Taxing reality

A 'fine' is a tax for doing wrong.

A 'tax' is a fine for doing well.

Plunge in key interest rate may lead to cheaper home loans.

Jan 10, 2008

Interbank lending rate drops to lowest in three years and is expected to fall further by mid-year.

HOMEBUYERS could be in for some cheer in the coming months after a recent plunge in a crucial interest rate that indirectly determines how banks set mortgages.

The three-month Singapore interbank offered rate (Sibor), as it is called, has hit its lowest level since February 2005 and is expected to sink further by the middle of the year.

It is significant as the Sibor is the rate at which banks lend cash to each other and thus influences what consumers pay on loans such as mortgages.

It hit 1.7625 per cent yesterday, down about 0.8 percentage point in a fortnight, and the lowest since the 1.75 per cent level nearly three years ago.

With banks getting cheaper money, it is expected that homebuyers could benefit in turn from cheaper mortgages, although there is usually a lag between Sibor and consumer loan rate movements.

Citigroup economist Chua Hak Bin said: 'Mortgage rates could head lower in two months.'

But a Sibor fall is bad news for savers as fixed deposit rates could drop too.

Economists say the Sibor's sharp dip is due to recent interest rate cuts in the United States - with more likely to come later this month, huge capital inflows into Singapore and poor stock market sentiment, which have prompted investors to leave more money in the bank.

CIMB-GK economist Song Seng Wun said: 'The Sibor's plunge corresponds with the recent sharp decline in US interest rates and the expectation of more cuts.

'People have started 2008 with plenty of uncertainty, and are holding on to more cash and being more risk-averse. '

OCBC economist Selena Ling added: 'It's due to foreign funds coming in, seeking refuge from the weakening US dollar, and the recent plunges in the equity market.'

The US Federal Reserve has cut key interest rates from 5.25 per cent to 4.25 per cent in recent months.

Market experts predict a further 50-basis point cut later this month as part of moves to avert a possible recession.

Economists expect the Sibor to remain soft, due to the likelihood of further rate cuts and the cautious equity market sentiment.

Dr Chua said: 'We expect the Sibor to fall by a further 30 to 50 basis points by mid-year, especially if the Fed cuts rates by 75 basis points by the end of the second quarter.'

While home owners welcome a Sibor fall, banks dread it.

It affects their net interest margins because most of their Singdollar corporate and small business loans are linked to the Sibor.

A Deutsche Bank analyst report noted: 'This plunge is of concern, as we estimate that a 25 basis point fall in the Sibor will eventually lead to a fall in earnings per share of 4 per cent for DBS Group Holdings, 2 per cent for United Overseas Bank and 1 per cent for OCBC Bank.'

And savers will get belted too. Low interest rates combined with the high inflation now building up in Singapore spell 'negative real interest rates' - the interest earned on savings will not be able to offset the rise in prices.

Mr Song said: 'It's a sign for people not to keep money in the bank, as savers lose out. '

It's a good period to borrow, as there is more incentive for people to take money out rather than put it in.'

Thus, Dr Chua advocates that 'some diversification away might be prudent'.

He suggested alternative instruments such as real estate investment trusts, utility stocks and foreign currency fixed deposits, which offer higher rates, to hedge against inflation risk.

Successful husband and woman

A successful husband is the one who makes more money than his wife can spend.

A successful woman is the one who finds such a man.

Insurance Policy Joke

I've just bought a retirement policy.

If I keep paying the premiums for thirty-five years, the insurance salesman can retire rich.

Straits Times: Several MRT station 'hot spots' likely in the future

Jan 7, 2008
Several MRT station 'hot spots' likely in the future
Interest in these areas rises as Govt readies review of land use masterplan
By Joyce Teo, Property Correspondent

A MAJOR review of the town plan governing the development of land across Singapore is due this year - and keen interest centres on the use of land near MRT stations.

Property analysts have identified several MRT station 'hot spots', but they are playing down the possibility that the Government may allow more intensive development in these areas for now.

The five-yearly review of Singapore's Master Plan, due around the middle of this year, will examine plot ratios - the level of intensity of development on a given site.

MRT stations hold interest for planners and industry watchers for the obvious reason that vast numbers of people use them every day. A new Jones Lang LaSalle report on higher plot ratios near Circle Line stations picked Paya Lebar, Buona Vista, Telok Blangah and Harbourfront as new hot spots.

The Master Plan shows the permissible land use and density for every parcel of land in Singapore. Property analysts say over time, plot ratios will have to increase in selected areas to cater to a growing population. What is uncertain is the timing.

For the purpose of planning land use and transportation in the next 40 to 50 years, the Government is using a projected population of 6.5 million, as opposed to the current population of 4.5 million.

Maximising the use of land around MRT stations is an obvious choice.

'You can then minimise car usage, and the masses get the best accessibility, ' said Dr Chua Yang Liang, the head of research for South-east Asia at Jones Lang LaSalle. 'From the planning perspective, it is about maximising your investment dollars and social benefits.'

'Yes, the plot ratios may rise, but people should not count too much on that,' said Knight Frank director of research and consultancy Nicholas Mak. 'I don't think the Government will be creating a lot of windfalls for private property owners, as there is no compelling reason to do so.'

Besides, some of the areas along the Circle line are fairly built-up, he said.

National Development Minister Mah Bow Tan said in June there was no need for an across-the-board change in plot ratios, as the land available today would be sufficient to meet needs over the next 10 to 15 years.

That, however, has not deterred some property owners from dreaming of a windfall.

Some recalled that certain sites above or near key MRT stations had their plot ratios raised after plans for the North-East Line (NEL) were finalised more than 10 years ago. A prime example was the land around the Dhoby Ghaut MRT station, when it was also made the NEL interchange.

There is no need for significant increases in plot ratios along the Circle Line in the upcoming Master Plan because the line will not be ready until 2012, said Mr Ku Swee Yong, the director of marketing and business development at Savills Singapore.

Generally, the areas likely to see a significant revision in development density will be vacant state land around the Circle Line stations. Paya Lebar certainly has some. It is slated to be a regional commercial centre, so it is possible that the Government will allow a higher land density around the station, said Mr Ku.

It may happen at the Buona Vista stations, he said, as the area is a biotech hub.

Places such as Bishan and Dhoby Ghaut have been ruled out because there is little empty state land there. Also, plot ratios in Dhoby Ghaut are already very high, said Dr Chua. 'So you can't raise them further. Otherwise, you will upset the urban streetscape. '