Issue 234

Copyright 2011-2014 www.Propwise.sg. All Rights Reserved.

CONTENTS
p2

FROM THE

EDITOR

How SMEs Can Use Property Loans to

Welcome to the 234th edition of the

Singapore Property Weekly.

Lower Their Borrowing Costs

Hope you like it!

p9

Singapore Property News This Week

p13

Resale Property Transactions

Mr. Propwise

(October 28 November 3 )

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SINGAPORE PROPERTY WEEKLY Issue 234

How SMEs Can Use Property Loans to Lower Their

Borrowing Costs

By Paul Ho (guest contributor)

Singapores SMEs makes up 99% of all
enterprises, employ 66% of the workforce and
account for 48% of the GDP. SMEs are
defined as having revenues of less than
$100m and with a staff of less than 200.
Singapore has narrowly averted a technical
recession. But the PMI is below 50%,
indicating a contraction in the manufacturing
sector.

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SINGAPORE PROPERTY WEEKLY Issue 234

Figure 1: Purchasing Managers Index (PMI),

Singapore Institute of Purchasing and
Materials Management (SIPMM)
SMEs have limited access to loans during
tough times
A drop off in demand means that companies
are hardly growing their top lines and may go
into the red. This is especially true for SMEs
with less than $10m in revenues.
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Figure 2: Singapore Quarterly GDP Growth

rate (TradingEconomics, SingStats)
Singapores corporate default rate of
Corporations listed on the SGX is below 2%.
SMEs likely have a higher default rate of at
least 3 to 4%.

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SINGAPORE PROPERTY WEEKLY Issue 234

In short, this means that during tough times
the banks cut back on SME lending exposure
due to the potentially higher Non-Performing
Loan risks. Hence funds will likely dry up
during uncertain economic periods when
SMEs need credit the most. Hence SMEs will
be exposed to elevated funding disruption
risks and increased cost of funding during
recessionary periods, and need to take action
now to secure funding.
Figure 3: Corporate NPL Ratio, Financial
Stability Review 2014, MAS
During the Global Financial Crisis in 2008,
Singapores SMEs experienced a limited
access to capital and funding. This led the
government to enhance the various schemes
that are in place to help SMEs retain access
to credit. Most of these schemes involve the
government risk-sharing with the banks on
loans to SMEs.
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Discerning future interest rate trends by

looking at the bond yield curve
The bond yield curve gradient has become
less steep, indicating slower growth. There is
also higher mid and long term interest rate
expectations, indicating inflation expectations
or simply a higher interest rate environment.
The 20 year Bond is currently at 2.9%.

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SINGAPORE PROPERTY WEEKLY Issue 234

Secured lending refers to lending in which an
asset is pledged. Secured lending presents
less risk to the lender and hence they charge
lower interest rates.

Figure 4: Singapore Bond Yield Curve End

2014 versus Nov 2015, Asian Development
Bank
Hierarchy of Borrowing Costs: Secured
versus Unsecured Loans
The impending weakness in the economy
poses greater risks to SMEs than to large
corporations.
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Unsecured lending does not require pledged

assets. Hence this presents greater risk to
lenders and are more expensive. Small
businesses usually have fewer assets to
collateralize against and hence use secure
loans less frequently. Unsecured Business
Term Loan rates for SMEs are usually in the
10+% range, depending on loan size as well
as tenure.
The Micro Loan Program by Spring Singapore
is also a good source of funding. However, not
many companies qualify, and for those who
qualify, they may not be able to obtain the
maximum $100,000 loan. Interest costs start
from 5.5% with up to a four year tenure.
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SINGAPORE PROPERTY WEEKLY Issue 234

Problems faced by SMEs and their owners
in obtaining credit
Many SMEs may not have the right financing
or salary structure. SME bosses tend to
under-declare their income and instead
declare dividends. Whilst this reduces their
taxable income, with the new Total Debt
Servicing Ratio (TDSR) rule, this also
impedes many SME bosses from borrowing
more to buy their homes.
SMEs are suffering a margin squeeze. Faced
with borrowing costs of around 10%, labour
costs that are 5 to 10% of revenue, and other
operating costs which could take up another 5
to 15% of revenue, these businesses need a
gross margin in excess of 30% just to break
even. Not many industries can offer gross
margins in excess of 30%. Hence SMEs are
especially sensitive to top line growth for
those with 20+ to 40% gross margins.
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With market uncertainty, access to funds for

SMEs could be even more restricted in the
coming one to two years.
How can SMEs overcome high cost of
funding issues?
SME bosses should start to realize that
under-declaration
of
income
impedes
borrowing and start to rectify this situation to
reflect their true income. While it is important
to have a tax efficient salary structure using a
combination of Salary, Director Fees and
Dividends, it is worthwhile to review this to be
eligible for adequate funding.
SMEs, especially those whose directors who
are currently in their late 30s and early 40s
and who have bought their own residential
homes, could be sitting on tied up equity in
their properties. Residential home loan rates
are around 2%.
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SINGAPORE PROPERTY WEEKLY Issue 234

They could free up this capital by refinancing
their homes and use the money to invest
prudently in their own business. With this
reduced cost of funding, the business owners
could immediately save ~10% off borrowing
costs.
Case Study: SME owned by 2 Directors
and 3 Shareholders
Does it make sense to borrow against your
home for a company in which youre only one
of the many directors?
In this case I came across, the company had
two directors and three shareholders. The two
Directors owned 35% each of the business,
while the rest of the shareholders held 10%
each.
They needed $500,000 of funds for business
expansion.

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We advised the firm to structure a Directors

resolution to approve the company to request
for a Shareholder Loan to the company at a
5% interest rate. The two major shareholders
cum Directors held 70% of the shares, and
hence were allotted $350,000 of the loan
amount. Shareholders or Directors who did
not wish to lend to the company at the
approved 5% interest rate may give up their
allotment. The unused allotment may be used
by the other directors/shareholders equally.
These two major shareholders then
refinanced their residential property loan with
a cash out (equity term loan) of $400,000 at
1.8% interest. They then lent their company
$400,000 at a 5% interest, making a decent
return on their loan to their own company.
Another two shareholders took up their
allotment and lent the company $100,000 at
the same 5% interest.
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SINGAPORE PROPERTY WEEKLY Issue 234

In this way, the company had access to
cheaper capital, boosting its chances of
survival and creating a fair debt offering for all
directors and/or shareholders who wanted to
participate. Its similar to preferential bonds
which only Directors and shareholders can
participate in.

SUMMARY
SME owners should get their personal
income structure right to optimize for both tax
efficiency and borrowing capacity. They can
then leverage on cheaper secured mortgages
to free up equity from their house to lower
their business borrowing costs by structuring
a Directors Loan to company.

In order to lock in low rates from the

residential property equity loan (cash out), it
might be safer for SME owners to consider a

Back to Contents

three to five year fixed rate structure to hedge

against rising interest rates.
Investors with at least $300,000 of spare cash
could also get in on the game to bridge the
gap left behind by banks and lend to growing
companies who can afford to pay 14 to 18%
per annum in interest costs. But thorough risk
assessment needs to be done to minimize
default rates. Convertible loans can also be
structured to give investors additional upside
if there is a liquidity event (e.g. acquisition).

By Paul Ho, holder of an MBA from a

reputable
university
and
editor
of
www.iCompareLoan.com, Singapores first
Cloud-based Home Loan reporting platform
used by Property agents, financial advisors
as well as Mortgage brokers.

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SINGAPORE PROPERTY WEEKLY Issue 234

Singapore Property This Week

Residential
Condo resale prices fell 0.6% month-onmonth in October
In October, non-landed private residential
resale prices dropped 0.6%, following a 0.3%
month-on-month drop the previous month.
On the other hand, resale volumes increased
by 9.8% to 505 units in October, according to
SRX Propertys flash estimates. Ong Kah
Seng from RST Research said that attractive
pricing had driven sales. Not only so, sales
may have increased as both buyers and
sellers had wanted to close the deal before
the year-end period, which is typically quieter.
Eugene Lim from ERA Realty added that
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prices have decreased only by a marginal

1.7% since the start of the year because
sellers are not pressured to cut prices to
make sales. The overall private residential
property price index is expected to drop by
3.8 to 4.8% year-on-year this year, said
Nicholas Mak from SLP International.
(Source: Business Times)
Redhill site sold for $851 psf ppr
Located at Redhill, a 0.84 ha site was won
for $851 psf ppr. The site, which is 99-year
leasehold, had attracted 10 bids. Ong Teck
Hui from JLL said that the conservative bid
prices could indicate that developers are
cautious of the market.
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SINGAPORE PROPERTY WEEKLY Issue 234

Ong added that this may also have been
because there is a fair amount of unsold
supply in nearby projects. Nicholas Mak from
SLP International predicts that the breakeven
price for the Redhill site is about $1,350 to
$1,400 psf. Mak believes that the sites prime
location could have been a pull factor. Not
only so, the first storey of the development
may be use for commercial purposes such as
for the development of shops, cafes and
restaurants.

Besides that, market experts believe that an

increase in private residential completions
may have negatively affected HDB rents.
According to Eugene Lim from ERA Realty,
the downward rental pressure on the outside
central region (OCR) could be because a
majority of the non-landed private residential
projects are located in suburban areas. Lim
added that while HDB rental volumes had
decreased, the demand is still strong in the
HDB leasing market.

(Source: Business Times)

(Source: Business Times)

HDB rents fall by 0.5% month-on-month in

October

Application period for HDB sales exercise

extended for launch in December

According to SRX Property, HDB rents had

fallen 0.5% month-on-month in October.
Market experts believe that the fall in rents
could have been due to slower leasing
activities which are typically seen in H2.

HDB will be extending the application period

for the HDB sales exercise from 7 to 10 days
in the upcoming sales launch in December. At
this mega launch, 12,000 flats will be offered
for sale.

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SINGAPORE PROPERTY WEEKLY Issue 234

Of these flats, 7,000 are BTO flats while the
remaining units are balance flats. The BTO
flats will be offered in Bidadari, Bukit Batok,
Choa Chu Kang, Hougang and Sengkang.
Ong Kah Seng from RST Research believes
that the Bidadari site will draw the greatest
interest due to its prime location. He added
that flat prices may not be low due to the
location of the development. Eugene Lim
from ERA Realty added that the Punggol
Northshore flats may also be a hit with buyers
as it offers sea views.
(Source: Business Times)
Singapores luxury residential
weakest-performing in the world

market

According to Knight Frank Prime Global Cities

Index, Singapores luxury residential market
is the weakest-performing one for 7
consecutive quarters. Prices of prime homes
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took the largest hit in Q3 this year, according

to the report. Market experts believe that
transaction volumes are low because of the
additional buyers stamp duty and uncertain
market conditions. On the other hand, cities
like Vancouver, Sydney and Shanghai have
bucked the downwards trend by showing
double-digit annual price increases.
(Source: Business Times)
Commercial
Adjoining shophouse at Chinatown up for
sale
Two adjoining shophouses at Chinatown have
been put up for sale for $30 million. Both
have a combined land area of 3,010 sq ft and
a built-in area of 9,226 sq ft. The three and a
half-storey conservative shophouses have
been zoned for commercial use and are fully
occupied.
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SINGAPORE PROPERTY WEEKLY Issue 234

The development is located just 50m away

rent works out to $6 psf a month. Shenton

from ChinaTown MRT and is situated near

House

tourist attractions like the Chinatown Heritage

development with retail units from levels 1 to

Centre. The expression of interest will close

3.

on Nov 27.

is

25-storey

commercial

(Source: Business Times)

(Source: Business Times)

Ground-floor shop at Shenton House to
auction for $13.3 million
A ground-floor shop unit at Shenton House
with an indicative price of $13.3 million has

been put up for auction at the Colliers

Internationals

auction

on

Nov

20.

The

monthly rental for the development is at

$39,786 inclusive of service charge and the
lease runs till August 2017. Based on the
indicative price and current rental the gross

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SINGAPORE PROPERTY WEEKLY Issue 234

Non-Landed Residential Resale Property Transactions for the Week of Oct 28 Nov 3
Postal
District
3
3
4
5
5
5
5
7
9
9
9
9
10
10
10
11
12
14
14
14
14
14
14
15
15
15
15

Project Name
QUEENS
CENTRAL GREEN CONDOMINIUM
CARIBBEAN AT KEPPEL BAY
THE VISION
THE PARC CONDOMINIUM
PALM MANSIONS
WESTCOVE CONDOMINIUM
CONCOURSE SKYLINE
YONG AN PARK
SAM KIANG MANSIONS
ASPEN HEIGHTS
RESIDENCES @ KILLINEY
TANGLIN PARK
ORANGE GROVE RESIDENCES
THE SIXTH AVENUE RESIDENCES
1 MOULMEIN RISE
THE ABERDEEN
WATERBANK AT DAKOTA
THE TRUMPS
THE WATERINA
EUNOS PARK
DENG FU VILLE
SIMSVILLE
THE SEA VIEW
PEBBLE BAY
IMPERIAL HEIGHTS
PARKSHORE

Back to Contents

Area
(sqft)
1,195
1,528
1,636
1,313
1,302
1,324
1,518
1,098
3,434
1,206
1,324
5,059
1,033
1,927
1,636
1,238
1,302
1,141
980
1,335
1,625
1,755
1,249
1,647
2,088
452
1,647

Transacted
Price ($)
1,523,888
1,780,000
2,550,000
1,695,000
1,568,910
1,160,000
1,250,000
1,850,000
6,500,000
1,850,000
1,900,000
5,600,000
1,980,000
3,300,000
2,080,000
1,960,000
1,380,000
1,780,000
1,099,000
1,300,000
1,500,000
1,600,000
1,040,000
2,980,000
3,000,000
630,000
1,850,000

Price
Tenure
($ psf)
1,275
99
1,165
99
1,559
99
1,291
99
1,205
FH
876
FH
824
99
1,685
99
1,893
FH
1,535
FH
1,435 999
1,107
FH
1,916
FH
1,713
FH
1,271
FH
1,583
FH
1,060
FH
1,560
99
1,122
99
974
FH
923
FH
912
FH
833
99
1,809
FH
1,437
99
1,394
FH
1,123
FH

Postal
District
15
15
15
16
16
16
17
18
19
19
19
19
20
20
20
20
21
23
23
23
25
26
27

Project Name
HAIG RESIDENCES
CANARY VILLE
LEGENDA AT JOO CHIAT
CASA MERAH
COSTA DEL SOL
EAST MEADOWS
ESTELLA GARDENS
EASTPOINT GREEN
A TREASURE TROVE
A TREASURE TROVE
RIO VISTA
RIO VISTA
SKY HABITAT
THOMSON V ONE
GRANDEUR 8
GRANDEUR 8
FREESIA WOODS
MAYSPRINGS
THE WARREN
PALM GARDENS
CASABLANCA
FOREST HILLS CONDOMINIUM
THE SENSORIA

Area
(sqft)
1,249
1,087
1,216
958
1,948
1,206
1,830
1,130
1,044
1,044
1,378
1,238
1,798
431
1,421
1,216
1,432
818
1,216
1,938
947
1,163
1,184

Transacted
Price ($)
1,310,000
1,010,000
985,000
1,167,000
2,050,000
1,150,000
1,390,000
948,000
1,140,000
1,120,000
1,130,000
940,000
2,549,840
600,000
1,405,000
1,165,000
1,700,000
730,000
950,000
1,198,000
770,000
950,000
950,000

Price
Tenure
($ psf)
1,049
FH
929
FH
810
99
1,218
99
1,052
99
954
99
760
FH
839
99
1,092
99
1,073
99
820
99
759
99
1,418
99
1,394
99
989
99
958
99
1,187
FH
892
99
781
99
618
99
813
99
817
99
802
FH

NOTE: This data only covers non-landed residential resale property

transactions with caveats lodged with the Singapore Land Authority.
Typically, caveats are lodged at least 2-3 weeks after a purchaser
signs an OTP, hence the lagged nature of the data.
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