Thursday, September 27, 2012

No more freebies for home-buyers

Does the purchase price of a home include the legal fees, valuations and fire insurance?

Some banks here say yes, and have calculated them as part of the purchase price. When a loan is given out, it then covers the three items.

But that's wrong, reminded the Monetary Authority of Singapore (MAS) in a letter sent to banks about two weeks ago. They pointed to Notice 632 which spells out the items banks can no longer include as part of the purchase price.

Among them - stamp duty.

On monday, some home buyers hunting for bank loans were told legal fees, valuations and fire insurance will no longer be absorbed. The New Paper understands banks are going to make an announcement on this on tuesday.

The end of subsidies were part of a series of cooling measures, introduced by MAS that came into effect in January last year.

Depending on the value of the property, these legal fees can range from S$2,400 for an HDB flat to a few thousand dollars for a landed property.

Valuation for private property can range between S$200 and S$500, while for HDB it is S$180, property agents told TNP.

A senior bank executive said: "Individually, the sum may be small per customer. But in total, they can be quite a hefty sum. It is a saving for the bank.

"It's not that banks were not complying with Notice 632. We have compliance officers to ensure we do.

"But it was a question of how to interpret purchase prices."

Last January, MAS told banks to grant loans on the price of the property contingent on the borrower declaring any "discount, rebate or any other benefit from the bank or any other party (including the payment of legal or stamp fees for the purchase) which has the effect of reducing the true purchase price".

Another senior bank executive said the subsidies were only introduced recently to attract customers.

So what would be the impact of banks announcing an end to such subsidies?

A spokesman for mortgage broker Advance Partner said: "The outcome is that customers might switch to another bank which still offers these freebies, even though this other bank is charging a higher interest rate (on its housing loan).

"At the moment not all banks have done away with the freebies and we're looking at a transition period in which customers could be motivated to take up a loan with a bank which still has these offers." .

Low profit margin 
 
While the interest rate of these other banks "might be higher, it is not that significantly higher", she added.

Mortgage Supermart Singapore's Keff Hui, said interest rates are projected to remain low until 2015.

Property loans would yield "low profit margin" for banks and cutting freebies could give them an "opportunity to review and streamline their costs", he said.

Property experts say removing these freebies would have minimal impact on the hot property market.

OrangeTee head of research and consultancy Tan Kok Keong said: "The cost is not a big proportion of the purchase price, hence it will have minimal impact.

"In the past, when some developers were offering cars to home buyers, the cost of freebies were deducted from the actual cost when you took a housing loan. This measure may just be about tying up the loose ends."

PropNex's associate branch director Ron Lim agreed: "Initially, it will affect the buyers. But people will get used to it after a while and adjust accordingly."

According to a Colliers International report released on monday, the property market is set to heat up even more.

One major factor which may come into play is the US move to print more money, a measure also known as Quantitative Easing 3 (QE3).

The report said the US government's move could drive up property prices here.The weak US economy might drive investors to put their money here.

But Chesterton Suntec International's director of research and consultancy Colin Tan told TNP that he does not think the additional capital flowing into the property market here will have minimal impact because there is "enough supply to dampen pressure on price increases".


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