TDSR pushes some to offshore
loans
Banks outside Singapore not obliged to
report to credit bureau here
By Lynette Khoo
For Singaporeans still hoping
to snap up overseas properties despite having their borrowing
capacity curbed by what is known as the TDSR (total debt servicing
ratio), more may be considering offshore loans to finance their
purchases.
"A handful of clients are looking at overseas loans," said a
private banker.
Another relationship manager at a foreign bank said that he has
referred some clients to the mortgage department of the bank
outside of Singapore. Both could not be identified due to client
confidentiality.
Some property agents also noted that there have been more
enquiries of late from clients for overseas loans.
BT understands that some of these agents tout the idea of an
offshore loan to potential buyers of overseas properties if they
have maxed out their capacity to borrow.
The TDSR caps an individual's total monthly loan repayment at 60
per cent of gross monthly income, taking into account property and
non-property related loans, as well as onshore and offshore
loans.
But banks outside of Singapore are not obliged to report to
Singapore's credit bureau, so the responsibility to declare
overseas loans rests largely on the individual. It remains unclear
how leveraged Singaporeans are in terms of offshore loans given the
absence of available data.
The picture also becomes less clear in the case of interest-only
loans, which allow borrowers to only service the interest cost in
their monthly instalments for a period of time and then possibly
refinance the principal when it is due. Such home loan packages are
available in the UK and Australia but have been disallowed in
Singapore since 2009.
As far as the Monetary Authority of Singapore (MAS) is
concerned, banks in Singapore need to obtain a written declaration
from the borrower on all outstanding credit facilities that would
include loans from overseas banks and conduct verification checks,
an MAS spokesman said.
For now, Singapore banks are seen to have toed the line.
Joseph Wong, OCBC Bank head of consumer credit risk management,
told BT that in assessing customers' applications for overseas
property loans, the bank takes into consideration both the onshore
and offshore loans that customers have.
Linda Lee, executive director for deposits and secured lending
at DBS Bank, also said that bank offers overseas property financing
to "a very selective group of customers as overseas property
purchases require a higher level of financial literacy".
Since the TDSR, the number of applications for overseas property
loan from DBS has not let up, Ms Lee said. This group of clients is
aware of the need to avoid over-stretching themselves.
All three local banks provide property loans for purchases in
popular locations such as London, Malaysia and Australia. OCBC also
provides home loans for properties in Tokyo and New York, while UOB
offers loans for Thailand and China properties.
Bank of China (BOC) is also eyeing the mortgage pie here,
offering Singaporeans loans for purchases in less considered places
such as Edinburgh in Scotland.
Arguably, Singapore's relatively low mortgage rates - thanks to
its low interbank rate - make it more attractive from a rental
yield perspective to obtain Sing dollar loans from Singapore
banks.
The appeal of offshore loans also rests on various factors
including exchange rates and cost of funding.
With Japan being a hot spot now with its upcoming Olympics 2020,
BOC Tokyo is offering loans for homes at about 2.8 per cent
interest, but the borrower needs to be physically present in Tokyo
to sign the loan approval. OCBC is offering a Sing dollar loan for
Japanese properties at 3.1 per cent interest, and 3.6 per cent
interest if the loan is yen-denominated.
Australian banks' home loan rates are around 5 per cent, so with
rental yields of Australian properties hovering at 4-5 per cent,
buyers would need to seek tax optimisation on the income tax paid
out of the rental income. A Sing dollar loan from a Singapore bank
for an Australian property would have an interest of close to 3 per
cent - however, the loan will certainly be factored into the
TDSR.
Data from Colliers International show that sales transactions of
overseas properties to Singaporeans grew 13 per cent in the first
quarter from a year ago.
Such transactions are set to rise amid a movement towards global
launches whereby units are made available to both local and foreign
buyers at the same time, said Peter Allen, sales and marketing
director at Londonewcastle, a London-based luxury residential
developer.
Nina Davies, Colliers International operations director, told BT
that the agency focuses on marketing projects that the Singapore
banks are able to provide financing for.
Cherrin Loo, head of international residential sales at Savills
Singapore, observed that for projects with low quantum of less than
$1 million, many buyers do not require loans as they can afford to
pay it all in cash.
Savills typically ties up with local banks that attend its
exhibition of overseas properties. "We understand there are some
clients that have existing banking relationships with overseas
banks and so they may engage them," Ms Loo said
Investors who buy property and obtain financing outside of
Singapore should consider the regulatory framework government their
purchase and financing agreements, including the protection they
can expect, said an MAS spokesman.
"They should also be mindful of other risks associated with
cross-border property purchases, such as foreign exchange and
interest rate risks," he added.
The text of this acticle first appeared in The Business Times on
May 5, 2014
