singapore property weekly issue 234

8/20/2019 Singapore Property Weekly Issue 234

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Issue 234Copyright © 2011-2014 www.Propwise.sg. All Rights Reserved.

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CONTENTS

p2 How SMEs Can Use Property Loans to

Lower Their Borrowing Costs

p9 Singapore Property News This Week

p13 Resale Property Transactions

(October 28 – November 3 )

Welcome to the 234th edition of the

Singapore Property Weekly .

Hope you like it!

Mr. Propwise

FROM THE

EDITOR

mailto:[email protected]://www.propwise.sg/advertise/http://www.propwise.sg/advertise/mailto:[email protected]


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SINGAPORE PROPERTY WEEKLY Issue 234

Page | 2Back to Contents

By Paul Ho (guest contributor)

Singapore’s SMEs makes up 99% of all

enterprises, employ 66% of the workforce and

account for 48% of the GDP. SMEs are

defined as having revenues of less than

$100m and with a staff of less than 200.

Singapore has narrowly averted a technical

recession. But the PMI is below 50%,

indicating a contraction in the manufacturingsector.

How SMEs Can Use Property Loans to Lower TheirBorrowing Costs


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Figure 1: Purchasing Manager’s Index (PMI),

Singapore Institute of Purchasing and

Materials Management (SIPMM)

SMEs have limited access to loans during

tough times

A drop off in demand means that companies

are hardly growing their top lines and may go

into the red. This is especially true for SMEs

with less than $10m in revenues.

Figure 2: Singapore Quarterly GDP Growth

rate (TradingEconomics, SingStats)

Singapore’s corporate default rate of

Corporations listed on the SGX is below 2%.

SMEs likely have a higher default rate of at

least 3 to 4%.


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Figure 3: Corporate NPL Ratio, Financial

Stability Review 2014, MAS

During the Global Financial Crisis in 2008,

Singapore’s SMEs experienced a limited

access to capital and funding. This led the

government to enhance the various schemesthat are in place to help SMEs retain access

to credit. Most of these schemes involve the

government risk-sharing with the banks on

loans to SMEs.

In short, this means that during tough times

the banks cut back on SME lending exposure

due to the potentially higher Non-Performing

Loan risks. Hence funds will likely dry up

during uncertain economic periods when

SMEs need credit the most. Hence SMEs will

be exposed to elevated funding disruption

risks and increased cost of funding during

recessionary periods, and need to take action

now to secure funding.

Discerning future interest rate trends by

looking at the bond yield curve

The bond yield curve gradient has become

less steep, indicating slower growth. There is

also higher mid and long term interest rate

expectations, indicating inflation expectations

or simply a higher interest rate environment.

The 20 year Bond is currently at 2.9%.


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Figure 4: Singapore Bond Yield Curve End

2014 versus Nov 2015, Asian Development

Bank

Hierarchy of Borrowing Costs: Securedversus Unsecured Loans

The impending weakness in the economy

poses greater risks to SMEs than to large

corporations.

Secured lending refers to lending in which an

asset is pledged. Secured lending presents

less risk to the lender and hence they charge

lower interest rates.

Unsecured lending does not require pledged

assets. Hence this presents greater risk to

lenders and are more expensive. Small

businesses usually have fewer assets to

collateralize against and hence use secure

loans less frequently. Unsecured Business

Term Loan rates for SMEs are usually in the

10+% range, depending on loan size as well

as tenure.

The Micro Loan Program by Spring Singapore

is also a good source of funding. However, notmany companies qualify, and for those who

qualify, they may not be able to obtain the

maximum $100,000 loan. Interest costs start

from 5.5% with up to a four year tenure.


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Problems faced by SMEs and their owners

in obtaining credit

Many SMEs may not have the right financing

or salary structure. SME bosses tend to

under-declare their income and instead

declare dividends. Whilst this reduces their

taxable income, with the new Total Debt

Servicing Ratio (TDSR) rule, this also

impedes many SME bosses from borrowing

more to buy their homes.SMEs are suffering a margin squeeze. Faced

with borrowing costs of around 10%, labour

costs that are 5 to 10% of revenue, and other

operating costs which could take up another 5

to 15% of revenue, these businesses need a

gross margin in excess of 30% just to breakeven. Not many industries can offer gross

margins in excess of 30%. Hence SMEs are

especially sensitive to top line growth for

those with 20+ to 40% gross margins.

With market uncertainty, access to funds for

SMEs could be even more restricted in the

coming one to two years.

How can SMEs overcome high cost of

funding issues?

SME bosses should start to realize that

under-declaration of income impedes

borrowing and start to rectify this situation to

reflect their true income. While it is important

to have a tax efficient salary structure using acombination of Salary, Director Fees and

Dividends, it is worthwhile to review this to be

eligible for adequate funding.

SMEs, especially those whose directors who

are currently in their late 30s and early 40s

and who have bought their own residential

homes, could be sitting on tied up equity in

their properties. Residential home loan rates

are around 2%.

SINGAPORE PROPERTY WEEKLY I 234


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They could free up this capital by refinancing

their homes and use the money to invest

prudently in their own business. With this

reduced cost of funding, the business owners

could immediately save ~10% off borrowingcosts.

Case Study: SME owned by 2 Directors

and 3 Shareholders

Does it make sense to borrow against your

home for a company in which you’re only oneof the many directors?

In this case I came across, the company had

two directors and three shareholders. The two

Directors owned 35% each of the business,

while the rest of the shareholders held 10%

each.

They needed $500,000 of funds for business

expansion.

We advised the firm to structure a Director’s

resolution to approve the company to request

for a Shareholder Loan to the company at a

5% interest rate. The two major shareholders

cum Directors held 70% of the shares, andhence were allotted $350,000 of the loan

amount. Shareholders or Directors who did

not wish to lend to the company at the

approved 5% interest rate may give up their

allotment. The unused allotment may be used

by the other directors/shareholders equally.

These two major shareholders then

refinanced their residential property loan with

a cash out (equity term loan) of $400,000 at

1.8% interest. They then lent their company

$400,000 at a 5% interest, making a decentreturn on their loan to their own company.

Another two shareholders took up their

allotment and lent the company $100,000 at

the same 5% interest.

SINGAPORE PROPERTY WEEKLY I 234


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In this way, the company had access to

cheaper capital, boosting its chances of

survival and creating a fair debt offering for all

directors and/or shareholders who wanted to

participate. It’s similar to preferential bondswhich only Directors and shareholders can

participate in.

SUMMARY

SME owners should get their personal

income structure right to optimize for both taxefficiency and borrowing capacity. They can

then leverage on cheaper secured mortgages

to free up equity from their house to lower

their business borrowing costs by structuring

a Director’s Loan to company.

In order to lock in low rates from the

residential property equity loan (cash out), it

might be safer for SME owners to consider a

three to five year fixed rate structure to hedge

against rising interest rates.

Investors with at least $300,000 of spare cash

could also get in on the game to bridge the

gap left behind by banks and lend to growing

companies who can afford to pay 14 to 18%

per annum in interest costs. But thorough risk

assessment needs to be done to minimize

default rates. Convertible loans can also be

structured to give investors additional upsideif there is a liquidity event (e.g. acquisition).

By Paul Ho, holder of an MBA from a

reputable university and editor of

www.iCompareLoan.com, Singapore’s first

Cloud-based Home Loan reporting platform

used by Property agents, financial advisors

as well as Mortgage brokers.


http://www.icompareloan.com/http://www.icompareloan.com/http://www.icompareloan.com/http://www.icompareloan.com/http://www.icompareloan.com/http://www.icompareloan.com/


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Singapore Property This Week


Residential

C o n d o r es a le p r i c es f el l 0 .6 % m o n t h - o n -

m o n t h i n O c t o b e r

In October, non-landed private residential

resale prices dropped 0.6%, following a 0.3%

month-on-month drop the previous month.On the other hand, resale volumes increased

by 9.8% to 505 units in October, according to

SRX Property’s flash estimates. Ong Kah

Seng from R’ST Research said that attractive

pricing had driven sales. Not only so, sales

may have increased as both buyers andsellers had wanted to close the deal before

the year-end period, which is typically quieter.

Eugene Lim from ERA Realty added that

prices have decreased only by a marginal1.7% since the start of the year because

sellers are not pressured to cut prices to

make sales. The overall private residential

property price index is expected to drop by

3.8 to 4.8% year-on-year this year, said

Nicholas Mak from SLP International.

(Source: Business Times)

R edhil l s i t e sold f or $851 psf ppr

Located at Redhill, a 0.84 ha site was won

for $851 psf ppr. The site, which is 99-year

leasehold, had attracted 10 bids. Ong Teck

Hui from JLL said that the conservative bid

prices could indicate that developers are

cautious of the market.



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Ong added that this may also have been

because there is a fair amount of unsold

supply in nearby projects. Nicholas Mak from

SLP International predicts that the breakeven

price for the Redhill site is about $1,350 to$1,400 psf. Mak believes that the site’s prime

location could have been a pull factor. Not

only so, the first storey of the development

may be use for commercial purposes such as

for the development of shops, cafes and

restaurants.


H D B r e n t s f a l l b y 0 . 5 % m o n t h - o n - m o n t h i n

O c t o b e r

According to SRX Property, HDB rents had

fallen 0.5% month-on-month in October.

Market experts believe that the fall in rents

could have been due to slower leasing

activities which are typically seen in H2.

Besides that, market experts believe that an

increase in private residential completions

may have negatively affected HDB rents.

According to Eugene Lim from ERA Realty,

the downward rental pressure on the outsidecentral region (OCR) could be because a

majority of the non-landed private residential

projects are located in suburban areas. Lim

added that while HDB rental volumes had

decreased, the demand is still strong in the

HDB leasing market.


A p p l i c a t i o n p e r i o d f o r H D B s a l e s e x e r c i s e

ext ended f or launch in D ecember

HDB will be extending the application period

for the HDB sales exercise from 7 to 10 days

in the upcoming sales launch in December. At

this mega launch, 12,000 flats will be offered

for sale.



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Of these flats, 7,000 are BTO flats while the

remaining units are balance flats. The BTO

flats will be offered in Bidadari, Bukit Batok,

Choa Chu Kang, Hougang and Sengkang.

Ong Kah Seng from R’ST Research believesthat the Bidadari site will draw the greatest

interest due to its prime location. He added

that flat prices may not be low due to the

location of the development. Eugene Lim

from ERA Realty added that the Punggol

Northshore flats may also be a hit with buyersas it offers sea views.


Singapore’s lu x ur y r es id en ti al m ar k et

w e a k es t - p er f o r m i n g i n t h e w o r l d

According to Knight Frank Prime Global Cities

Index, Singapore’s luxury residential market

is the weakest-performing one for 7

consecutive quarters. Prices of prime homes

took the largest hit in Q3 this year, according

to the report. Market experts believe that

transaction volumes are low because of the

additional buyer’s stamp duty and uncertain

market conditions. On the other hand, citieslike Vancouver, Sydney and Shanghai have

bucked the downwards trend by showing

double-digit annual price increases.


Commercial

A d j o i n i n g s h o p h o u s e a t C h i n a t o w n u p f o r

sale

Two adjoining shophouses at Chinatown have

been put up for sale for $30 million. Both

have a combined land area of 3,010 sq ft anda built-in area of 9,226 sq ft. The three and a

half-storey conservative shophouses have

been zoned for commercial use and are fully

occupied.



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The development is located just 50m away

from ChinaTown MRT and is situated near

tourist attractions like the Chinatown Heritage

Centre. The expression of interest will close

on Nov 27.


G ro u n d -f lo o r s h o p a t S h e nt o n H o us e t o

auct ion f or $13. 3 mil l ion

A ground-floor shop unit at Shenton Housewith an indicative price of $13.3 million has

been put up for auction at the Colliers

International’s auction on Nov 20. The

monthly rental for the development is at

$39,786 inclusive of service charge and the

lease runs till August 2017. Based on theindicative price and current rental the gross

rent works out to $6 psf a month. Shenton

House is a 25-storey commercial

development with retail units from levels 1 to

3.



http://propertymarketinsights.com/


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Non-Landed Residential Resale Property Transactions for the Week of Oct 28 – Nov 3

NOTE: This data only covers non-landed residential resale propertytransactions with caveats lodged with the Singapore Land Authority.Typically, caveats are lodged at least 2-3 weeks after a purchasersigns an OTP, hence the lagged nature of the data.

Postal

DistrictProject Name

Area

(sqft)

Transacted

Price ($)

Price

($ psf)Tenure

3 QUEENS 1,195 1,523,888 1,275 99

3 CENTRAL GREEN CONDOMINIUM 1,528 1,780,000 1,165 99

4 CARIBBEAN AT KEPPEL BAY 1,636 2 ,550,000 1,559 99

5 THE VISION 1,313 1,695,000 1,291 99

5 THE PARC CONDOMINIUM 1,302 1,568,910 1,205 FH

5 PALM MANSIONS 1,324 1,160,000 876 FH

5 WESTCOVE CONDOMINIUM 1,518 1,250,000 824 99

7 CONCOURSE SKYLINE 1,098 1,850,000 1,685 99

9 YONG AN PARK 3,434 6,500,000 1,893 FH

9 SAM KIANG MANSIONS 1,206 1,850,000 1 ,535 FH

9 ASPEN HEIGHTS 1,324 1,900,000 1,435 999

9 RESIDENCES @ KILLINEY 5,059 5,600,000 1,107 FH

10 TANGLIN PARK 1,033 1,980,000 1,916 FH

10 ORANGE GROVE RESIDENCES 1,927 3,300,000 1,713 FH

10 THE SIXTH AVENUE RESIDENCES 1,636 2,080,000 1,271 FH

11 1 MOULMEIN RISE 1,238 1,960,000 1,583 FH

12 THE ABERDEEN 1,302 1,380,000 1,060 FH

14 WATERBANK AT DAKOTA 1,141 1,780,000 1 ,560 99

14 THE TRUMPS 980 1,099,000 1,122 99

14 THE WATERINA 1,335 1,300,000 974 FH

14 EUNOS PARK 1,625 1,500,000 923 FH

14 DENG FU VILLE 1,755 1,600,000 912 FH

14 SIMSVILLE 1,249 1,040,000 833 99

15 THE SEA VIEW 1,647 2,980,000 1,809 FH

15 PEBBLE BAY 2,088 3,000,000 1,437 99

15 IMPERIAL HEIGHTS 452 630,000 1,394 FH

15 PARKSHORE 1,647 1,850,000 1,123 FH

Postal

DistrictProject Name

Area

(sqft)

Transacted

Price ($)

Price

($ psf)Tenure

15 HAIG RESIDENCES 1,249 1,310,000 1,049 FH

15 CANARY VILLE 1,087 1,010,000 929 FH

15 LEGENDA AT JOO CHIAT 1,216 985,000 810 99

16 CASA MERAH 958 1,167,000 1,218 99

16 COSTA DEL SOL 1,948 2,050,000 1,052 99

16 EAST MEADOWS 1,206 1,150,000 954 99

17 ESTELLA GARDENS 1,830 1,390,000 760 FH

18 EASTPOINT GREEN 1,130 948,000 839 99

19 A TREASURE TROVE 1,044 1,140,000 1,092 99

19 A TREASURE TROVE 1,044 1,120,000 1,073 99

19 RIO VISTA 1,378 1,130,000 820 99

19 RIO VISTA 1,238 940,000 759 99

20 SKY HABITAT 1,798 2,549,840 1,418 99

20 THOMSON V ONE 431 600,000 1,394 99

20 GRANDEUR 8 1,421 1,405,000 989 99

20 GRANDEUR 8 1,216 1,165,000 958 99

21 FREESIA WOODS 1,432 1,700,000 1,187 FH

23 MAYSPRINGS 818 730,000 892 99

23 THE WARREN 1,216 950,000 781 99

23 PALM GARDENS 1,938 1,198,000 618 99

25 CASABLANCA 947 770,000 813 99

26 FOREST HILLS CONDOMINIUM 1,163 950,000 817 99

27 THE SENSORIA 1,184 950,000 802 FH

singapore property weekly issue 234

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