Home sweet loan

Robin Chan & Magdalen Ng
12 July 2011
Straits Times
(c) 2011 Singapore Press Holdings Limited

Home loans for as low as 0.2% for a few new projects and for a limited time. Move may be driven by
slowing mortgage applications

AT LEAST two Singapore banks have been dangling some of the lowest ever home loan rates,
currently pegged at about 0.2 per cent, on selected properties.

Analysts say the moves by DBS Bank and United Overseas Bank (UOB) may reflect intensifying
competition to maintain loan volumes in an uncertain market. These loans may be more attractive to
short-term property investors.

The two banks confirmed to The Straits Times yesterday they have offered mortgage rates pegged at
two commonly used benchmark interest rates - and not a whisker more - in the initial period.

These are the Singapore interbank lending rate (Sibor) and swap offer rate (SOR). The three-month
Singdollar Sibor has been at a record low of 0.438 per cent since January; the three-month SOR has
moved between 0.3 and 0.189 per cent since April. It is now 0.21 per cent.

The SOR tends to be more sensitive to exchange rate movements.

Typically, when banks use the Sibor or SOR, they add their own profit margin.

These new rock bottom rates are usually for a promotional period such as the first year or even longer -
after that a higher rate, such as the usual benchmark plus a margin, is applied.

Mr Vinod Nair, chief executive of website Smartloans.sg, which offers home loan comparisons, said the
low rates are more suitable for short-term investors.

Compare a SOR plus zero package that rises to SOR plus1 per cent after three years, and a flat SOR
plus 0.7 per cent package, on a $1 million, 30-year loan.

A person pays $5,430 in total interest for the first three years under the first package, compared to
$25,557 over the same period for the second, he said.

But over the 30-year loan tenure, he would actually pay less using the second package.

Dr Chua Hak Bin, economist at Bank of America-Merrill Lynch, said the latest trend could be because mortgage applications have fallen, and there is 'intensified competition among banks to maintain mortgage loan volumes'.

He said lenders may also be anticipating more cooling measures which could hit loan volumes, and the
global slowdown may cause banks to focus more on mortgages and less on riskier corporate loans.

While home loans eased, total loans rose 24.2 per cent in May from a year earlier, the 'same highs seen
in mid-2008 before the global financial crisis hit', he added.

But Mr Tan Kok Keong, Orange Tee's head of research and consultancy, said mortgage packages with
zero spreads are not new, and he does not think lenders are about to engage in a price war as not every
bank can match the low rates.

'Neither will there be a spike in speculators entering the market because of the 16 per cent (sellers')
stamp duty,' he said, referring to one government cooling measure.

There have been at least three property launches since April featuring low-rate packages.
 
DBS is offering a Sibor plus zero package for Skyline Residences - a freehold condo in Telok Blangah
launched last week - till next Monday. The zero rate is for one year, then it rises.

At Woodhaven, a Far East Organization project launched last month in Woodlands, DBS is offering an
SOR plus zero package applying to the loan period until the property's completion, before the zero rating
also rises. The offer is set to end soon. A DBS spokesman said these are 'tactical offers... usually
available for a very short period and selectively offered at some launches'.

UOB said it had offered the SOR plus zero package for The Boutiq in Killiney Road, but it has ceased. A
UOB spokesman said: 'Apart from projects committed to previously, UOB will not be offering the SOR
plus zero home loan package.'

OCBC and Citibank have not offered similar deals this year. OCBC's head of consumer secured lending
Phang Lah Hwa said: 'It is not uncommon for players to revise offerings to stay competitive.'

chanckr@sph.com.sg
songyuan@sph.com.sg