Thursday 22 May 2014

MAS sounds warning on foreign property risks

S'poreans poured $2b into foreign property last year, a rise of 43%
By Melissa Tan, The Straits Times, 21 May 2014

THE increasing number of Singaporeans buying property overseas has prompted a warning from the central bank about the risks.

The Monetary Authority of Singapore (MAS) said yesterday that its reminder is aimed at ensuring financial stability and prudence among Singaporeans.

It noted that Singaporeans poured $2 billion into foreign property last year based on deals done by real estate agencies here - 43 per cent up on the $1.4 billion invested in 2012.

MAS warned investors to take note of the risks before taking the plunge, including the challenges of dealing with an unfamiliar foreign market, particularly market conditions that can affect supply and demand. "Those who over-extend themselves will face increased vulnerability should prices decline sharply," it said.

It also cautioned that laws and regulations governing property purchases and loans in other countries can differ significantly from Singapore. While property developers here must maintain project accounts and adhere to strict progress payment rules, "there may not be similar safeguards in other countries", MAS noted, in response to media queries.

It also pointed to foreign exchange and interest rate risks.

Local banks said yesterday that they take steps to ensure borrowers remain financially prudent, while realtors said they make sure buyers are aware of the risks.

"In assessing customers' applications for overseas property loans, we take into consideration both the onshore and offshore loans that customers have in accordance to the TDSR framework," said Mr Joseph Wong, head of consumer credit risk management at OCBC Bank.

TDSR, or total debt servicing ratio, was imposed in June last year and caps the amount of debt a borrower can take on.

However, MAS acknowledged that the TDSR rules "cannot prevent those who take loans from lenders outside Singapore or use their own savings to finance overseas property purchases from over-extending themselves".

Malaysia and Australia are the most popular markets for local buyers, said consultants yesterday, although others such as London and Japan are gaining ground. "Malaysia was one of the hottest due to its proximity, and also because the culture there is not too different from here," said Chris International director Chris Koh.

ECG Holdings chief executive Eric Cheng said interest in real estate in Japan has grown, partly owing to Tokyo's successful bid to host the 2020 Olympic Games.

He added that he warns prospective buyers not to overstretch themselves and to do their homework before signing on the dotted line for an overseas property.

Malaysia most popular place for property buys
It attracts more than half of last year's investments
By Melissa Tan, The Straits Times, 23 May 2014

THE hottest overseas real estate market for Singapore investors during last year's splurge on foreign property was Malaysia, going by central bank estimates.

The country accounted for slightly more than half of real estate investments abroad last year, followed by Britain and Australia. These three countries made up the lion's share of purchases.

The Monetary Authority of Singapore (MAS) estimates released yesterday were based on purchases made through local real estate agencies last year, and included Singaporeans, permanent residents and foreigners. No absolute figures were available.

On Tuesday, the MAS said Singapore investors poured $2 billion into foreign properties last year - a 43 per cent jump on 2012.

The latest MAS estimates show that the share of purchases, in terms of property value, in Malaysia jumped last year from 2012. Consultants said this may be due to a spike in interest in the Iskandar region early last year.

Singaporeans have warmed to investing in real estate abroad in recent months, as domestic property market curbs imposed last year made it tougher for them to pick up multiple homes here.

The overseas markets that were popular last year were favoured for their accessibility or their potential for higher returns.

Malaysia has long been one of the favourites due to its proximity to Singapore and the relative affordability of homes there, consultants said. In Iskandar, for instance, prices last year ranged from RM500,000 (S$195,000) for a terraced house to RM3 million for a bungalow. Condos cost about RM200,000 to RM300,000 in popular areas such as Medini, said Ascendant Assets director Getty Goh.

Australia also drew buyers looking for second homes, consultants said, though they added that some Singaporeans could also have invested there because of rental returns.

ERA key executive officer Eugene Lim said that the interest in Australia last year was concentrated mainly in Melbourne, where Singaporeans may have bought houses for their children studying there or to rent out to university students.

In Melbourne, Singaporeans typically go for small high-rise apartments in the city that cost less than $1 million, he noted.

PropNex chief executive Mohamed Ismail said that London's Zone 1 and 2, located in the heart of the city, attracted investors with deeper pockets last year.

Singaporeans tend to spend up to $2 million on homes in Zone 1, which is in central London and includes areas such as King's Cross and the posh Westminster area, he said. In Zone 2, which is right outside Zone 1 and includes districts such as Shoreditch, the price goes up to about $1 million.

ECG Holdings chief executive Eric Cheng said that Singapore investors who go for Zone 3, and districts even farther out, tend to invest in student accommodation where the developer often provides a rental guarantee.

Zone 3 student accommodation units can cost £400,000 (S$846,300) to £500,000 while those farther out can go for £290,000 to £300,000, he said.

Singaporean investors in Tokyo tend to be relatively sophisticated and have deeper pockets, owing to the relatively high downpayments required for Tokyo homes, Mr Cheng said.

For instance, a small unit in downtown Tokyo may cost about $400,000 but require a 40 per cent down payment, which is $160,000 upfront, he noted.

However, consultants said that investing abroad has its risks. Investors may find it harder to resell their units in markets with ample supply, such as Iskandar.

They added that investors may sometimes have to hire a local managing agent to keep an eye on their property.

Before taking plunge into UK property market...

A RECENT media report stated that Singaporeans are "piling into" property investments in Britain.

I strongly urge anyone thinking of making such an investment to carefully consider the claims by the sellers of these properties.

It has become typical for these investments to be marketed based on the property having a "guaranteed" rental income and exit price, but it is important to remember that a guarantee is only as good as the company that provides it.

Typically, these guarantees are provided by the property developer and cover millions of pounds of rental income and sales proceeds.

However, in many instances, the developer has minimal financial assets to fulfil this obligation.

Thus, any "guarantee" given by this company is very likely to be useless in the event that it is ever necessary to implement it; these companies simply do not have the financial means to carry out their promises.

Potential investors should, therefore, realise that these "guaranteed" returns are not to be relied upon.

In many cases, the advertisers of these investments use confusing terminology such as "assured rental contracts" and "defined exit strategies".

These terms are designed to give potential investors the impression that such returns are in some way guaranteed.

In fact, in the majority of cases, such terms are non-contractual in nature and provide no benefit to investors.

This is an issue that the authorities need to address before more people invest their hard-earned savings into properties that are sold on misleading terms.

I urge the Council for Estate Agencies, Consumers Association of Singapore, and the Advertising Standards Authority of Singapore to look into this issue urgently.

Stuart Bygrave
ST Forum, 22 May 2014

Guidelines for agents marketing foreign properties

MR STUART Bygrave's letter ("Before taking plunge into UK property market..."; May 22) highlighted the potential pitfalls of Singaporeans buying properties in Britain.

All property transactions handled by estate agents in Singapore, including those involving foreign properties, are regulated by the Council for Estate Agencies (CEA).

When marketing foreign properties in Singapore, estate agents and salespersons have to comply with the Estate Agents Act and its regulations such as the Code of Ethics and Professional Client Care, and the Practice Guidelines on Ethical Advertising. They must provide accurate information on the property and state the basis of claim in their marketing information.

The CEA proactively identifies potentially misleading advertisements and advises the estate agents concerned to correct any inaccurate or unsubstantiated information. We will take action against any estate agent or salesperson for such infringements.

In March, the CEA implemented a set of practice guidelines detailing the responsibilities of estate agents and the preparatory activities they are required to undertake when they market foreign properties. It includes conducting checks on foreign property developers to ensure that, among other things, they have good financial standing and proven records on claims of returns. If there are claims of guarantees, including underlying terms and conditions, estate agents must ensure these are provided by the developer as part of the contract offered to buyers.

Buying a property is a major financial decision. Regardless of whether the property is located here or overseas, consumers should always exercise due diligence before entering into any agreement.

When buying foreign properties, they should find out important details such as the rules and restrictions on foreign property purchases and ownership, taxes payable, pricing and terms and conditions of the purchase. They should not rely solely on advice from the representative of the foreign property.

They should be aware that the legal framework governing the transaction and dispute resolution is different from that when buying local properties, and there are additional risks such as foreign currency fluctuation.

Consumers can refer to the CEA's website ( for an online guide on buying foreign properties.

Yeap Soon Teck
Deputy Director (Licensing)
Council for Estate Agencies
ST Forum, 30 May 2014

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