’t quite make heads and tails out of investment instruments then do yourself a favour & get a financial advisor. And please, don’t talk to the ones who are selling insurance, the pay out is peanuts and really not worth it. You should look into managed funds with global portfolios
Singapore companies keep firm eye on competitiveness as US dollar slides
Singapore companies keep firm eye on competitiveness as US dollar slides
(SINGAPORE) Some are thinking of shifting their operations to cheaper locations like China and Vietnam. But for most businesses here, the strengthening Singapore currency and weakening American dollar have not made more than a dent on their cost competitiveness - at least not yet.
Even as the Sing dollar shot up to a 10-year high against the greenback at $1.463 last week, industry sources say it’s still early days to assess the impact on the economy here.
‘For now, businesses have not felt the pinch. The economy is doing well,’ says one industry leader.
Just last week, the Ministry of Trade and Industry (MTI) released estimates showing the economy expanded by a blistering 9.4 per cent in the third quarter, trumping analysts’ forecast.
The government seems not particularly concerned about the falling US dollar, the common currency for global trade and business. More concerned about inflation, the Monetary Authority of Singapore is moving to raise slightly the pace of appreciation for the trade-weighted Singapore dollar.
That is good news for local businesses that are importing a lot. ‘The drop in value of the US dollar is beneficial in the sense that it becomes cheaper for us to buy fuel which is quoted in US dollars,’ says Tammy Tan, spokeswoman for transport group Comfort Delgro.
MTI has declined to comment, but BT understands government planners are keeping a close watch on the local currency’s movements - especially against the US dollar.
The Singapore Tourism Board, keen to draw more visitors, says it is too soon to say if tourism would be affected by the stronger Sing dollar.
The Singapore Chinese Chamber of Commerce and Industry (SCCCI) expects local retailers and service providers in the tourist trade to be affected by a dip in tourist spendings.
Small exporters who ship their goods direct to the US will also be among the hardest affected, it says.
‘A strong Singapore dollar will definitely affect the price competitiveness of our exports done in Singapore dollars,’ says Chew Ker Yee, vice-president for business at Wangi Industrial, a provider of surface finishing and optical thin-film coating solutions. His company is moving its operations to lower cost countries like China and Vietnam, where ‘the local currency appreciation against the US dollar is not as steep’.
Erman Tan, chief executive of Asia Polyurethane, a chemical exporter, finds his costs rising in tandem with the falling US dollar.
Even companies not dealing with the US are feeling the effect, because they have to convert revenues mostly in the US dollar to the Singapore currency.
Miline International, which ships its plywood to Australia, Malaysia, Thailand and the United Kingdom, has sustained ‘book losses’ of 16 per cent in the past four years, when the Singapore dollar climbed from $1.69 to $1.45 against the greenback. ‘A stronger Sing dollar will not benefit us as we trade 100 per cent in US dollars,’ says Mikell Koh, Miline’s managing director. Homegrown technology company Aztech Systems is in similar straits, but says the losses which the company sustains ‘will not be significant to the group’s operations’. Still, Aztech is considering hedging to ease the effect of the falling US dollar, says Herman So, its vice-president for finance.
Some businesses, like logistics provider Lorenzo International, worry that if the greenback keeps tumbling and hence boosting the Sing dollar, profit margins will be squeezed.
Says Raju Chellam, vice-president of market research firm Access Markets International in the Asia-Pacific region: ‘If the US dollar continues its slide, we may need to re-negotiate with our local partners to accept payment in US dollars, instead of in local currency.’
On the other hand, Victor Loh, CEO of the VicPlas Group, a producer of building plastics and medical devices, is fretting that clients may seek to pay in US dollars if the greenback keeps falling.
But there are also gains to be made in cheaper imports and lower inflation. This is seldom mentioned among businesses, lest they have to pass the gains to customers.
Nizam Idris, an economist and currency strategist at UBS bank in Singapore, says the falling US dollar is very much what’s needed to correct the troubling global imbalances fed by excessive consumption in the US and Europe.
In any case, he says that in real trade weighted terms, the Sing dollar has not strengthened much against its trading partners.
Similarly, Fortis Bank strategist Joseph Tan also does not expect the weakness of the US dollar to affect Singapore’s trade ’so starkly’.
He says Singapore’s chief competitors in Asia have also seen their currencies appreciate - some even more - against the greenback, leaving Singapore’s competitiveness relatively unscathed.
But Mr Tan is concerned that the falling US dollar, along with the recent cut in the Fed rate, is exporting US inflation to the rest of the world.
While a strong Sing dollar could hit exports, the SCCCI does not see any long-term harm to Singapore’s competitive edge.
‘For most large corporations, the rising Sing dollar is unlikely to have a major impact as these companies leverage on niche manufacturing capabilities and efficient supply-chain and logistics management to compete globally,’ it says.
The more immediate concern for many businesses is the recent sharp hike in residential and commercial rentals, according to SCCCI.
Says an expatriate businessman: ‘This almost bubble aspect of commercial and private rents is making Singapore a much less attractive place to do business than in the past.’
Source: Business Times 15 Oct 07
(SINGAPORE) Some are thinking of shifting their operations to cheaper locations like China and Vietnam. But for most businesses here, the strengthening Singapore currency and weakening American dollar have not made more than a dent on their cost competitiveness - at least not yet.
Even as the Sing dollar shot up to a 10-year high against the greenback at $1.463 last week, industry sources say it’s still early days to assess the impact on the economy here.
‘For now, businesses have not felt the pinch. The economy is doing well,’ says one industry leader.
Just last week, the Ministry of Trade and Industry (MTI) released estimates showing the economy expanded by a blistering 9.4 per cent in the third quarter, trumping analysts’ forecast.
The government seems not particularly concerned about the falling US dollar, the common currency for global trade and business. More concerned about inflation, the Monetary Authority of Singapore is moving to raise slightly the pace of appreciation for the trade-weighted Singapore dollar.
That is good news for local businesses that are importing a lot. ‘The drop in value of the US dollar is beneficial in the sense that it becomes cheaper for us to buy fuel which is quoted in US dollars,’ says Tammy Tan, spokeswoman for transport group Comfort Delgro.
MTI has declined to comment, but BT understands government planners are keeping a close watch on the local currency’s movements - especially against the US dollar.
The Singapore Tourism Board, keen to draw more visitors, says it is too soon to say if tourism would be affected by the stronger Sing dollar.
The Singapore Chinese Chamber of Commerce and Industry (SCCCI) expects local retailers and service providers in the tourist trade to be affected by a dip in tourist spendings.
Small exporters who ship their goods direct to the US will also be among the hardest affected, it says.
‘A strong Singapore dollar will definitely affect the price competitiveness of our exports done in Singapore dollars,’ says Chew Ker Yee, vice-president for business at Wangi Industrial, a provider of surface finishing and optical thin-film coating solutions. His company is moving its operations to lower cost countries like China and Vietnam, where ‘the local currency appreciation against the US dollar is not as steep’.
Erman Tan, chief executive of Asia Polyurethane, a chemical exporter, finds his costs rising in tandem with the falling US dollar.
Even companies not dealing with the US are feeling the effect, because they have to convert revenues mostly in the US dollar to the Singapore currency.
Miline International, which ships its plywood to Australia, Malaysia, Thailand and the United Kingdom, has sustained ‘book losses’ of 16 per cent in the past four years, when the Singapore dollar climbed from $1.69 to $1.45 against the greenback. ‘A stronger Sing dollar will not benefit us as we trade 100 per cent in US dollars,’ says Mikell Koh, Miline’s managing director. Homegrown technology company Aztech Systems is in similar straits, but says the losses which the company sustains ‘will not be significant to the group’s operations’. Still, Aztech is considering hedging to ease the effect of the falling US dollar, says Herman So, its vice-president for finance.
Some businesses, like logistics provider Lorenzo International, worry that if the greenback keeps tumbling and hence boosting the Sing dollar, profit margins will be squeezed.
Says Raju Chellam, vice-president of market research firm Access Markets International in the Asia-Pacific region: ‘If the US dollar continues its slide, we may need to re-negotiate with our local partners to accept payment in US dollars, instead of in local currency.’
On the other hand, Victor Loh, CEO of the VicPlas Group, a producer of building plastics and medical devices, is fretting that clients may seek to pay in US dollars if the greenback keeps falling.
But there are also gains to be made in cheaper imports and lower inflation. This is seldom mentioned among businesses, lest they have to pass the gains to customers.
Nizam Idris, an economist and currency strategist at UBS bank in Singapore, says the falling US dollar is very much what’s needed to correct the troubling global imbalances fed by excessive consumption in the US and Europe.
In any case, he says that in real trade weighted terms, the Sing dollar has not strengthened much against its trading partners.
Similarly, Fortis Bank strategist Joseph Tan also does not expect the weakness of the US dollar to affect Singapore’s trade ’so starkly’.
He says Singapore’s chief competitors in Asia have also seen their currencies appreciate - some even more - against the greenback, leaving Singapore’s competitiveness relatively unscathed.
But Mr Tan is concerned that the falling US dollar, along with the recent cut in the Fed rate, is exporting US inflation to the rest of the world.
While a strong Sing dollar could hit exports, the SCCCI does not see any long-term harm to Singapore’s competitive edge.
‘For most large corporations, the rising Sing dollar is unlikely to have a major impact as these companies leverage on niche manufacturing capabilities and efficient supply-chain and logistics management to compete globally,’ it says.
The more immediate concern for many businesses is the recent sharp hike in residential and commercial rentals, according to SCCCI.
Says an expatriate businessman: ‘This almost bubble aspect of commercial and private rents is making Singapore a much less attractive place to do business than in the past.’
Source: Business Times 15 Oct 07
Monday, October 15, 2007
What CPF changes mean for us?
Will I lose money from the new old-age annuity?
Mr Mohamed Said Ali, 47, grassroots leader at Changi Simei, raised this point at a dialogue session for grassroots leaders on 23 Sep.
He said: 'People are concerned most about the longevity insurance scheme... Some are worried about whether they will lose money if they die early and how much it will cost.'
First: Will you lose money if you die early?
The bad news is yes. If you die early, you can expect to lose money.
The good news: Don't worry.
That is how insurance works. The event you insured against usually never happens. It means you paid your insurance premiums for nothing.
Suppose you buy fire insurance and your home doesn't burn down. Or you buy auto insurance and you don't have a car accident.
All you got for your premiums was protection. But that is not to be sneezed at as protection is quite valuable.
The same principle applies to longevity insurance. It is an annuity that protects against the chance of out-living your money, so that you don't become destitute in old age.
It could happen that you die early, in which case, you didn't need the protection after all. Of course, there is no way of knowing that in advance, which makes longevity insurance very useful.
Click to see larger image
Two more points: The new insurance will likely give the option of paying 20 to 30 per cent more to have the balance of your annuity returned to your beneficiaries should you die early.
To me, the higher cost makes this option not worth it.
Ironically, however, it is the only option now permitted if you want to buy a private annuity after age 55 using your CPF money.
Second: No one knows how much the lifetime annuity will cost. But one person with the skills to make an estimate is qualified actuary, Mr Tan Kin Lian, former CEO of NTUC Income.
He estimates that at age 55, a person would pay from $6,000 to $8,000 for an annuity that pays about $400 a month from age 85 until death.
Is it expensive?
Mr Tan told me: 'The price is neither too high nor too low. It simply reflects the life expectancy and a payout to the annuitant of about 4 per cent per year.'
An additional 1 percentage point of CPF interest is good. But why not more?
First: Do CPF members deserve more than 4 per cent? After all, the government earns a higher return from its Temasek and GIC investments.
This point was raised at the same dialogue session for grassroot leaders. While it seems to make sense, it isn't a straight mango-to-mango comparison.
Temasek and GIC investments involve risk. It explains their higher long-run returns compared to CPF accounts, which are risk-free.
Second: CPF accounts are not the source of cheap financing that people seem to think.
To know why, you must understand that one way the Government borrows money is by selling bonds.
It pays an interest rate of about 2 per cent for the two-year government bonds. It increases to 3 per cent for 13-year bonds.
Compare this to the 3.5 to 4 per cent interest paid to CPF members. It is much more.
You can think of the difference as a government subsidy with the lower income groups feeling the most benefits - since the added 1 percentage point applies only to the first $60,000 in CPF accounts.
The total subsidy is $700 million a year. It works out to $250 a year for each of the 2.8 million CPF members.
Work long, live longer
DID a study by US aircraft maker Boeing really claim that its workers who retired at age 65 did not live as long as those who retired earlier?
At a 23 Sep dialogue session, PM Lee Hsien Loong said: 'I can tell you for sure it's not true... There's no such study... It's a hoax.
'If you go to the Boeing website, (it says) the study is not true.'
I looked and sure enough, there is no such thing. But I found other studies which investigate the effects of working after 55.
The most comprehensive was published in the British Medical Journal in 2005. It involved over 3,500 employees of the petrochemical industry who retired at 55, 60 and 65.
It found that those who stopped working at 55 had nearly double the death rate of those who continued to work until age 65. This is the exact opposite of the hoax study.
How is it that activity helps us to live longer? Medical doctor Alex Ooi told me that no one knows the exact mechanism.
He jokes that an ageing body that works may say to itself: 'Hey, there is something for me to do here. I had better stay around and do it.'
Mr Mohamed Said Ali, 47, grassroots leader at Changi Simei, raised this point at a dialogue session for grassroots leaders on 23 Sep.
He said: 'People are concerned most about the longevity insurance scheme... Some are worried about whether they will lose money if they die early and how much it will cost.'
First: Will you lose money if you die early?
The bad news is yes. If you die early, you can expect to lose money.
The good news: Don't worry.
That is how insurance works. The event you insured against usually never happens. It means you paid your insurance premiums for nothing.
Suppose you buy fire insurance and your home doesn't burn down. Or you buy auto insurance and you don't have a car accident.
All you got for your premiums was protection. But that is not to be sneezed at as protection is quite valuable.
The same principle applies to longevity insurance. It is an annuity that protects against the chance of out-living your money, so that you don't become destitute in old age.
It could happen that you die early, in which case, you didn't need the protection after all. Of course, there is no way of knowing that in advance, which makes longevity insurance very useful.
Click to see larger image
Two more points: The new insurance will likely give the option of paying 20 to 30 per cent more to have the balance of your annuity returned to your beneficiaries should you die early.
To me, the higher cost makes this option not worth it.
Ironically, however, it is the only option now permitted if you want to buy a private annuity after age 55 using your CPF money.
Second: No one knows how much the lifetime annuity will cost. But one person with the skills to make an estimate is qualified actuary, Mr Tan Kin Lian, former CEO of NTUC Income.
He estimates that at age 55, a person would pay from $6,000 to $8,000 for an annuity that pays about $400 a month from age 85 until death.
Is it expensive?
Mr Tan told me: 'The price is neither too high nor too low. It simply reflects the life expectancy and a payout to the annuitant of about 4 per cent per year.'
An additional 1 percentage point of CPF interest is good. But why not more?
First: Do CPF members deserve more than 4 per cent? After all, the government earns a higher return from its Temasek and GIC investments.
This point was raised at the same dialogue session for grassroot leaders. While it seems to make sense, it isn't a straight mango-to-mango comparison.
Temasek and GIC investments involve risk. It explains their higher long-run returns compared to CPF accounts, which are risk-free.
Second: CPF accounts are not the source of cheap financing that people seem to think.
To know why, you must understand that one way the Government borrows money is by selling bonds.
It pays an interest rate of about 2 per cent for the two-year government bonds. It increases to 3 per cent for 13-year bonds.
Compare this to the 3.5 to 4 per cent interest paid to CPF members. It is much more.
You can think of the difference as a government subsidy with the lower income groups feeling the most benefits - since the added 1 percentage point applies only to the first $60,000 in CPF accounts.
The total subsidy is $700 million a year. It works out to $250 a year for each of the 2.8 million CPF members.
Work long, live longer
DID a study by US aircraft maker Boeing really claim that its workers who retired at age 65 did not live as long as those who retired earlier?
At a 23 Sep dialogue session, PM Lee Hsien Loong said: 'I can tell you for sure it's not true... There's no such study... It's a hoax.
'If you go to the Boeing website, (it says) the study is not true.'
I looked and sure enough, there is no such thing. But I found other studies which investigate the effects of working after 55.
The most comprehensive was published in the British Medical Journal in 2005. It involved over 3,500 employees of the petrochemical industry who retired at 55, 60 and 65.
It found that those who stopped working at 55 had nearly double the death rate of those who continued to work until age 65. This is the exact opposite of the hoax study.
How is it that activity helps us to live longer? Medical doctor Alex Ooi told me that no one knows the exact mechanism.
He jokes that an ageing body that works may say to itself: 'Hey, there is something for me to do here. I had better stay around and do it.'
Are they Reit buys?
WHAT'S the best way to invest in property? Should you buy a bigger home? Or maybe buy a flat to rent out?
Here's an idea that involves less work: Go for the latest, hottest and most popular real estate investment, a real estate investment trust, called Reit for short.
It works like this: A property company will take a few buildings it owns and puts them into a fund, similar to a unit trust. Unlike other funds, you buy and sell it like a stock, using a broker.
The first successful Singapore Reit - Capital Mall Trust - was launched in July 2002. Since then, seven Reits have listed here with property worth $11 billion.
Reits are popular because they pay out nearly all their profits in dividends. This determines the 'dividend yield', which is the annual dividend divided by the price.
If the Reit pays 6 cents per share and sells for $1, its dividend yield is 6 per cent.
Reits look safe since the revenues and profits come from long-term leases to tenants. Yields are a healthy 5 or 6 per cent and, so far, share prices have appreciated.
But there is a dark side. Two reasons why Reits are riskier than they look:
# Professors Merton Miller and Franco Modigliani won the 1990 Nobel Prize in economics partly because of their discovery that a stock's risks and returns are not affected by whether it pays high, low or no dividends.
Stocks confer ownership. And since you are the owner, a stock that pays a high dividend means the company is simply paying your own money back to you.
It is very much like moving money from your left pocket to your right pocket. It doesn't make you wealthier.
# Second, Reits are simply shares. Their prices fluctuate as much as other shares, like SingTel, Keppel Corp and OCBC.
Let's say you buy the Capital Mall Trust Reit at $2.30. Its dividend yield is around 5 per cent per year. That is good but it is only half the picture. The other half is the share price.
If the price drops to $2.20 over the next 12 months - which is quite possible - you will lose 5 per cent of your investment. It is called a 'loss of capital'.
It means your net return is the 5 per cent dividend minus the 5 per cent capital loss, which is zero per cent. Hey, you only broke even.
Contrary to popular wisdom, Reits fluctuate and are not safer than other shares. Nevertheless, demand and prices get a boost from the perception that Reits are super-safe. Should this change, Reit prices will drop.
One thing that could trigger a sell-off is rising interest rates. When fixed deposit rates were less than 1 per cent, a 5 per cent Reit yield looked pretty good.
Now, savings and fixed deposits are paying close to 3 per cent interest. Unlike Reits, bank deposits are risk-free.
Suddenly, a Reit's 5 per cent dividend yield no longer looks great.
This narrowing between bank deposit rates and Reit yields could spark a sell-off next year.
Approach Reits with care.
Be cautious: Possible conflict of interest exist
ONE subtle point quietly adds to a Reit's risk.
Let's say an imaginary company - Big Land - takes a few of its shopping malls and places them into Big Reit, in which it retains one-third ownership. It sells the other two-thirds to the public in an initial public offering (IPO).
The value of the property placed into Big Reit is determined by an 'independent appraiser', which appraises the property at $300 million.
Next, Big Land collects $200m in cash from the sale of the IPO to the public. It keeps $100m ownership in Big Reit.
On top of that, it receives added income by appointing itself as the property manager for Big Reit. Its annual management fee is set as a percentage of Big Reit's selling price.
Do you see any conflicts?
For one thing, Big Land is both the seller and the buyer of Big Reit.
But it is more seller than buyer. It is selling $200m while buying $100m of the new Reit. This gives it the incentive to price the IPO on the high side.
Furthermore, its management fee is boosted by a high selling price for Big Reit.
Of course, there are safeguards - like an independent appraiser which estimates the value of Big Reit.
But is it enough? Can good safeguards overcome bad incentives? It is an age-old question. No one knows for sure.
quick quote:
Buy Land. They ain't making any more of the stuff.
- Will Rogers, American humorist, 1879-1935
Here's an idea that involves less work: Go for the latest, hottest and most popular real estate investment, a real estate investment trust, called Reit for short.
It works like this: A property company will take a few buildings it owns and puts them into a fund, similar to a unit trust. Unlike other funds, you buy and sell it like a stock, using a broker.
The first successful Singapore Reit - Capital Mall Trust - was launched in July 2002. Since then, seven Reits have listed here with property worth $11 billion.
Reits are popular because they pay out nearly all their profits in dividends. This determines the 'dividend yield', which is the annual dividend divided by the price.
If the Reit pays 6 cents per share and sells for $1, its dividend yield is 6 per cent.
Reits look safe since the revenues and profits come from long-term leases to tenants. Yields are a healthy 5 or 6 per cent and, so far, share prices have appreciated.
But there is a dark side. Two reasons why Reits are riskier than they look:
# Professors Merton Miller and Franco Modigliani won the 1990 Nobel Prize in economics partly because of their discovery that a stock's risks and returns are not affected by whether it pays high, low or no dividends.
Stocks confer ownership. And since you are the owner, a stock that pays a high dividend means the company is simply paying your own money back to you.
It is very much like moving money from your left pocket to your right pocket. It doesn't make you wealthier.
# Second, Reits are simply shares. Their prices fluctuate as much as other shares, like SingTel, Keppel Corp and OCBC.
Let's say you buy the Capital Mall Trust Reit at $2.30. Its dividend yield is around 5 per cent per year. That is good but it is only half the picture. The other half is the share price.
If the price drops to $2.20 over the next 12 months - which is quite possible - you will lose 5 per cent of your investment. It is called a 'loss of capital'.
It means your net return is the 5 per cent dividend minus the 5 per cent capital loss, which is zero per cent. Hey, you only broke even.
Contrary to popular wisdom, Reits fluctuate and are not safer than other shares. Nevertheless, demand and prices get a boost from the perception that Reits are super-safe. Should this change, Reit prices will drop.
One thing that could trigger a sell-off is rising interest rates. When fixed deposit rates were less than 1 per cent, a 5 per cent Reit yield looked pretty good.
Now, savings and fixed deposits are paying close to 3 per cent interest. Unlike Reits, bank deposits are risk-free.
Suddenly, a Reit's 5 per cent dividend yield no longer looks great.
This narrowing between bank deposit rates and Reit yields could spark a sell-off next year.
Approach Reits with care.
Be cautious: Possible conflict of interest exist
ONE subtle point quietly adds to a Reit's risk.
Let's say an imaginary company - Big Land - takes a few of its shopping malls and places them into Big Reit, in which it retains one-third ownership. It sells the other two-thirds to the public in an initial public offering (IPO).
The value of the property placed into Big Reit is determined by an 'independent appraiser', which appraises the property at $300 million.
Next, Big Land collects $200m in cash from the sale of the IPO to the public. It keeps $100m ownership in Big Reit.
On top of that, it receives added income by appointing itself as the property manager for Big Reit. Its annual management fee is set as a percentage of Big Reit's selling price.
Do you see any conflicts?
For one thing, Big Land is both the seller and the buyer of Big Reit.
But it is more seller than buyer. It is selling $200m while buying $100m of the new Reit. This gives it the incentive to price the IPO on the high side.
Furthermore, its management fee is boosted by a high selling price for Big Reit.
Of course, there are safeguards - like an independent appraiser which estimates the value of Big Reit.
But is it enough? Can good safeguards overcome bad incentives? It is an age-old question. No one knows for sure.
quick quote:
Buy Land. They ain't making any more of the stuff.
- Will Rogers, American humorist, 1879-1935
Wednesday, October 10, 2007
CapitaLand’s service apartment arm Ascott Group yesterday launched a China-focused private equity investment fund with a target size of US$300-500 mil
CapitaLand’s service apartment arm Ascott Group yesterday launched a China-focused private equity investment fund with a target size of US$300-500 million.
Ascott said it intends to hold at least 30 per cent of the closed-end Ascott Residence (China) Incubator Fund, subject to a maximum of US$200 million.
‘The fund will seek to maximise total returns on capital by acquiring and repositioning suitable properties or developing greenfield sites into properties which are used, or predominantly used, for service residences or rental housing,’ it said.
Completed projects will be managed by the group’s brands until operations stabilise and yields from the properties are ‘attractive for divestment to other entities for profit’.
Ascott plans to inject three residential properties totalling up to US$102.1 million into the fund to seed it. These properties are Citadines Shanghai Biyun, Citadines Xi’an Central and Somerset Youyi in Tianjin.
The fund will be placed out to institutions and rich investors. Fund-raising is expected to close by the second quarter of 2007.
Ascott said yesterday its net profit for the first quarter ended March 31, 2007 was $9.7 million versus $42.32 million a year ago - because earnings in Q1 2006 included a divestment gain of $40.5 million from the injection of 12 properties into Ascott Residence Trust.
Net profit a year ago was also restated to take into account the retrospective adoption of new accounting policy for its service residences this year.
In the latest Q1, revenue fell 11 per cent to $95.08 million from $106.54 million a year ago. Excluding the 2006 divestment, revenue for Q1 2007 would have increased 25 per cent from Q1 2006. Ascott expects to book a net gain of about $22.2 million from the sale of Hotel Asia for $147 million cash in Q3 2007.
It will continue to buy and incubate properties to build a strong pipeline. And it expects higher fee-based income from new service residence management contracts and Reit management fees.
Portfolio gains and operating performance in 2007 are expected ‘to remain strong and profitable’, it says.
Ascott said it intends to hold at least 30 per cent of the closed-end Ascott Residence (China) Incubator Fund, subject to a maximum of US$200 million.
‘The fund will seek to maximise total returns on capital by acquiring and repositioning suitable properties or developing greenfield sites into properties which are used, or predominantly used, for service residences or rental housing,’ it said.
Completed projects will be managed by the group’s brands until operations stabilise and yields from the properties are ‘attractive for divestment to other entities for profit’.
Ascott plans to inject three residential properties totalling up to US$102.1 million into the fund to seed it. These properties are Citadines Shanghai Biyun, Citadines Xi’an Central and Somerset Youyi in Tianjin.
The fund will be placed out to institutions and rich investors. Fund-raising is expected to close by the second quarter of 2007.
Ascott said yesterday its net profit for the first quarter ended March 31, 2007 was $9.7 million versus $42.32 million a year ago - because earnings in Q1 2006 included a divestment gain of $40.5 million from the injection of 12 properties into Ascott Residence Trust.
Net profit a year ago was also restated to take into account the retrospective adoption of new accounting policy for its service residences this year.
In the latest Q1, revenue fell 11 per cent to $95.08 million from $106.54 million a year ago. Excluding the 2006 divestment, revenue for Q1 2007 would have increased 25 per cent from Q1 2006. Ascott expects to book a net gain of about $22.2 million from the sale of Hotel Asia for $147 million cash in Q3 2007.
It will continue to buy and incubate properties to build a strong pipeline. And it expects higher fee-based income from new service residence management contracts and Reit management fees.
Portfolio gains and operating performance in 2007 are expected ‘to remain strong and profitable’, it says.
Government okays building of $12b Downtown Line
Singapore has approved the expansion of its existing MRT network for $12 billion (US$7.9 billion), the government said on Friday.
The 40-km Downtown Line — the fifth in Singapore’s metro network — will be built in three stages and completed by 2018, said Singapore’s Land Transport Authority in a statement.
Construction for the first stage of the project will begin at the end of this year and may be completed by 2013.
SMRT and ComfortDelGro operate the three existing lines in Singapore’s urban rail network.The fourth line is still under construction and will operate from 2010.
The 40-km Downtown Line — the fifth in Singapore’s metro network — will be built in three stages and completed by 2018, said Singapore’s Land Transport Authority in a statement.
Construction for the first stage of the project will begin at the end of this year and may be completed by 2013.
SMRT and ComfortDelGro operate the three existing lines in Singapore’s urban rail network.The fourth line is still under construction and will operate from 2010.
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