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".

Singapore recession risk looms after August exports shrink

SINGAPORE - Singapore's non-oil domestic exports (NODX) in August fell more than expected, raising the prospect of the city-state entering into a recession as exports to the European Union plunged.

The trade-dependent Southeast Asian city-state said on Monday non-oil domestic exports (NODX) fell 10.6 per cent from a year earlier, hurt by a 10.4 per cent drop in electronics and a 28.7 per cent plummet in shipments to the EU, its largest market.

On a seasonally adjusted month-on-month basis, NODX shrank 9.1 per cent after contracting 3.6 per cent in July.

Electronics exports contracted 14.8 per cent in August from July after seasonal adjustments, while non-electronics NODX shrank 7.1 per cent, trade agency International Enterprises Singapore said in a separate email.

"Although our baseline case is not for a quarter-on-quarter contraction, the chances are not minute. There is perhaps a 40:60 chance of contraction," said Oversea-Chinese Banking Corp head of treasury research Selena Ling, whose estimate was the closest among the 13 economists polled by Reuters.

The median estimate in a Reuters poll had been for non-oil domestic exports to fall 4.0 per cent year-on-year and 1.8 per cent month-on-month.

Singapore's economy shrank less than anticipated in the second quarter, thanks to a surge in pharmaceutical production in June, gross domestic product (GDP) data showed last month.

But the government warned of continued uncertainties and downside risks and narrowed its 2012 growth forecast to 1.5 to 2.5 per cent from an earlier 1-3 per cent.

Economists expect the Southeast Asian city-state's gross domestic product to grow 2.4 per cent this year, down from a median estimate of 3.0 per cent three months earlier, the central bank's latest quarterly Survey of Professional Forecasters showed.

Singapore's weaker-than-expected trade data follows signs of a slowdown elsewhere in the region, with a survey on Monday showing New Zealand's services sector slowed for a third consecutive month in August to a two-year low. South Korea said on Monday retail sales fell for a third straight month in August.

MONETARY POLICY

Looking ahead, economists said the weak August trade data reinforced the widely held perception that the Monetary Authority of Singapore (MAS), the country's central bank, will likely ease monetary policy slightly in October by slowing the local dollar's rate of appreciation.

"With these kinds of numbers, growth momentum appearing to slow down and inflation less of an issue, MAS could look at a gentler slope of appreciation," said CIMB regional economist Song Seng Wun.

Singapore sets monetary policy by allowing its dollar to rise or fall against a undisclosed basket of currencies. When it issued its last policy statement in April, MAS said it would allow a modest and gradual rise of the Singapore dollar with a slightly sleeper slope of appreciation.

OCBC's Ling warned, however, that MAS along with its regional peers would be cautious about easing policy too rapidly given the risk of asset appreciation fuelled by the US Federal Reserve's latest round of quantitative easing.

"Asian central banks are worried about the QE side of things and what it may do to asset inflation," she said.

MAS says economy "clearly slowing", revises inflation outlook

SINGAPORE - Singapore’s central bank boosted its paid-up capital by $8 billion and withheld contributions to government coffers earlier this year amid rising volatility in financial markets, its latest annual report showed on Wednesday.

The Monetary Authority of Singapore (MAS) also revised its 2012 inflation forecast on Wednesday to 4 to 4.5 percent from 3.5 to 4.5 percent.

But it said core inflation – the figure it most closely watches in setting monetary policy – was moderating, indicating a possible loosening of its stance on the Singapore dollar at its next half-yearly review in October.

The MAS said Singapore’s trade-dependent economy was on track to grow by 1-3 percent this year but that the momentum was “clearly slowing.” The city-state’s economy grew 4.9 percent in 2011.

“It (core inflation) is likely to ease further and approach 2 percent by the end of the year. This is not far from the historical average of 1.7 percent,” MAS managing director Ravi Menon said at a press conference about the annual report.

Core inflation excludes accommodation and private road transport, which are determined more by government policy. On Monday, the MAS said full-year headline inflation was expected to be in the upper half of the official forecast.

The MAS had paid-up capital of $25 billion as at March 31, 2012, up from S$17 billion at the end of the previous financial year, according to its annual report.

The capital increase took effect on March 29.

The MAS did not hand over part of its profits to the government during the financial year, resulting in a rise in its net assets to $35.15 billion from $24.38 billion the year before.

“This is a pre-emptive measure to strengthen the authority’s capital and reserves in the light of a volatile financial market environment,” the MAS said in the notes to its accounts.

Financial markets have been turbulent over the past year, with sharp swings in currency values because of concerns over the euro zone and uncertainty about the health of the U.S. and Chinese economies.

The Singapore central bank made a net profit of $2.77 billion in fiscal 2011/12, reversing from the record loss of $10.94 billion in the previous financial year when the strong local dollar reduced the value of reserves held in other currencies.

The MAS said its profits stemmed “mainly from interest income and gains from asset disposals, offset partially by the impact from the translation of the authority’s foreign assets into the stronger Singapore dollar.”

Total assets managed by Singapore-based asset managers were S$1.34 trillion as of the end of last year, 1.2 percent lower than in 2010 due to market weakness, the MAS said.

The Singapore dollar rose 0.3 percent against the U.S. dollar and 6.4 percent versus the euro in the 12 months to March 31 but weakened 0.4 percent against the yen.

CPI rises 5.3 per cent in June as accommodation, transport costs soar

SINGAPORE - Singapore's consumer price index in June rose 5.3 per cent from a year earlier, the government said on Monday, accelerating from May's 5.0 per cent rise as accommodation and private road transport costs continued to soar.

June's inflation number was slightly above the 5.2 per cent median forecast of 13 economists polled by Reuters.

The Monetary Authority of Singapore's (MAS) core inflation measure rose 2.7 per cent year-on-year and was flat month-on-month, compared with May's 2.7 per cent annual gain and 0.1 per cent month-on-month decline.

Singapore's core inflation excludes the cost of accommodation and private road transport, which are strongly influenced by government policy, and is the figure the MAS pays more attention to when deciding monetary policy.

The Ministry of Trade and Industry and the MAS said in a joint statement that 'core inflation will ease further in H2 2012 and average between 2.5-3.0 per cent for the whole year'.

- But headline inflation, while likely to be lower in the second half, is expected to be in the upper half of the 3.5 to 4.5 per cent official forecast for 2012, MTI and MAS added.

CIMB Research economist Song Seng Wun said: 'It's a tad higher than expected. It's always a case of playing cat and mouse with the two culprits - housing or private transportation CPI.'

'This time it was the housing rental side which caused the CPI to be a little bit more firm than what we were going for.'

'The good thing is that despite the ups and downs of housing and private transportation costs, the underlying inflation - the MAS core - remained relatively stable at 2.7 per cent.'

'Our headline inflation forecast for this year is still 4.5 to 5 per cent, which is outside the upper bounds of the government's 4.5 per cent mainly due to the stickiness of housing rentals and COE (certificate of entitlement to buy a new vehicle) prices.'

'There's also risk partly from the relatively firm labour market as well as potential risk from higher food inflation.'

Barclays regional economist Wai Ho Leong said: 'The acceleration from 5 per cent in May to 5.3 per cent in June reflected the base effect because of the discontinuation of rebates in housing, service and conservancy charges. Because of this, the comparison with last June will cause this base effect.'

''From a month on month perspective, inflation was quite contained. Core inflation remained sticky but did not rise.'

'We expect high 3 to 4 per cent percents in the second half of the year. But volatility is going to be quite substantial given the drop in quota for COEs. We already saw the bidding for July was quite aggressive and premiums rose to all-time highs.'

'If that kind of situation continues, there will be some upside risk to inflation. However, the global situation is not that great. Right now, chances of (inflation breaching 4.5 per cent) remain quite low.'

Inflation-linked bonds may help retail investors protect savings

SINGAPORE: While analysts say property and blue-chip stocks are two sound investment classes and remain good hedges against inflation, retail investors who are looking just to protect their savings currently have few choices.

Daryl Liew, head of portfolio management at Reyl Singapore, said: "The really missing ingredient is inflation-linked bonds. Because if you have that, it is something that investors can really park their money in and can be safely assured that over the long-term, their investments, the coupons they get are basically pegged to whatever the inflation rate is."

The Monetary Authority of Singapore said in Parliament on Monday that it is studying the possibility of introducing inflation-linked bonds to help retail investors preserve their savings, in light of near zero interest rates.

And while corporate bonds and government treasuries are available, observers say these are accessible mainly to high net worth individuals. Some high-yielding corporate bonds, for instance, require higher capital and may not be affordable for most retail investors.

Marcus Teo, head of high net-worth channel at HSBC Singapore, said: "I think the reality is that if you look at the 10-year SGS (Singapore Government Securities), the yield is approximately about 1.5 per cent and given that inflation is 5 per cent, it doesn't help much.

"Your purchasing power continues to erode on a yearly basis, so I think retail investors, unfortunately, have limited options, unless they are willing to take higher risk with their portfolio."

Wong Sui Jau, general manager of Fundsupermart, said: "Unfortunately, if you want to set a benchmark of 4 to 5 per cent, the inflation target you want to beat in terms of returns, then you need to go into the higher-risk type of bond funds. These would be your emerging market bond funds and high-yield bond funds."

Such funds offer close to 6 to 7 per cent yield, says Fundsupermart.

In the past quarter, some of these bond funds have also outperformed equities, with yields of up to 10 per cent.

Fundsupermart says that out of over 50 bond funds, it only carries one inflation-linked unit trust -- the Fidelity Global Inflation-Linked Bond Fund -- which has shown positive performance of 2.5 per cent year-to-date, despite its lack of popularity amongst investors.

Analysts say they do not see the introduction of inflation-linked bonds happening soon, citing the need for investor education on the risks and the right infrastructure to make the product available to retail investors in Singapore.

Analysts also warn that hedging against inflation is not just a race towards the highest yield.

"We do caution that you shouldn't just look at the yield because it comes at a price and its associated risks. For any security that gives you a very high headline yield, you should question whether you are comfortable with the risk that you are correspondingly willing to take," Mr Teo said.

With interest rates remaining low and inflation elevated, investors could also consider selective investments in precious metals and currencies to diversify their portfolio.

2012 forecast: Economy could do better than expected

Singapore's economy may grow more than previously estimated this year, spurring inflationary pressures, a Monetary Authority of Singapore (MAS) survey of economists showed.

Gross domestic product may increase 3 per cent this year, compared with last quarter's survey for a 2.5 per cent gain, according to the median estimate of 21 economists and analysts, in a survey by MAS released yesterday.

Consumer prices may rise 4.2 per cent this year, they predicted, higher than the 3.5 per cent rate forecast in March.

Singapore said in April it will allow faster gains in its currency to dampen price pressures, diverging from most other Asian central banks that had left borrowing costs unchanged or eased monetary policy.

The economy grew faster than initially estimated last quarter, and the Government said last month that momentum had picked up, even as downside risks persist.

"We continue to expect decent overall growth in Singapore" once the United States and China regain some momentum in the second half, said Mr Vincent Conti, a Singapore-based analyst at ANZ, in a report on Tuesday.

GDP may increase 2.8 per cent this quarter from a year earlier, compared with 1.6 per cent growth in the three months ended March, economists in the MAS survey predicted.

The Government forecasts GDP growth of 1 per cent to 3 per cent this year. The economy may expand 4.5 per cent next year, the economists said.

The MAS, which uses the exchange rate to manage inflation, said in April it will increase "slightly" the slope of the currency trading band, and raised its forecast for consumer-price gains to 3.5 per cent to 4.5 per cent this year.

It guides the local dollar against a basket of currencies within an undisclosed band and adjusts the pace of appreciation or depreciation by changing the slope, width and centre of the band.

The Singapore dollar may strengthen to S$1.243 against the US dollar by the end of this year, the economists surveyed said, from S$1.2824 as of 11.25am local time yesterday. In March, they predicted an exchange rate of S$1.23 by year-end.

The Singapore dollar has gained about 1 per cent this year, the second-best performer in a basket of 11 Asian currencies tracked by Bloomberg.

Non-oil domestic exports may climb 5.6 per cent this year, more than the 4.2 per cent estimate in the previous survey, the report showed. Singapore's export growth quickened last month as shipments of electronics and pharmaceuticals increased.

The jobless rate may climb to 2.2 per cent by the end of the year, from 2.1 per cent last quarter, the survey showed.

"Labour-market tightness remains a structural issue, as the authorities continue to put restrictions on foreign labour in the midst of close-to-full domestic employment," Mr Conti said.

"This is part of the Government's shift to a productivity driven rather than labour-driven growth model, but adds to inflation risks in the short run."

The Singapore dollar may strengthen to S$1.243 against the US dollar by the end of this year.

Persistent inflation a concern for MAS

Singapore's persistent inflation poses a complex challenge for the Monetary Authority of Singapore (MAS), as the country's open economy makes it vulnerable to prices of goods from abroad and money inflows that raise house prices, said Trade and Industry Minister Lim Hng Kiang on Monday.

But the MAS has taken various steps to control inflation, including strengthening the Singapore dollar, cooling the property market and introducing measures to raise productivity, said Mr Lim.

He was responding to questions raised by Nominated MP Tan Su Shan, who asked if the Government had a target inflation range and steps to ease price pressures as inflation is catching up with gross domestic product growth numbers.

Mr Lim said the MAS is 'very concerned' about inflation as the consumer price index has hovered at just below 5 per cent and core inflation, which excludes accommodation and private car transport, has been stuck at 3 per cent for 'a longish time'.

Singdollar to rise in months ahead: Analysts

High inflation, returning capital inflows likely to nudge it up, say experts

A combination of returning capital inflows and high inflation is likely to push the value of the Singapore dollar up in the months ahead, analysts said.

This is because most analysts believe that when the central bank meets later this month to set the exchange rate policy, the Monetary Authority of Singapore (MAS) will continue to allow the Singdollar to appreciate.

One key reason is that inflows seem to have returned to Asia with a vengeance, after fleeing the region from the middle of last year.

DBS head of economic and currency research David Carbon noted that the amount of foreign reserves held by the eight major Asian economies, excluding China and India, is now around US$1.925 trillion (S$2.4 trillion).

Risks to S'pore's sovereign wealth funds not excessive: MOF

Minister of State for Finance Josephine Teo said in her Committee of Supply speech that the Government systematically reviews the risk in its overall portfolio when managing the state's sovereign wealth funds.

It does this by monitoring the concentration risks in the whole portfolio of assets invested by Temasek Holdings, the Government of Singapore Investment Corporation (GIC) and Monetary Authority of Singapore (MAS).

But Mrs Teo added the Government does not decide on how each investment entity manages its own portfolio, saying that their respective boards and professional management teams are responsible for those decisions.

She reassured that risks to the portfolio is not excessive as the Ministry of Finance assesses the impact of various adverse global scenarios, across medium to long-term time-frames.

Earlier, MP for Ang Mo Kio GRC Mr Inderjit Singh Ang Mo Kio GRC raised the concern that GIC and Tesmasek Holdings are investing in very similar assets.

He cautioned that it is not a good trend as the two sovereign wealth funds are supposed to target different types of investments.

He said: "We may be overinvesting and lack diversification in our investments, which could come back and haunt us doubly hard if these sectors are hit by problems.

"We have seen this when we were hit by a number of investments in financial institutions by both entities."

He called for greater coordination between the two, by having the Ministry of Finance play a more active role in coordinating their investment philosophies.