Crunch time for borrowers

Crunch time for borrowers

Banks are being more conservative, say observers, but lenders deny tightening credit

By Tan Dawn Wei

Are banks here starting to play Scrooge when dishing out consumer loans?
Financial institutions are not admitting to it, but they appear to have turned shy in granting loans, especially for property and motor vehicles, some observers say.

‘We do feel they are a shade conservative now. It used to be easy if you wanted to buy a second property,’ said Mr Eugene Lim, associate director of real estate firm ERA Asia-Pacific.

‘Now, they actually pay more attention to the buyer - like the stability of his income, whether the household is one or dual income,’ he said.

Property loans, which used to take three days to be approved, may now take a week, noted MrReeve Ho, senior vice-president of property firm HSR International.

There is now more to-ing and fro-ing in processing loans too, he observed.

‘In the past, they would give the nod if all the documents were in order. Now, even with all the documents in order, they may grant a smaller loan,’ he said.

The Monetary Authority of Singapore (MAS) allows a home buyer to take a loan of up to 90per cent of the home’s purchase price or valuation, whichever is lower.

But banks are granting 60 to 70per cent of the price, said those in the property business.

ERA’s Mr Lim added that a salaried applicant with not more than one property, and hence less likely to be a speculator or to be overstretched, would find it easier to get a loan than someone whose income is commission-based.

Car dealers said a credit crunch is hitting vehicle buyers too, with rejection rates estimated to have gone up from 15 to 25per cent.

But banks such as DBS, OCBC, UOB and Citibank insisted that it is business as usual and they have not tightened credit.

‘Our prudent consumer credit assessment process helps us evaluate the applicant’s ability to service a credit facility such as a car or housing loan, regardless of market conditions,’ said a UOB spokesman.

‘These credit facilities should never become a financial burden to our customers, in good or bad times. Customers with good credit records and stable income should not face problems getting a credit facility from us.’

Citibank said it continues to see steady growth for its credit card and personal credit line, Ready Credit, applications.

‘While we are cognisant of the environment, we make every credit line assignment tailored to the individual customer’s situation.

‘We continue to use rigorous credit criteria which take into account credit history, sources of income and employment status, among others,’ said Mr John Denhof, its business director for credit payment products.

While the latest data from the Credit Bureau of Singapore shows that most credit card and personal loan holders are still managing to pay their bills on time, defaults will likely rise given what happened in the downturn which followed the 2003 Sars outbreak.

The bureau estimates that the rate of default and bad debts could more than double next year if the unemployment rate balloons.

Already, the delinquent rate for personal loans rose from 3.39per cent in July to 4.24per cent in September.

Banks also wrote off 0.21per cent of personal loans in September, up from 0.16per cent in July. The record was 1.08per cent in June 2004.

Mr Song Seng Wun, regional economist at CIMB-GK, is not surprised that banks appear more cautious.

‘Banks are not social welfare institutions. When there’s so much uncertainty about the length and depth of the recession, lenders will look carefully at who they lend to,’ he said.

Long-time customers should not have problems with credit lines. ‘It’s really a case of how well the bank knows you,’ he said.

Source : Straits Times - 14 Dec 2008

Singapore Property - Buy, Sell, Rent, Invest

Mindy Yong

(+65)91002985

mindy@mindyyong.com

Uncovering gems amid property gloom

Uncovering gems amid property gloom

RB Capital boss zeroes in on residential developers in need of funding next year

KISHIN Hiranandani, son of Royal Brothers co-founder Raj Kumar Hiranandani, sees opportunities in the Singapore residential sector post-June 2009. Through his property investment outfit RB Capital, he is targeting joint ventures with mid-sized developers, both listed and privately held.

‘Developers will want partners coming in 2009 because it’s going to be a year that’s not going to be the most comfortable. There’s a lot of refinancing of loans coming up, and it’s an opportunity that we are well positioned (for),’ he tells BT.

‘I think 2009, second half, is going to be an attractive time to go in. I do see refinancing terms changing in 2009: Valuations will have to be lower and also the cost of financing may go up.’

There are two ways that RB Capital could potentially form joint ventures with such residential developers. One is to take a passive stake in prime freehold sites including those picked up through en bloc sales in the past few years.

‘There’ll be developers who would look at some capital injection, fresh equity coming in to the deals. For the lands they have bought and not developed, I think they have to have a hold model. If you have not built, I don’t think it’s sensible to start building in ‘09. And they have some pretty interesting plots that don’t come every day,’ says Kishin, as he prefers to be called.

The other way to invest in the Singapore residential market is to buy units in projects under development, again through ventures with the developers. ‘I would like to partner the developer. It’s not going to be easy. . . There are not going to be many (home) buyers out there, so we’re structuring it for the long term, sitting in with residential developers, keeping them in the game.’

Teaming up with a developer to buy units in its project rather than making solo purchases should also serve as a check against the developer chopping prices later for unsold units.

Kishin is looking at a three to five-year holding model for any residential investment that RB Capital makes.

The residential property market is pretty new to both RB Capital and Royal Brothers and ‘there is minimum income from residential’, Kishin acknowledges, but points out that RB Capital plans to enter this sector to diversify the two-year-old group, which currently owns office and retail properties.

RB Capital is developing EFG Bank Building at the High Street/North Bridge Road corner on the former Satnam House and Amaraj House sites. Shankar’s Emporium group has a stake in this project. The building, with 78,000 square feet of net lettable area, will be anchored by Swiss private banking group EFG, which has leased two thirds of the property. RB Capital will occupy the penthouse floor of the nine-storey building, which is expected to be ready by mid-2009.

In Kuala Lumpur, the group bought the former Menara Genesis office tower at 33 Jalan Sultan Ismail for RM55 million (S$23.1 million) in 2006 and is currently refurbishing it for about RM10 million to meet the requirements of anchor tenant HSBC. The bank, which had already been a tenant at the building when RB Capital bought it, recently inked a fresh long-term lease, Kishin says. ‘They have taken more space, we have given them signage rights.’

In the retail property sector, the group this year bought the former Shell petrol station on the ground floor of Coronation Plaza in Bukit Timah for about $6.3 million and is investing a further $1.5 million repositioning the space into three retail outlets. RB Capital also owns 6,000 sq ft of net lettable area at the retail podium of Malacca Centre in the Raffles Place area. Its current tenants include Spa Esprit’s browhaus and Beyond Beauty.

Kishin says that RB Capital is eyeing more investments in the Singapore commercial property sector, especially underperforming assets that could benefit from repositioning works undertaken to meet tenants’ needs under a ‘built to suit’ model.

With significant office supply in the pipeline, the Singapore office sector will be split into a two-tier market. Older, less prime office blocks which are not the best managed but capitalised on the upswing in the past few years risk losing tenants to better-located properties.

‘CBD fringe, fairly old office blocks, with potential for repositioning work - that’s where I see an opportunity because it’s going to be difficult to fill up those spaces in the coming year,’ Kishin says.

The plan is to buy such properties after the first quarter next year, a time frame that Kishin does not think is too early despite the fact that significant new office completions will start flowing in from 2010/2011.

RB Capital has already lined up a few potential tenants keen on being anchor tenants in such properties. ‘They have given us orders: ‘40,000, 50,000, 70,000 sq ft. These are my areas. This is how much I’m
willing to pay’.’

Kishin is also targeting acquisitions of boutique suburban malls of around 40,000 to 70,000 sq ft that could be potentially repositioned. Foreign property funds that bought real estate in Singapore in 2007 and early 2008 with a short-term investment horizon are starting to look at exiting, he observes. ‘In 2009, they are going to look at the market and say: ‘Is it going to improve in 2010?’ The answer is pretty clear.’

That will provide a buying opportunity for RB Capital.

Kishin says that he has the ‘best teachers’ in learning about real estate in his father and uncle, Asok Kumar (the other co-founder of Royal Brothers). ‘They have taught me everything. I’ve had the front-row seats to some of the most interesting deals they have done.’

But RB Capital is ’solely my baby, my vehicle . . . and I do the kind of deals that I like to do’, he stresses.

His father and uncle ‘have been amazing at repositioning assets’.

‘They’ve taught me everything: how to structure a deal, how to increase cash flow, how to buy.’

That aspect of the business Kishin has brought to RB Capital. ‘The only thing I am doing a little differently is that I am starting to develop. Something they don’t really do. And I’m (hoping to) add residential.’

‘Ever since I was five, I was running around in the office. I’ve learnt by asking all the questions I can ask from everyone around me, from a very young age,’ says the 25-year-old bachelor, who is a former Anglo-Chinese School boy. He keeps fit by playing squash at the American Club. Visiting properties or sites he hopes to acquire - ‘that’s my hobby; pretty depressing for a lot of people, but I enjoy it’.

Looking ahead, he says: ‘2009 is going to be challenging for some and a host of opportunities for others. We’re definitely going to see softening of the real estate market in all sectors. I believe there will be a shift of players. I think it’s going to be a year you see a lot of companies changing hands, in terms of the players changing hands.

‘There will be new names coming up. There will be some names that have been very aggressive, some names that have been affected, who will slow down. There will be a shift.’

Source : Business Times - 13 Dec 2008

Singapore Property - Buy, Sell, Rent, Invest

Mindy Yong
(+65)91002985
mindy@mindyyong.com