Sunday, 11 January 2015

Will 2015 be the year you are waiting for?

It has been a while since I share my thoughts on real estate.

Recently I tried to repriced my loan as it has been more than 3 years and the "so called" best rate has reverted to the usual rate. The mortgage loan that I am pegged on is base rate plus SIBOR. 

As you can see in the article today, luckily I pegged it to SIBOR and not SOR. lol. But in any case, the SIBOR has also been creeping up steadily. I am not in a rush to convert to a fixed rate loan yet as my current terms are pretty flexible. 

I have to admit that I pay a pretty low interest rate on the house in which I am living in. 

In fact, I find it difficult to use CPF to pay down my loan quickly because CPF OA is paying me a much higher rate.  Logically I should be using cash to pay down my loan but I always believe it keeping some cash as "war chest" for investing or I can use those cash to trade or punt IPOs. 

Just to be clear, there are no lock in or penalty for early repayment to my home loan and 2/3 of the cash I deposit into the bank account will earn the same rate as the mortgage loan. So effectively, I am paying down the loan due to the interest offset features. 

Tip: find a loan package that suits you best. If you have no alternative use for the cash, then it is advisable to pay down the loan as quickly as you can and the bank must not penalize you for doing that. However, if you know how to invest or trade and wants to keep some cash for war chest, then the interest offset feature will suit you better. The cash in your bank account earns an interest rate similar to the loan and you can use the cash when investment opportunities arise. HSBC and SCB offers such features previously but my information is pretty dated. My current home loan is with SCB and called MortgageOne. 

My mortgage loan is currently pegged at 1.1% plus SIBOR and I have gotten a preliminary offer to reprice it to 0.9% plus SIBOR but the documents required by the credit officer is such a pain that I will not bore you with my frustration and almost wanted to give up on the repricing. 

Tip: always ask your existing bank to reprice your loan to a better rate after the promotional period is over. 

Is the property crash coming?

Your guess is as good as mine but I believe I have previously blogged about 2015 being the year to watch out for. With volume drying up, it is actually the buyers' market now. 

HDB prices are coming down

With HDB being the source of "upgraders" to private housing, the pricing of HDB will indirectly have an impact on the private property market. A falling price will effectively means that they have "less cash" for the upgraders. 

However this is just a general trend and you can see flats at Pinnacle, Bishan and Redhill continuing to generate very decent capital gains for the home owners. 

Tip: location is of key importance to capital gains. If you can get a HDB flat directly, you can maximize your returns if the location is good. First time flat owners in Pinnacle at Duxton or the flats near Mountbatten Square made good capital gains when they sell after 5 years and the flats can command very decent rental yields too. 

Private Property Price Index

You can see a "rounding top" forming across the different types of properties. It seemed like private housing will continue the downtrend in 2015. However, what will cause the price to crash will be "fear and panic" in the market place and I haven't seen it yet but market conditions remain challenging given the current government policies. 

My property investment journey

If you are new to my blog, I have documented my property investment journey. The various links are here consolidated here.

Capital Gains or Rental Yields?

This is only applicable for readers who are hunting for their second property. What are you looking for if you are buying a second property? Is it for capital gains or rental yield. If you are looking for yield, you can start scouting around but if you are looking for capital gains, you will need to see a "real crash" and the interest rake hike must just be the catalyst you need. 

Happy waiting .... Patience is a virtue. 

Subsequent update. 

This article appeared in the papers the following day. Perhaps the crash of oil price is the catalyst for the crash....?


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