Aug 3, 2008
Youth Olympic athletes to stay at NTU campus
Spiralling building and fuel costs cited for switch from new NUS university town site
By Leonard Lim
Athletes and team officials coming for the inaugural Youth Olympic Games (YOG) in 2010 will now be staying at the Nanyang Technological University (NTU).
In a surprise announcement yesterday, YOG organisers said the International Olympic Committee (IOC) has approved a proposal to site the Youth Olympic Village at NTU's existing campus off Jalan Bahar.
It was originally planned to be at the upcoming $500-million, 19ha University Town in Clementi.
The spiralling cost of building materials globally - market experts said prices have risen up to 35 per cent in the last year - and high fuel prices were cited for the switch.
'We decided to take the more prudent approach of having the Village at NTU,' said Mr Ng Ser Miang, chairman of the Singapore YOG Organising Committee.
'Also, the YOG's concept is that the IOC wants host cities to use existing facilities.'
The National Institute of Education, located within NTU, will be the Village's central square. Dining, retail, culture and education services will be located there.
Organisers added that it was too early to say how much money would be saved with the change, but it is estimated to be at least a six-figure sum.
Sticking to the plan of accelerating the University Town's construction to get it ready by February 2010 would mean 'significant' increase in costs, said its developer, the National University of Singapore (NUS).
Fortunately, the 200ha NTU campus had been identified as an alternative venue when Singapore submitted its bid to host the multi-sports event last October.
This was partly due to initial worries that the University Town would not be completed in time for the event in August 2010.
While the 3,500 or so foreign athletes and 900 officials will not get to enjoy the spanking new Town, NTU students and Jurong residents are set to benefit.
Various campuses and neighbourhood sports facilities will be spruced up to allow YOG athletes to train there, said organisers.
For instance, NTU's running track and swimming pool will almost certainly be refurbished, according to Youth Olympic Village director Eric Tan.
'But we won't just depend on NTU's facilities,' he said. 'We are eyeing some schools within a 10-minute bus ride and seeing if their facilities can be upgraded.
Just two of the nine NTU residential halls set aside to house about 5,200 people are air-conditioned. Organisers are considering installing air-cons for the rest and adding new furnishings in bedrooms.
This will add to the US$75 million (S$103 million) already set aside for the Games.
There are other pros and cons to the change in venues, said Mr Tan. 'While NTU will be farther from town, its facilities are more spread out compared to NUS,' he said.
Staying at NTU also means most athletes will have to spend an extra 10 minutes or so on the road when travelling to competition venues around the island.
With the exception of BMX and mountain biking (Tampines) and sailing (East Coast), the other 24 sports will be staged within a half-hour's drive from the Village.
Apart from upgrading works, NTU said it may postpone the start of the 2010/2011 academic year by about two weeks.
Sports-loving NTU undergraduates cheered the news. Mr Henry Seah, 21, a second-year business student and former national youth table tennis player, said: 'I hope we can mingle with some of the YOG athletes. I'll try to volunteer and help out if I can.'
limze@sph.com.sg
Copyright © 2007 Singapore Press Holdings. All rights reserved. Privacy Statement & Condition of Access
Sunday, August 3, 2008
It's ang-moh ghost month
Aug 3, 2008
EX-PAT FILES
It's ang-moh ghost month
By Linda Collins
Singapore may seem more crowded than ever. Heartland malls are a jostling jumble of people and roads are crammed. Yet in some parts of the island, it's as if the invasion of the body snatchers has taken place.
Up to 20,000 people may have vanished since June.
In their typical haunts, it's like a ghost town. At some condos, the shouts of toy-tussling tots no longer echo across the playground. Club tennis courts, where the vicious thwack of the ball on titanium is usually heard, are now silent.
No longer do maids sit chatting beside swimming pools as they mind darling Tayla or Tristan while Ma'am pops out for a pedicure.
Purveyors of Asian knick-knacks - that no discerning Singaporean would buy - stand outside their empty shops, wondering: When are They coming back?
'They' are the European and American expat wives. They have disappeared into thin air - flying back to their home countries. They are taking part in the annual expat migration home for the northern hemisphere's summer school holidays, in the months between June and September.
Thousands of wives gather their children attending Singapore's international schools and return to Little Britain, Uncle Sam, Carla Bruni land, Disneyland, and all other points north.
This expat exodus from the host country is a rite in which they renew family ties and touch base with their own culture.
Their absence is temporary. They do return.
Meanwhile, the ladies' social tennis circuit is out of service, the quilting club has lost its thread and the wine club is half-full.
Bereft of Brits, the British Club is moved to offer a special three-month membership deal over 'summer'.
At some expat hairdressers, you can even get a walk-in blow-dry without an appointment - unheard of, normally.
And at horse-riding establishments, the ponies are piling on the pounds. No trotting around a sand arena for them while jaw-jutting Jemimas are galloping around the Home Counties.
Mums who stay on, including those with careers, are delighted how easy it is to get a manicure at Holland Village these days.
But now it is August and soon the expat flock will return to prepare their brood for the new international school year, as surely as the migratory Curlew Sandpiper departs Siberia for the mudflats of Sungei Buloh to avoid the winter months.
The expat variety of migratory bird arrives plump from dining on shepherd's pie, southern fried chicken and other such foodstuffs from her native land. She is bright of plumage, having purchased the latest Fall fashions and make-up.
For the male of the species - banker blokes, pharmaceutical fathers, dot.com dads - it's been life as usual, flying off on endless business trips around the region or toiling at desks.
After all, a chap's role is to stay here and earn the moolah to pay for the family to have that long holiday, wives might point out (at their peril).
So where do these expats and the children stay during all that time? Some have vacant houses or vacation homes, where they resume their non-expat lives. Others who missed out on the Western world's housing boom do the rounds of various relatives and friends, or rent a place.
It's also the time of year when expat marriages hit a rocky patch. Lonely hubby is not immune to the nubile attractions of the Orient as he enjoys an after-work tipple.
Oh yes, home leave of around nine weeks in summer and around four weeks over Christmas is a long time to be apart.
Interestingly, even as besuited bankers linger longer at Harry's Bar, while their wives renew their acquaintance with Harrods or Macy's, a survey came out last month ranking Singapore as the best place in the world to live in, based on a poll of 2,155 expatriates.
The Expat Explorer survey for HSBC Bank International was done between February and April - and no doubt Singapore would seem the top place to live in, if you were stuck in the northern hemisphere's joyless end of winter and shivering spring.
Still, for quite a few expat families, while Singapore is tops to tarry in, there is no place quite like home. They're spending a quarter, or even more, of a 12-month period out of the place altogether. As for high-flier husbands bringing home the bacon here, how about making a toast: To absent friends.
The writer is a copy editor with The Straits Times and has been living in Singapore for 15 years. Send your comments to suntimes@sph.com.sg
Copyright © 2007 Singapore Press Holdings. All rights reserved. Privacy Statement & Condition of Access
EX-PAT FILES
It's ang-moh ghost month
By Linda Collins
Singapore may seem more crowded than ever. Heartland malls are a jostling jumble of people and roads are crammed. Yet in some parts of the island, it's as if the invasion of the body snatchers has taken place.
Up to 20,000 people may have vanished since June.
In their typical haunts, it's like a ghost town. At some condos, the shouts of toy-tussling tots no longer echo across the playground. Club tennis courts, where the vicious thwack of the ball on titanium is usually heard, are now silent.
No longer do maids sit chatting beside swimming pools as they mind darling Tayla or Tristan while Ma'am pops out for a pedicure.
Purveyors of Asian knick-knacks - that no discerning Singaporean would buy - stand outside their empty shops, wondering: When are They coming back?
'They' are the European and American expat wives. They have disappeared into thin air - flying back to their home countries. They are taking part in the annual expat migration home for the northern hemisphere's summer school holidays, in the months between June and September.
Thousands of wives gather their children attending Singapore's international schools and return to Little Britain, Uncle Sam, Carla Bruni land, Disneyland, and all other points north.
This expat exodus from the host country is a rite in which they renew family ties and touch base with their own culture.
Their absence is temporary. They do return.
Meanwhile, the ladies' social tennis circuit is out of service, the quilting club has lost its thread and the wine club is half-full.
Bereft of Brits, the British Club is moved to offer a special three-month membership deal over 'summer'.
At some expat hairdressers, you can even get a walk-in blow-dry without an appointment - unheard of, normally.
And at horse-riding establishments, the ponies are piling on the pounds. No trotting around a sand arena for them while jaw-jutting Jemimas are galloping around the Home Counties.
Mums who stay on, including those with careers, are delighted how easy it is to get a manicure at Holland Village these days.
But now it is August and soon the expat flock will return to prepare their brood for the new international school year, as surely as the migratory Curlew Sandpiper departs Siberia for the mudflats of Sungei Buloh to avoid the winter months.
The expat variety of migratory bird arrives plump from dining on shepherd's pie, southern fried chicken and other such foodstuffs from her native land. She is bright of plumage, having purchased the latest Fall fashions and make-up.
For the male of the species - banker blokes, pharmaceutical fathers, dot.com dads - it's been life as usual, flying off on endless business trips around the region or toiling at desks.
After all, a chap's role is to stay here and earn the moolah to pay for the family to have that long holiday, wives might point out (at their peril).
So where do these expats and the children stay during all that time? Some have vacant houses or vacation homes, where they resume their non-expat lives. Others who missed out on the Western world's housing boom do the rounds of various relatives and friends, or rent a place.
It's also the time of year when expat marriages hit a rocky patch. Lonely hubby is not immune to the nubile attractions of the Orient as he enjoys an after-work tipple.
Oh yes, home leave of around nine weeks in summer and around four weeks over Christmas is a long time to be apart.
Interestingly, even as besuited bankers linger longer at Harry's Bar, while their wives renew their acquaintance with Harrods or Macy's, a survey came out last month ranking Singapore as the best place in the world to live in, based on a poll of 2,155 expatriates.
The Expat Explorer survey for HSBC Bank International was done between February and April - and no doubt Singapore would seem the top place to live in, if you were stuck in the northern hemisphere's joyless end of winter and shivering spring.
Still, for quite a few expat families, while Singapore is tops to tarry in, there is no place quite like home. They're spending a quarter, or even more, of a 12-month period out of the place altogether. As for high-flier husbands bringing home the bacon here, how about making a toast: To absent friends.
The writer is a copy editor with The Straits Times and has been living in Singapore for 15 years. Send your comments to suntimes@sph.com.sg
Copyright © 2007 Singapore Press Holdings. All rights reserved. Privacy Statement & Condition of Access
HDB rents still well on the rise
Aug 3, 2008
property
HDB rents still well on the rise
Demand still there with expats on smaller housing allowances and
those priced out of condo market
By Fiona Chan, PROPERTY CORRESPONDENT
Rents at many condominiums in Singapore appear to be peaking, but
landlords of Housing Board flats are still riding the cash wave.
HDB rents continued their steady rise in the second quarter of this
year, increasing across all flat types and most towns as renters
sought cheaper alternatives to increasingly costly condos.
Owners of four-room flats benefited the most, with average monthly
rents climbing almost 10 per cent to $1,750, from $1,600 in the
previous three months, according to the latest data from HDB.
In terms of towns, Bukit Batok, Central, Serangoon and Hougang saw
major rent rises across all flat types.
Generally, HDB rents have been increasing because rents of private
apartments 'have hit a level too high for many to afford', said Mr
Chris Koh, director of real estate agency Dennis Wee Properties.
'Those who used to be renting a condo at $2,000 to $2,500 a month
find they have very few options when they want to renew their lease
because their landlords have increased rents to $3,000 to $3,500.'
Many of these displaced tenants work for smaller firms and do not
have the flexibility of higher rent budgets, so they turn to HDB
flats, Mr Koh said.
Some new tenants are also S-pass holders with smaller budgets that
can only fit HDB flats rather than condos, added Dr Tan Tee Khoon,
head of KF Property Network, a subsidiary of Knight Frank.
He also noted that the stock of HDB flats for rent remains fairly
constant, unlike that of condos. Supply of HDB flats is also limited
because of the conditions imposed on owners who want to lease out
their flats.
* Rising across the board
Between April and June, eight out of every 10 towns saw higher rents
for four-room flats, with Jurong East experiencing jumps of up to 21
per cent.
The priciest place to rent a four-room flat is now Bukit Merah, where
the average monthly rent is $2,300. Close behind are flats in the
Central area, Toa Payoh and Bishan, which command $2,000 or more.
'Bukit Merah has become popular with foreign nurses who work at
Singapore General Hospital, and Jurong East is getting a lot of
foreign students from Nanyang Technological University and foreign
factory workers working in the west,' explained Mr Koh.
He added that Toa Payoh seems to attract expatriates working in the
city as well as foreign nurses from Thomson Medical Centre and Mt
Alvernia Hospital.
Landlords of other types of HDB flats are also seeing a tidy profit.
Monthly rents of three-room and five-room flats went up by $100 on
average to $1,500 and $1,900 respectively.
For three-room flats, the biggest growth was in Hougang, where rents
soared 40 per cent to $1,400 a month. They also saw sizeable
increases of more than 10 per cent in Geylang, Bukit Batok, Ang Mo
Kio, Serangoon and the Central area.
For five-room flats, Bukit Timah, Jurong West and Hougang were
especially in demand. But the most expensive five-room flats are
still in Marine Parade and Central, where they go for $2,550 and
$2,400 a month, respectively.
* Steady in the short term
Rentals for HDB flats are likely to hold steady or even rise for the
rest of the year as they remain much more affordable than condos,
predicted Mr Koh.
KF's Dr Tan also believes HDB rents will rise a further 10 to 15 per
cent in the next six months.
'As more new condos are completed next year and the year after, rents
of condos will ease and then only will we see HDB rents easing off as
tenants will have more choices,' Mr Koh said.
property
HDB rents still well on the rise
Demand still there with expats on smaller housing allowances and
those priced out of condo market
By Fiona Chan, PROPERTY CORRESPONDENT
Rents at many condominiums in Singapore appear to be peaking, but
landlords of Housing Board flats are still riding the cash wave.
HDB rents continued their steady rise in the second quarter of this
year, increasing across all flat types and most towns as renters
sought cheaper alternatives to increasingly costly condos.
Owners of four-room flats benefited the most, with average monthly
rents climbing almost 10 per cent to $1,750, from $1,600 in the
previous three months, according to the latest data from HDB.
In terms of towns, Bukit Batok, Central, Serangoon and Hougang saw
major rent rises across all flat types.
Generally, HDB rents have been increasing because rents of private
apartments 'have hit a level too high for many to afford', said Mr
Chris Koh, director of real estate agency Dennis Wee Properties.
'Those who used to be renting a condo at $2,000 to $2,500 a month
find they have very few options when they want to renew their lease
because their landlords have increased rents to $3,000 to $3,500.'
Many of these displaced tenants work for smaller firms and do not
have the flexibility of higher rent budgets, so they turn to HDB
flats, Mr Koh said.
Some new tenants are also S-pass holders with smaller budgets that
can only fit HDB flats rather than condos, added Dr Tan Tee Khoon,
head of KF Property Network, a subsidiary of Knight Frank.
He also noted that the stock of HDB flats for rent remains fairly
constant, unlike that of condos. Supply of HDB flats is also limited
because of the conditions imposed on owners who want to lease out
their flats.
* Rising across the board
Between April and June, eight out of every 10 towns saw higher rents
for four-room flats, with Jurong East experiencing jumps of up to 21
per cent.
The priciest place to rent a four-room flat is now Bukit Merah, where
the average monthly rent is $2,300. Close behind are flats in the
Central area, Toa Payoh and Bishan, which command $2,000 or more.
'Bukit Merah has become popular with foreign nurses who work at
Singapore General Hospital, and Jurong East is getting a lot of
foreign students from Nanyang Technological University and foreign
factory workers working in the west,' explained Mr Koh.
He added that Toa Payoh seems to attract expatriates working in the
city as well as foreign nurses from Thomson Medical Centre and Mt
Alvernia Hospital.
Landlords of other types of HDB flats are also seeing a tidy profit.
Monthly rents of three-room and five-room flats went up by $100 on
average to $1,500 and $1,900 respectively.
For three-room flats, the biggest growth was in Hougang, where rents
soared 40 per cent to $1,400 a month. They also saw sizeable
increases of more than 10 per cent in Geylang, Bukit Batok, Ang Mo
Kio, Serangoon and the Central area.
For five-room flats, Bukit Timah, Jurong West and Hougang were
especially in demand. But the most expensive five-room flats are
still in Marine Parade and Central, where they go for $2,550 and
$2,400 a month, respectively.
* Steady in the short term
Rentals for HDB flats are likely to hold steady or even rise for the
rest of the year as they remain much more affordable than condos,
predicted Mr Koh.
KF's Dr Tan also believes HDB rents will rise a further 10 to 15 per
cent in the next six months.
'As more new condos are completed next year and the year after, rents
of condos will ease and then only will we see HDB rents easing off as
tenants will have more choices,' Mr Koh said.
Er...what is confirmed list system?
Aug 3, 2008
FINANCIAL QUOTIENT
Er...what is confirmed list system?
* Where do you see this?
In articles about property and Government announcements on the sale
of land.
* What does it mean?
It is a method of selling land that the Government employs.
Sites on the confirmed list are for outright sale, meaning they will
be tendered out on scheduled dates, regardless of whether developers
have indicated interest.
* Why is it important?
This is not a market-driven approach. But it allows the Government to
hasten the development of certain sites for planning and other
strategic reasons.
For instance, in its land sales programme for the second half of the
year, it offered a 3ha hotel site at Bukit Chermin Road under the
confirmed list.
The sale of the site, it said, is timed to coincide with the 2011
completion of Labrador Nature and Coastal Walk nearby. Together,
these developments will enhance the attractiveness of the area as a
premier leisure and recreation destination.
The Government also offered a site in Stamford Road comprising the
existing Capitol Theatre, Capitol Building, Stamford House and
Capitol Centre.
* So you want to use the term? Just say...
'The Stamford Road site with the conserved Capitol Theatre is on the
latest confirmed list. That means it should be sold soon. When it is
restored, the area will become more vibrant.'
FINANCIAL QUOTIENT
Er...what is confirmed list system?
* Where do you see this?
In articles about property and Government announcements on the sale
of land.
* What does it mean?
It is a method of selling land that the Government employs.
Sites on the confirmed list are for outright sale, meaning they will
be tendered out on scheduled dates, regardless of whether developers
have indicated interest.
* Why is it important?
This is not a market-driven approach. But it allows the Government to
hasten the development of certain sites for planning and other
strategic reasons.
For instance, in its land sales programme for the second half of the
year, it offered a 3ha hotel site at Bukit Chermin Road under the
confirmed list.
The sale of the site, it said, is timed to coincide with the 2011
completion of Labrador Nature and Coastal Walk nearby. Together,
these developments will enhance the attractiveness of the area as a
premier leisure and recreation destination.
The Government also offered a site in Stamford Road comprising the
existing Capitol Theatre, Capitol Building, Stamford House and
Capitol Centre.
* So you want to use the term? Just say...
'The Stamford Road site with the conserved Capitol Theatre is on the
latest confirmed list. That means it should be sold soon. When it is
restored, the area will become more vibrant.'
Borrow big to pay for your home? It may not be foolhardy
Aug 3, 2008
small change
Borrow big to pay for your home? It may not be foolhardy
Taking out a huge real estate loan seems risky, but it may sometimes
be a better option
By Dennis Chan, Deputy Money Editor
After my last Small Change column was published, a colleague came up
to me and said: 'Property isn't a high-risk investment.
'In fact, it appeals to a low-risk investor like me who doesn't know
enough to invest in stocks and shares. What- ever spare cash I have,
I use it to pay off my housing loan.'
I had argued in my column that property investment is a high-risk,
high-reward game, using the example of a $1 million home bought with
$100,000 cash and $900,000 borrowed.
If the price of the home rises by 10 per cent, it will be worth $1.1
million and the investor would have doubled his initial capital. But
if it were to fall by an equal amount, his capital would have been
wiped out.
So who's right?
Both of us are.
Residential property is a familiar investment to many Singaporeans
since home ownership became the cornerstone of government policy in
the mid-1960s.
Indeed, whether you are a sophisticated investor or one wet behind
the ears, you can't go wrong buying a home as a long-term investment
in land-scarce Singapore. Seen in this light, it is a safe
investment.
It becomes highly risky only when one buys a second, third or fourth
property leveraging on borrowings and relying substantially on rental
incomes to service the loans.
On reflection, I realise there are many people like my colleague who
pay down their housing loans very early, and take pride in doing so.
This sentiment is entirely understandable. Many of us take home
ownership for granted, thanks to the Government's hugely successful
public housing programme.
But for the older generation and the one before that, the fear of not
having a roof over one's head was very real.
To them, it's an achievement to own a fully paid-up home as quickly
as possible.
To these people, I say: 'Go ahead, if you can afford it.'
'What do you mean?' you may retort. 'If I take my spare cash to repay
my home loan, surely I can afford it.'
Not necessarily.
There is a cost in putting too much equity into a home purchase.
To illustrate, let's take the example of two young couples - X and Y -
who buy a Housing Board resale flat at the market valuation price of
$500,000.
Let's assume each couple have savings totalling $150,000 in their
Central Provident Fund Ordinary Accounts (OA) and a combined monthly
income of $6,000. Both are are entitled to an HDB concessionary loan -
currently at 2.6 per cent a year.
Under the rules, buyers are allowed to pay 10 per cent as down
payment and borrow the remaining 90 per cent to finance their
purchase.
Couple X, being very prudent, choose to use up all their OA balances
to pay for their home. They take out a 30-year, $350,000 loan to
finance the rest. For simplicity's sake, let's assume the entire
$150,000 goes towards paying the down payment. In reality, the actual
amount will be less, minus the money to pay stamp duty, home
protection scheme insurance and legal fees.
Couple Y, being more gung-ho, decide to pay the minimum down payment
of 10 per cent, which works out to $50,000. They, too, take a 30-year
loan but for a higher amount of $450,000.
Using a financial calculator, Couple X and Couple Y's monthly loan
instalments work out to about $1,400 and $1,800 respectively.
Couple X's monthly CPF OA contribution totalling $1,380 is almost
just about able to cover fully their monthly instalment whereas
Couple Y would have to top up an additional $420 in cash.
At the end of 30 years, Couple X will have paid a total of $504,000
to repay their $350,000 loan whereas Couple Y will have coughed out
$648,000 on their $450,000 loan.
Interest charges by Couple X and Couple Y over this period work out
to $154,000 and $198,000 respectively.
On the face of it, Couple X seem far better off. Their monthly
repayment is lower and they incur $44,000 less in interest charges.
On closer inspection, the benefits of borrowing less are not that
clear cut.
Firstly, one needs to take into account that Couple Y kept $100,000
of their OAs from the start. This means they get to earn annual
interest income, which Couple X will forgo until their CPF
contributions from income accumulate again.
Interest payment for OA balances is 2.5 per cent a year. For the
first $20,000, a higher interest of 3.5 per cent applies.
Insofar as the first $20,000 is concerned, it is better to leave the
money untouched and earning 3.5 per cent a year than to use it to pay
off an HDB loan that charges 2.6 per cent per annum.
As for amounts greater than $20,000, one doesn't lose much either
since the difference between interest payable on an HDB loan and
earned for money kept in the OA is a mere 0.1 percentage point (2.6
per cent - 2.5 per cent).
Secondly, keeping substantial savings in the OA can be an important
buffer to cope with a temporary loss of income.
The sum of $100,000 is equivalent to five years' worth of monthly
repayments. So even if one or both persons who make up Couple Y were
to stop working for some reason or quit to start a family or take a
sabbatical, they can continue to service their loan entirely from
their OAs for about five years while looking for their next job.
Couple X, on the other hand, will have no such luxury. They will be
forced to tap their cash savings immediately in similar
circumstances.
Thirdly, having some spare savings in the OA opens up investment
opportunities and flexibility.
Bear in mind that the HDB loan at 2.6 per cent is really cheap money.
Last year, insurer Aviva offered an endowment plan called Big e that
paid up to 3.5 per cent in interest a year. The plan, which
guaranteed a return higher than 2.5 per cent, has since been
discontinued.
However, such opportunities that offer low-risk returns based on
positive interest differential (3.5 per cent - 2.6 per cent) can be
expected to surface from time to time.
For those with a higher risk appetite, there are also numerous CPF-
approved investments that have a track record of generating annual
returns in excess of 5 per cent over the mid to long term.
Although I used the HDB flat purchase as an example, the argument is
also valid for private property purchases, given the current low
interest rate environment.
Fourthly, if your flat is rented out, you can apply to the taxman to
offset your rental income with the interest paid on the loan. So the
bigger the loan amount, the higher will be the interest offset.
Finally, if all else fails and there is no reasonable opportunity to
earn a better return, there is always the option of using your OA
balance to pay down your housing debt at any time.
Bear in mind this option is irreversible. You can pay down a housing
loan but you cannot top it up.
Do note that if you take an HDB loan, you must 'invest' your excess
OA balance before your first appointment with the board.
That is because HDB will exhaust your OA for down payment - minus the
amount for stamp duty, legal fees and home protection insurance -
before granting you a loan.
In the earlier example, Couple Y would have to withdraw from their
OAs the sum of $100,000 - or an appropriate amount after taking into
account the 10 per cent down payment and ancillary charges - and put
it into a CPF-approved investment.
If the investment is meant to be a temporary one, choosing a low-
risk, low-return fund like DBS Enhanced Income Fund would be
appropriate.
After the first appointment, you may liquidate the investment and
return the proceeds to your OA.
Be aware that this 'round tripping' is not cost free as agent bank
fees and sales charges apply. These charges are nominal though.
To sum up, taking on a big housing debt is not necessarily a bad
thing. In certain circumstances, it may even be the prudent thing to
do.
Whether you choose to be Couple X or Couple Y, you must do your sums
and feel comfortable with the plan.
small change
Borrow big to pay for your home? It may not be foolhardy
Taking out a huge real estate loan seems risky, but it may sometimes
be a better option
By Dennis Chan, Deputy Money Editor
After my last Small Change column was published, a colleague came up
to me and said: 'Property isn't a high-risk investment.
'In fact, it appeals to a low-risk investor like me who doesn't know
enough to invest in stocks and shares. What- ever spare cash I have,
I use it to pay off my housing loan.'
I had argued in my column that property investment is a high-risk,
high-reward game, using the example of a $1 million home bought with
$100,000 cash and $900,000 borrowed.
If the price of the home rises by 10 per cent, it will be worth $1.1
million and the investor would have doubled his initial capital. But
if it were to fall by an equal amount, his capital would have been
wiped out.
So who's right?
Both of us are.
Residential property is a familiar investment to many Singaporeans
since home ownership became the cornerstone of government policy in
the mid-1960s.
Indeed, whether you are a sophisticated investor or one wet behind
the ears, you can't go wrong buying a home as a long-term investment
in land-scarce Singapore. Seen in this light, it is a safe
investment.
It becomes highly risky only when one buys a second, third or fourth
property leveraging on borrowings and relying substantially on rental
incomes to service the loans.
On reflection, I realise there are many people like my colleague who
pay down their housing loans very early, and take pride in doing so.
This sentiment is entirely understandable. Many of us take home
ownership for granted, thanks to the Government's hugely successful
public housing programme.
But for the older generation and the one before that, the fear of not
having a roof over one's head was very real.
To them, it's an achievement to own a fully paid-up home as quickly
as possible.
To these people, I say: 'Go ahead, if you can afford it.'
'What do you mean?' you may retort. 'If I take my spare cash to repay
my home loan, surely I can afford it.'
Not necessarily.
There is a cost in putting too much equity into a home purchase.
To illustrate, let's take the example of two young couples - X and Y -
who buy a Housing Board resale flat at the market valuation price of
$500,000.
Let's assume each couple have savings totalling $150,000 in their
Central Provident Fund Ordinary Accounts (OA) and a combined monthly
income of $6,000. Both are are entitled to an HDB concessionary loan -
currently at 2.6 per cent a year.
Under the rules, buyers are allowed to pay 10 per cent as down
payment and borrow the remaining 90 per cent to finance their
purchase.
Couple X, being very prudent, choose to use up all their OA balances
to pay for their home. They take out a 30-year, $350,000 loan to
finance the rest. For simplicity's sake, let's assume the entire
$150,000 goes towards paying the down payment. In reality, the actual
amount will be less, minus the money to pay stamp duty, home
protection scheme insurance and legal fees.
Couple Y, being more gung-ho, decide to pay the minimum down payment
of 10 per cent, which works out to $50,000. They, too, take a 30-year
loan but for a higher amount of $450,000.
Using a financial calculator, Couple X and Couple Y's monthly loan
instalments work out to about $1,400 and $1,800 respectively.
Couple X's monthly CPF OA contribution totalling $1,380 is almost
just about able to cover fully their monthly instalment whereas
Couple Y would have to top up an additional $420 in cash.
At the end of 30 years, Couple X will have paid a total of $504,000
to repay their $350,000 loan whereas Couple Y will have coughed out
$648,000 on their $450,000 loan.
Interest charges by Couple X and Couple Y over this period work out
to $154,000 and $198,000 respectively.
On the face of it, Couple X seem far better off. Their monthly
repayment is lower and they incur $44,000 less in interest charges.
On closer inspection, the benefits of borrowing less are not that
clear cut.
Firstly, one needs to take into account that Couple Y kept $100,000
of their OAs from the start. This means they get to earn annual
interest income, which Couple X will forgo until their CPF
contributions from income accumulate again.
Interest payment for OA balances is 2.5 per cent a year. For the
first $20,000, a higher interest of 3.5 per cent applies.
Insofar as the first $20,000 is concerned, it is better to leave the
money untouched and earning 3.5 per cent a year than to use it to pay
off an HDB loan that charges 2.6 per cent per annum.
As for amounts greater than $20,000, one doesn't lose much either
since the difference between interest payable on an HDB loan and
earned for money kept in the OA is a mere 0.1 percentage point (2.6
per cent - 2.5 per cent).
Secondly, keeping substantial savings in the OA can be an important
buffer to cope with a temporary loss of income.
The sum of $100,000 is equivalent to five years' worth of monthly
repayments. So even if one or both persons who make up Couple Y were
to stop working for some reason or quit to start a family or take a
sabbatical, they can continue to service their loan entirely from
their OAs for about five years while looking for their next job.
Couple X, on the other hand, will have no such luxury. They will be
forced to tap their cash savings immediately in similar
circumstances.
Thirdly, having some spare savings in the OA opens up investment
opportunities and flexibility.
Bear in mind that the HDB loan at 2.6 per cent is really cheap money.
Last year, insurer Aviva offered an endowment plan called Big e that
paid up to 3.5 per cent in interest a year. The plan, which
guaranteed a return higher than 2.5 per cent, has since been
discontinued.
However, such opportunities that offer low-risk returns based on
positive interest differential (3.5 per cent - 2.6 per cent) can be
expected to surface from time to time.
For those with a higher risk appetite, there are also numerous CPF-
approved investments that have a track record of generating annual
returns in excess of 5 per cent over the mid to long term.
Although I used the HDB flat purchase as an example, the argument is
also valid for private property purchases, given the current low
interest rate environment.
Fourthly, if your flat is rented out, you can apply to the taxman to
offset your rental income with the interest paid on the loan. So the
bigger the loan amount, the higher will be the interest offset.
Finally, if all else fails and there is no reasonable opportunity to
earn a better return, there is always the option of using your OA
balance to pay down your housing debt at any time.
Bear in mind this option is irreversible. You can pay down a housing
loan but you cannot top it up.
Do note that if you take an HDB loan, you must 'invest' your excess
OA balance before your first appointment with the board.
That is because HDB will exhaust your OA for down payment - minus the
amount for stamp duty, legal fees and home protection insurance -
before granting you a loan.
In the earlier example, Couple Y would have to withdraw from their
OAs the sum of $100,000 - or an appropriate amount after taking into
account the 10 per cent down payment and ancillary charges - and put
it into a CPF-approved investment.
If the investment is meant to be a temporary one, choosing a low-
risk, low-return fund like DBS Enhanced Income Fund would be
appropriate.
After the first appointment, you may liquidate the investment and
return the proceeds to your OA.
Be aware that this 'round tripping' is not cost free as agent bank
fees and sales charges apply. These charges are nominal though.
To sum up, taking on a big housing debt is not necessarily a bad
thing. In certain circumstances, it may even be the prudent thing to
do.
Whether you choose to be Couple X or Couple Y, you must do your sums
and feel comfortable with the plan.
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