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04 July 2013

Local banks' debt ratio likely within limits
But there were probably differences among the lending practices of banks

Source: Straits Times
By Cheryl Ong

LOCAL banks were likely within new limits for home loan debt criteria before the Monetary Authority of Singapore (MAS) announced new curbs on property loans last Friday.

The Straits Times understands from banking sources that local banks had been using a debt servicing ratio of about 50 per cent. That meant loan repayments could not exceed half of a borrower's monthly income.

Sources said DBS Bank's was around 50 per cent, United Overseas Bank's (UOB) between 50 and 60 per cent, while OCBC said its ratio for home loans was around 30 per cent, and 60 per cent when other debts were considered.

These proportions do not sound far off from the new MAS figure threshold, but there were probably differences among the lending practices of banks and finance companies.

The central bank noted in a recent review of mortgage lenders that some were only looking at the loan being applied for when computing a debt servicing ratio, ignoring a borrower's other debts. That, in turn, could give a misleading impression of a person's ability to keep his head above water.

The new rules now state that total debt repayments - this includes the mortgage repayment plus any car, student, or similar personal loans and other mortgages - cannot be higher than 60 per cent of gross monthly income.

MAS said the new framework - called the total debt servicing ratio, or TDSR - was calibrated to "help standardise and strengthen financial institutions' credit underwriting practices" as practices used to approve property loans "varied widely across financial institutions".

It also moved to tighten up the way a borrower's variable income - commissions, bonuses and allowances - and any rent from investment property is assessed, given that such income can vary from one year to the next.

Banks may have previously included the full amount of this when computing monthly income, but now they will have to apply a discount of at least 30 per cent to this type of income when assessing a person's eligibility. A person who earned say $24,000 last year in variable income will now have that assessed at only $16,800 when annual income is calculated in a loan application.

Banks seem to be taking the new rules in their stride. A UOB spokesman told The Straits Times: "While we were already closely aligned with the new regulations, adjustments have been made to ensure full compliance."

OCBC head of group communications Koh Ching Ching said the bank is in compliance and has aligned ratios with the measures.

DBS Bank added that "key considerations for approving a mortgage include an assessment of the customer's existing financial commitments as well as their ability to make repayments".

CIMB analysts have pointed out that banks have generally kept to a debt servicing ratio limit of 30 per cent to 40 per cent per loan, which will cushion them against the latest move.

Freehold Coronation Rd shop for sale 'at $33m

Source: Straits Times | Money 

A PRIME freehold corner shop at Coronation Road was put up for sale by private treaty yesterday.

The Straits Times understands that the asking price for the shop, which is zoned for commercial and residential use, is about $33 million.

This works out to about $4,755 per sq ft (psf) for the shop, which has a strata area of around 6,490 sq ft.

The shop currently has three tenants, all in the food and beverage industry, with the total tenancy worth $950,000 per year.

Two of the leases expire in July next year and the third in October 2015.

The shop is owned by a prominent investor, said industry sources.

It is located at one end of Coronation Shopping Plaza and is a few streets away from the future Tan Kah Kee MRT station on the Downtown Line.

A Housing Board coffee shop in Hougang Avenue 4 was reportedly sold for a staggering record price of almost $23.9 million recently.

This translates to about $5,935 psf for the 4,025 sq ft coffee shop called Coffee Express 2000, which has 17 stalls.

The buyer was Broadway Group, which owns a chain of eating houses, according to Chinese evening daily Lianhe Wanbao, which said that the previous record for an HDB coffee shop was $15 million.


CBD office rents 'bottoming out'

Source: Straits Times | Money 
By Melissa Tan

OFFICE rents in the Central Business District (CBD) look to be bottoming out after a period of decline, while those in the CBD fringe are rising, according to a DTZ report yesterday.

Occupancy rates have also climbed islandwide, largely due to a decrease in supply, the property consultancy added.

It found that average gross monthly office rents in Shenton Way held firm at $7.25 per sq ft (psf) in the second quarter from the preceding three months, while those in the Raffles Place area hovered at $9.30 psf. They were still down year on year, however: by 4 per cent in the Shenton Way zone and 2 per cent at Raffles Place.

Ms Lee Lay Keng, DTZ's head of Singapore research, said CBD rents could start rising in this half of the year if economic growth improves. But she added that demand from banks and financial services firms, which tend to pay higher rents, will likely remain "modest".

"Office demand will continue to be supported by the non-financial sectors such as the information technology, energy and infocomm and professional sectors, which have recorded more positive sentiment."

While the CBD is languishing, rents in some city fringe areas rose in the quarter to June 30 from the preceding quarter.

DTZ pointed to "sustained demand from a diversified tenant profile, additional demand from displaced tenants and the recent lack of new supply".

Average gross monthly rents in Orchard Road rose 2.3 per cent from the preceding quarter, while those in the Bras Basah/Selegie Road area grew 2.4 per cent. The jump was slightly larger in River Valley, where office rents rose 3.3 per cent from the previous quarter.

Average gross rents in other CBD fringe districts such as Marina Centre, Tanjong Pagar and Beach Road were largely unchanged from the first quarter.

DTZ noted that a number of tenants were displaced from the CBD because some office buildings went off the market for refurbishment or redevelopment.

These were located mostly around Shenton Way and included the entire Robinson Towers and its annex building, the International Factors Building, The Corporate Office, Cecil House and some floors in DBS Tower 1.

"Some of the displaced tenants from these older buildings due for redevelopment moved either into nearby buildings in the CBD or the CBD fringe, where rents can be about 10 per cent to 20 per cent lower."

DTZ estimated the buildings had a cumulative net lettable area of around 430,000 sq ft.

Taking such a large amount of office space off the market sent occupancy rates shooting up for the second quarter.

Islandwide occupancy rates went up from 95.4 per cent in the first quarter to 96.3 per cent in the second.

The biggest growth was in the Shenton Way area - up 3.3 percentage points to 94.8 per cent, while Raffles Place occupancy rates grew about 1 percentage point to 94.3 per cent.