Maybank's home loan rate cut sets cat among pigeons.

February 19, 2008
Maybank's home loan rate cut sets cat among pigeons.
Analysts divided on whether this will signal undercutting among the banks.

By CHOW PENN NEE ( SINGAPORE )

Maybank has fired a salvo that could shake up the home loan market here by slashing its rates. This has led to speculation that banks might start to undercut each other to drum up business.

Meanwhile, the banks themselves are adopting a cautious stance in a falling interest rate environment that could change direction. For a three-week period, Maybank is launching a promotional three-year fixed rate home loan package which is the lowest of all the banks surveyed.

Home-owners pay 1.68 per cent per annum for the first year, 2.68 per cent pa for second year and 3.38 per cent pa for the third year. The rates apply to both HDB and private home loans. Homeowners are subject to a three-year lock-in period and fees will apply in case of early redemption, prepayment and cancellation during that time.

Before this promotion, the Qualifying Full Bank's rates stood at 3.58 per cent pa for all three years. Maybank's new first-year interest rate is about 40 per cent lower than similar packages being offered in the market (see table). But it has a lock-in period of three years while other banks generally have a two-year lock-in.

Helen Neo, head, consumer banking, Maybank Singapore , explained that interbank rates have softened over the past few months. 'However, we expect interest rates to rebound in view of rising inflation in Singapore ,' she said. 'Against a backdrop of potential rising interest rates, home loan customers who take up this fixed rate package will enjoy the prevailing low rates and are protected from future interest rate increases for the next three years.

Mortgage rates are affected by the Singapore interbank offer rate (Sibor) - the rate at which banks lend to one another. Sibor has been on a downward trajectory since late last year, after hovering around 2.5 per cent.

Yesterday, the three-month Sibor fell to 1.44 per cent, its lowest level since December 2004. Economists say it is expected to go even lower by mid-year, partly due to the US steadily cutting its key interest rate. Sibor takes its cue from interest rates in the US, and last month the US Federal Reserve slashed its key interest rate from 4.25 per cent to 3.5 per cent, and then to 3 per cent.

Maybank's move to reduce rates is prompting speculation among mortgage consultants that banks could follow suit with foreign banks leading the way. 'I'm not surprised that this round of interest rate reductions is led by foreign banks again,' said Dennis Ng, spokesman for Mortgage Consultancy Portal www.HousingLoanSG. com.

'From past experience, local banks have typically lagged behind foreign banks in adjusting interest rates down.' This is because the three local banks have the lion's share of the housing loan market. 'If they reduce interest rates, they have more to lose,' said Mr Ng. While cutting rates would let them gain some more business, the advantage would be neutralised if their existing clients start paying lower rates. But with Sibor falling, other banks could follow suit in lowering their interest rates, Mr Ng said. The last time banks were seen aggressively undercutting each other on rates was in 2003-2004, where foreign banks actively led the charge in introducing lower rates.

Leong Sze Hian, president of the Society of Financial Service Professionals, agreed that banks would be nudged into lowering their rates. 'Sibor rates are dropping and once Maybank lowers its rates, everyone will follow, otherwise customers will move,' he said. However, consultants like Tang Yin Fong, a mortgage advisor at wealth and investment outfit Providend, said local banks already have Sibor-linked packages which track the movement of Sibor, and do not need to lower rates to be competitive.

'Such packages have been relatively attractive in the current lowered Sibor environment and have since been the main packages that the banks recommend to homeowners,' she explained.She also added that in the current situation where the Singapore property market still seems to be on the rise and more homeowners are seeking mortgage loans, banks may be less willing to lower their interest rates.

Meanwhile, DBS Bank said it has 'no plans to adjust rates' for now, while OCBC and United Overseas Bank both said they would monitor the situation before making a decision.

Foreign banks Citibank and Standard Chartered shied away from saying if they will review rates but pointed to their Sibor packages, which they say give customers control in repricing loan packages.

Stuart Kamp, head of mortgages, Standard Chartered Bank, added, 'We expect interest rates to trend down over the coming months.'

Letters to God

There was a man who worked for the Post Office whose job was to process all the mail that had illegible addresses. One day, a letter came addressed in a shaky handwriting to God with no actual address. He thought he should open it to see what it was about. The letter read:

Dear God, I am an 83 year old widow, living on a very small pension. Yesterday someone stole my purse. It had $100 in it, which was all the money I had until my next pension check. Next Sunday is Christmas, and I had invited two of my friends over for dinner. Without that money, I have nothing to buy food with, have no family to turn to, and you are my only hope.

Can you please help me?

Sincerely, Edna

The postal worker was touched. He showed the letter to all the other workers. Each one dug into his or her wallet and came up with a few dollars. By the time he made the rounds, he had collected $96, which they put into an envelope and sent to the woman. The rest of the day, all the workers felt a warm glow thinking of Edna and the dinner she would be able to share with her friends.

Christmas came and went. A few days later, another letter came from the same old lady to God. All the workers gathered around while the letter was opened. It read:

Dear God, How can I ever thank you enough for what you did for me? Because of your gift of love, I was able to fix a glorious dinner for my friends. We had a very nice day and I told my friends of your wonderful gift.

By the way, there was $4 missing. I think it was those bastards at the Post Office.

Edna

Estate duty R.I.P.

Feb 16, 2008 Estate duty R.I.P.
Death tax removal makes S'pore an attractive place for wealth to be built up, says Tharman By Lorna Tan and Tan Hui Yee

IN A LONG awaited move, the Government yesterday read the last rites for the death tax here. The tax, known as estate duty, had been imposed if the assets of a person who died exceeded certain limits. It was abolished with immediate effect yesterday.

The Government believes the move will boost the wealth management industry by encouraging both foreigners and Singaporeans to base their assets here. Although the move had been keenly awaited, it drew gasps of surprise when announced by Finance Minister Tharman Shanmugaratnam in Parliament yesterday.

Calls to abolish the tax had grown more frequent in recent years as growing affluence meant that even the middle classes were caught by it. A key grouse was that the exemption limits were lopsided. An estate could, for example, own up to $9 million worth of residential property and not pay the duty. But everything above $600,000 in cash, shares and other non-residential assets was subject to the duty.

Mr Tharman said the exemption limits tended to 'affect the middle- and upper-middle-income estates disproportionately compared to wealthier ones'. The intended target of the tax - the super rich - had been able to set up trusts and other legal arrangements that allow them to minimise the duty. Estate duty was taxed at 5 per cent on the first $12 million of applicable assets and 10 per cent on amounts above. Assets of $1 million, for example, incurred duty of $50,000.

The duty had been whittled down considerably over the years. In 1984, the top rate was a hefty 60 per cent.

Mr Tharman said that removing the duty was not just a practical and expedient measure but also in Singapore's collective interest. 'If we make Singapore an attractive place for wealth to be invested and built up, whether by Singaporeans or foreigners who bring their assets here, it will benefit our whole economy and society, not just the individuals who build up their wealth.'

This will be a boost to the wealth management industry here, said KPMG Tax Services executive director Ooi Boon Jin. 'It will encourage the inflow of foreign talent. People will bring money here, sink their roots here and invest here,' he added.

On average, the Government collected about $75 million a year in estate duty.

Mr Tharman is encouraging people with accumulated wealth to think of how they can use the savings from the scrapping of the tax to make a contribution to society. Already, one foreigner living here is making such plans after learning of the move.

Mr Iain Ewing, 62, founder of management training consultancy Ewing Communications, plans to channel half of the estate duty savings to fund university scholarships and other causes. The rest will go to his son, Tejas, 27.

Mr Ewing, a Canadian with permanent residence here, has worked here for 23 years and expects the savings to be millions of dollars. Two likely recipients are Singapore Polytechnic - where he previously worked as a media producer - and his alma mater, the University of British Columbia in Canada. 'It's great that some of my money can do more for other people after I've gone,' he added.