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Buying a home is one of the biggest purchases you will make in your lifetime, so it’s important to do your homework before you apply for that loan.

Prepare in advance

You must pay at least 1 per cent of the purchase price in exchange for an option to purchase. After that, you have 14 days to decide whether to proceed with the deal and pay the balance of 9 per cent for a completed property or 4 per cent for one under construction.

At this point, consult a mortgage specialist about financing. Mortgage documentation takes about 10 to 12 weeks to complete, so apply early.

Note that most banks charge a cancellation fee of up to 1.5 per cent on the loan amount if you pull out later.

Banks determine the maximum loan amount by applying a debt servicing ratio of between 30 and 35 per cent of your monthly income.

Therefore your total monthly repayment should not exceed this ratio when compared to your monthly income. Other commitments, such as a car loan, will be taken into consideration as part of your monthly commitments.

Select your loan tenure

Generally, the maximum loan tenure is 35 years, but it depends on the borrower’s age. In the case of joint applicants, the maximum tenure will be based on the age of the youngest borrower as long as the loan tenure plus the age of the youngest borrower does not exceed 70 years on loan maturity.

For example, if a borrower wanted to select the maximum loan tenure of 35 years, he must not be more than 35 years old.

Here are some useful tips:

Choose the right package according to your needs

Most banks offer three types of home loan packages: fixed-rate, variable-rate and market-pegged packages.

It is important to understand your needs and intentions before you decide which package suits you.

A fixed-rate package is suitable for those who want peace of mind as during the fixed-rate period, there will be no rate volatility.

But it is not recommended if you want to make a partial prepayment or full settlement during this period as there will be penalties.

A variable-rate package is one where the rate is pegged against the bank’s reference or board rate. This allows the borrower to make prepayments.

If you have a good understanding of market-pegged rates and you do not mind rate movements, go for the market-pegged package.

The rate offered by banks in Singapore is generally pegged to the Singapore Inter Bank Offer Rate (Sibor).

It also allows you to make loan prepayment without penalty for no lock-in packages on specific rollover dates.

Get mortgage insurance for protection

Mortgage insurance – or Mortgage Reducing Term Assurance – covers the home loan balance in the event that the borrower dies or is totally and permanently disabled.

Although not compulsory, it is recommended. If an unfortunate event strikes, the loan repayments will be covered by the insurance.

Have difficulty in your repayments? Talk to your bankers. Late charges or non-repayment penalties are but a deterrent for non-payment. More importantly, promptly seek help in managing an overdue debt.

Banks try to help customers work through such difficult times. It might include allowing customers to pay only the interest portion of the loan for a short period, stretching the loan period so as to reduce the monthly repayment amount.

Help might also come in the form of allowing borrowers to include a second loan applicant to help service the initial loan.

It is not in the bank’s interest to foreclose on home loans. We advise customers who have loans to pay off and are close to running into the risk of not being able to make payments, to speak to their bank officers before their situation gets worse.

By Phang Lah Hwa, OCBC Bank’s head of secured lending

Sale proceedings may have begun at up to 80 developments, with many more to follow

They were a feature of the last boom but fast fell out of favour when markets went south, yet there are signs that another collective sale rush is in the making.

There have been at least 16 collective sales this year, not counting many smaller ones that may have gone unreported.

This is in stark contrast to last year, when only one collective sale was sealed. There were 10 in 2008 but most were late spillover deals from the boom of 2006 and 2007.

The greatest spell of collective sales remains the first six months of 2007, when at least 55 projects were sold for an astounding $9.3 billion.

The slow start this year is not due to a lack of demand for collective sales, but a shortage in supply arising from the extra time needed to meet the tougher legal formalities and more detailed logistical arrangements when gathering owners’ consent.

We should certainly see more collective sales over the remaining months of the year as the organisational momentum picks up pace.

As many as 80 developments are believed to have formally embarked on steps to sell their properties en bloc, although the actual figure may well be more. But not all will secure the 80 per cent owners’ mandate or find a buyer.

Numbers aside, larger projects are also expected to be introduced this year and next.

The average deal size of the 16 successful cases this year is $50 million – a far cry from the average deal size of $170 million in the first half of 2007.

The 52-unit Goodrich Park near Kovan MRT station was sold in a collective sale to BBR Holdings for $86 million this month, but as the deal has not won unanimous approval from owners, it may need approval from the Strata Titles Board (STB).

Each of its owners is set to receive gross sale proceeds of between $1.55 million and $1.72 million – or about 70 to 80 per cent more than the market price.

In April, Culford Gardens in Siglap was also sold to Fragrance Properties for $39 million.

Despite the dominance of the Government Land Sales (GLS) programme this year, we believe that collective sales are still relevant in today’s market as they fill the void left by the programme.

GLS sites have leasehold tenure and are mostly located in suburban areas, and their large-sized plots mean they typically cater mainly to bigger developers.

In most cases, collective sales complement the GLS programme, especially when they produce large prime freehold sites, which are in short supply.

However, leasehold collective sales in mass-market locations might find it harder to make large profits as developers might prefer the relative ease and certainty that GLS sites offer.

Owners contemplating such sales should also understand that sale activity takes place in waves since the factors that give rise to price differentials do not stack up for very long.

Many owners get concerned over the rising cost of replacement homes but this paradox is always present as collective sales inherently occur only when the market is buoyant. Acting decisively might help offset the risks of being caught cold.

It is also important for owners to elect objective and honest leaders, appoint and listen to competent lawyers and property consultants, set realistic prices, act decisively and stay united to ensure a happy ending.

Some owners might also wonder if there is a possibility that we will see another Horizon Towers dispute.

Horizon Towers was the most high-profile property sold in early 2007, just before the steep run-up in land prices. This factor and other technical irregularities resulted in the Leonie Hill Road condo becoming embroiled in one legal suit after another before the deal finally collapsed.

Since then, the laws have been refined. They now load more work and costs upfront for the owners, providing relief for developers with clearer rules.

Recent changes include the STB being relieved of its role of making rulings in disputed cases. The STB will continue its mediatory role, but this will be limited to 60 days – again to expedite the resolution of disputes over contentious sales.

In other words, warring parties can head to the High Court earlier in the process to have their disputes resolved, reducing the time taken to resolve the more difficult cases.

Minority owners are now unlikely to find as many faults as most of the typical grouses in the past have been adequately addressed. As a result, we expect fewer cases to reach the High Court and the Court of Appeal.

As we also do not see the market moving this year and next as dramatically as it did in the boom years, the motivation for a minority owner to challenge a sale may not be as strong as in 2007.

The laws are more robust and structured now and should make collective sales less controversial and more predictable.

By Karamjit Singh, managing director and Pamela Kow, senior manager of Credo Real Estate.

Prices now start from a higher base and attractive prime sites have already been sold

Last Wednesday, a relatively small property, Melrose Court, off Balestier Road, was launched for collective sale.

Owners of the 32 freehold units there are

asking for $48 million, and hoping to reap between $1.23 million and $2.46 million each.

Marketing agent Colliers International said the ‘en bloc’ premium each seller will get is around

40 per cent to 50 per cent more than what he can get if he were to sell his unit on his own.

Compared with those of the collective sale boom of 2006-2007, the premiums are lower these days because existing apartment values are high, said Mr Ho Eng Joo, the firm’s executive director of investment sales.

Property pundits say the market recovery last year has been fast and furious, so prices are now starting from a higher base.

‘We see an erosion of en bloc premiums today. In 2006 and 2007, the premiums can easily be 80 per cent to 100 per cent. Today, they are more like 30 per cent to 50 per cent,’ said Mr Jeffrey Goh, head of investment sales at HSR International.

Some investors may want to cash in fast before the collective sale. This will close the gap between the potential collective sale price and the individual sale price, experts said.

But the higher prices they fetch may not be a true reflection of the market, said Knight Frank executive director Nicholas Wong.

‘A handful of them may be able to sell at higher prices before the collective sale. But if all the owners were to go out and sell their units individually, they wouldn’t get those kinds of prices,’ he said.

The rest of the owners who may now want to pull out of the collective sale after some sell at higher prices, or who then become unhappy with the collective sale prices, should be aware of the risks of a failed sale, as the value of their estate will likely come down if that happens.

Also, today’s new rules mean that a two-year restriction period will kick in, making it harder to restart the collective sale process after a failed attempt, Mr Wong said.

An expert, who declined to be named, said: ‘The en bloc premium is relative. It just has to be a level that can get people excited, with which they think they are able to find a replacement property. This would be around 50 per cent more than what they can sell at individually.’

Besides prices having moved up to a higher base, most of the attractive prime sites have already been sold in previous collective sale booms over the past 15 years, property experts say.

‘Nowadays, sites that have been sold or put up for sale are in the city fringes and are small,’ said Ms Suzie Mok, director of investment sales at Savills Singapore.

‘The en bloc premiums for prime spots tend to be higher than those for suburban estates as they are the more sought-after sites. The prime spots appeal to the bigger developers who are willing to pay more because of their scarcity and the appeal of the posh address.’

While there are still underbuilt sites out there, many of the estates eyeing collective sales today are very old developments and may have low redevelopment potential, experts said.

Some of these estates have already used up their maximum built-up area allowed, and may thus get a lower premium when they want to sell en bloc, the experts pointed out.

Source : Sunday Times – 18 Jul 2010