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06 June 2013

Home loan interest rates creeping up

Increase is small so far, but spike feared as global economy improves

Source: Straits Times 
By Melissa Tan

HOME loan interest rates have risen marginally over the past half-year as banks seek to shore up profit margins amid low market rates, industry observers told The Straits Times.

But although the increase so far has been small, and overall interest rates remain at historical lows, the worry is that market interest rates could shoot up over the coming months in tandem with improving global economic conditions.

Banks usually peg their mortgage rates to a market rate, which is usually the Singapore Interbank Offered Rate (Sibor), and sometimes the Swap Offer Rate (SOR). They then tack on a premium. Borrowers are typically locked in to these rates for at least three years.

After factoring in changes to both the market rates and premium rates, overall interest rates have risen by 0.17 to 0.27 percentage point across all banks here since January, said Mr Desmond Chua, head of online home financing service

Mr Alfred Chia, chief executive of financial advisory firm SingCapital, which specialises in mortgage refinancing, said average premiums went up from 0.7 per cent in January to around 0.85 per cent last month. He added that the biggest jump he saw was by more than 0.4 percentage point.

A 0.4 percentage point jump means that monthly instalments for a $1 million loan on a 20-year tenure could rise by $185 - from about $4,635 to nearly $4,820 - assuming a constant three-month Sibor of 0.38 per cent, and a premium initially set at 0.7 per cent.

The three-month Sibor began the year at nearly 0.38 per cent, and is now around 0.373 per cent. OCBC economist Selena Ling expects it to rise to 0.39 per cent by the year end.

Banks are facing lower interest earnings after a raft of government curbs on the property and car markets, in January and February respectively. Industry observers said banks may try to make up for this by raising interest rates.

Car loan interest rates leapt last month - after curbs in February on car loan amounts - from 1.88 per cent a year to 2.68 per cent across almost all banks here.

Home owners said their main concern now is whether Sibor rates could suddenly spike due to external factors such as an improvement in the economic situation in the United States.

"I am worried about whether the Sibor will go up," said education officer Nahar Azmi, 42. He refinanced the mortgage on his District 15 terraced house early this year, with a $881,000 loan on a 25-year tenure. It is pegged to the three-month Sibor with premiums starting at 0.6 per cent.

The US Federal Reserve may taper its quantitative easing - a technical term for printing money - which would effectively end the ultra-low interest rate environment there. Concerns over this have played out in how the closely watched US Treasury 10-year bond yield shot up to as high as 2.23 per cent late last month, up from about 1.6 per cent as at the end of April.

But even if the Sibor stays low, market watchers said overall mortgage rates may still rise as banks try to boost profit margins.

"If the Sibor stays low until US unemployment improves... all the banks here know that to grow margins, they have to increase premiums," Mr Chia said.

LoanGuru's Mr Chua added that banks have stopped offering mortgages pegged to the one-month Sibor since February this year.

The one-month Sibor rate has been lower than the three-month Sibor rate for the past year. Both are still near historical lows.

One applicant for each BTO flat

Source: Straits Times
By Daryl Chin, Property Correspondent

THERE was one eligible buyer for every flat offered in the latest Build-To-Order (BTO) exercise as of 5pm yesterday, one of the lowest subscription rates since the system was introduced in 2001.

This meant it was likely that most of the applicants would get to select a flat, analysts said.

But not all the 4,900 BTO units in the five non-mature estates enjoyed equal popularity.

The 314 three- and four-room flats in Hougang attracted more than 1,200 applicants, while the 1,462 similar sized units in Sembawang attracted just 560 bids.

This equates to an application rate, or number of applicants per flat, of 3.8 and 0.4 respectively.

ERA Realty key executive officer Eugene Lim said location was a major factor in this round, as none of the projects was near MRT stations. Hougang, however, was more attractive because it was a well established estate with the right infrastructure in place.

"The rest were overshadowed by the selection of flats available under the balance flats exercise," Mr Lim added.

Some 3,100 balance flats across the island were offered in a concurrent exercise, and applicants could go for only one or the other.

Highly sought after units this time included two flats at Pinnacle@Duxton - one five- room and one four-room - which together garnered 622 bids.

Although the larger unit had a hefty price tag of $769,000, analysts said its capital appreciation could still present a small "windfall" when it goes for resale in five years.

OrangeTee head of research Christine Li said demand from second-time buyers remained high.

The application rate for this group in this exercise was 95.7, up from 78.2 in the previous balance flats sale last September.

"Even though the prices of bigger flats and their cash premiums have softened, second- timers continue to face difficulty in getting a resale HDB flat due to a mismatch in expectations between sellers and buyers," Ms Li noted.

Record $314,000 fine for moneylending offences

Charges include unlicensed lending, regulatory breaches, giving false info

Source: Straits Times
By Elena Chong, Court Correspondent

A REAL estate company director was fined $314,000 yesterday - the highest fine ever imposed on an errant licensed moneylender.

Lee Pit Chin, 45, was also jailed for three months and fined $160,000 for operating as an unlicensed loan shark.

The $314,000 was for offences committed while he was a licensed moneylender in 2010.

Lee, who ran James Lee Credit, held a licence from July 2009 to June30, 2010, but did not renew it as he was already under investigation.

In all, he faced 94 charges. He pleaded guilty last Friday to two of four counts of unlicensed moneylending and 30 regulatory breaches for granting unsecured loans to borrowers, and for recklessly furnishing false information to the Registrar of Moneylenders.

Between September and December 2011, he instructed his office worker, Yan Hwee Onn, 50, to disburse loans of $28,500 and $15,000 to two borrowers at a 10per cent monthly interest rate.

Yan was jailed for three months and fined $40,000 in March for assisting Lee in his unlicensed moneylending business.

Last week, Deputy Public Prosecutor Kelly Ho said sometime in mid-2011, Yan suggested the idea of starting a business to issue loans to potential sellers of HDB flats who needed cash.

Yan told Lee he would act as the middleman by seeking sellers, offering and issuing them loans, and cashing the repayments, while Lee provided the funds.

Ms Ho said Lee was familiar with such operations and agreed, with the interest earned split 90/10 in favour of Lee.

Defence counsel Yusfiyanto Yatiman said his client did not fit the profile of a typical loan shark but ran a successful legitimate real estate business for 19 years and set up James Lee Credit as an auxiliary business.

Mr Yusfiyanto said: "He was previously a licensed moneylender, respected in the industry. He also held leadership positions in his church, went on missionary trips to India, East Timor and Malaysia, provided social service to distribute food to the needy on a weekly basis and to the poor and needy in rental flats."

He said the co-accused was the ultimate mastermind behind the offences and that Lee, a father of two, was less culpable.

District Judge Lee Poh Choo disagreed, saying: "The accused is a science graduate from NUS and has been in the real estate industry for 19 years. I cannot see him as a meek follower. The co-accused may have proposed the scheme, the accused can easily turn him down."

Lee is the key executive officer of licensed estate agent James Lee Realty.

However, the Council for Estate Agencies (CEA) said in a statement that it was reviewing his registration.

Estate agents and salesmen are not allowed to introduce, refer, recommend or suggest the use of the services of moneylenders to clients.

Neither can they receive commission, rewards, fees, payments or any benefits from any moneylender for any moneylending transaction.

CEA director (licensing and investigation) Purnima Shantilal said: "Such offences cannot be tolerated and any person convicted in court will not be fit to be a salesperson."

Lee could have been fined between $30,000 and $300,000 and jailed for up to four years on each charge of unlicensed moneylending. For recklessly furnishing information which was false, he could have been fined up to $30,000 and/or jailed for up to 12 months on each charge.