COVID-19 Special: Individuals can apply to defer property loan

“Individuals can apply to their banks and insurers to defer repayment of property loans, as well as premium payments for life and health insurance plans.. until 31 December 2020″

Quote from The Straits Times

Perhaps one of the most important policy rolled out by the Singapore Government, this policy helps property owners who have purchased a property without a ‘safety net’, and have suffered a loss in income or job loss during the Covid-19 period.

This policy is actually extremely critical in protecting Singapore’s property market especially during this challenging period. Without the policy, property owners who have problems servicing the monthly property loan installments could be forced to put up their house for sale at undervalued prices or worst; have their property foreclosed by the bank.

Multiple properties being released into the market (via auction sales) could undermine the robustness of the Singapore property market that has been painstakingly constructed by the Government through a series of cooling measures beginning since February 2010. If anything, this should encourage buyers who are not severely affected by the Covid-19 situation especially property hunters from overseas, to secure their property now when public sentiments are not good.

However, the issue of servicing the monthly property loan installments could have been avoided in my opinion.

Scenario: John and Mary have eyed a $1 million 2 bedroom private apartment. They are eligible for the full 75% property loan which was going at a 2% bank interest rate per annum. The downpayment (20%) for the property is $200,000. John and Mary have a total combined CPF of $400,000 and are toying with the idea of reducing their loan ‘like many Singaporeans’.

Option 1: John and Mary decides to fully dump in all their CPF monies into their dream home. Their monthly instalment is $2,032 per month. But they do not have any safety net, which means if any of them lose their jobs (due to Covid-19 for example), they will need to dig into their savings to pay the instalment.

Option 2: John and Mary decides to leverage the maximum 75% property loan, giving them a buffer of $200,000 in CPF monies. Their monthly instalment is $2,772 per month, they will have to pay an extra $740 per month. However when they lose their jobs (due to Covid-19), the $200,000 could give them a safety net of 72 months of worry-free period as they do not have to concern about the monthly instalment.

What about paying more interest rates?

By leaving your CPF monies in your CPF Ordinary Account, the CPF Board pays you a risk-free 2.5% interest per annum. Subtracting the bank interest of 2%, you are still earning an additional 0.5% from CPF. On top of that, the CPF monies in your property is constantly generating CPF Accrued Interest, eating into your future cash proceeds when you sell your property.

If you were to pay the instalment every month faithfully for the entire loan tenure period, yes you will pay more in bank interests, but how many of us actually stay in the private property for 30 years? Many Singaporeans move every 5 to 10 years. The interest paid within 5 to 10 years is not significant compared to paying over 30 years worth of interest. RET

Got a question? Contact Reuel Eugene Tay at +65 9833 6450 for a real estate discussion.

Source:

The Straits Times, 31 Mar 2020
https://www.straitstimes.com/business/banking/covid-19-individuals-can-apply-to-defer-property-loan-insurance-premium-payments

Edgeprop, Mortgagee Listings, 13 Mar 2020
https://www.edgeprop.sg/property-news/mortgagee-sale-listings-could-hit-new-record-2020

SRX, Cooling Measures
https://www.srx.com.sg/cooling-measures

CPF Board, CPF Accrued Interest
https://www.cpf.gov.sg/members/FAQ/schemes/housing/housing-scheme/FAQDetails?category=housing&group=Housing+Scheme&ajfaqid=2185818&folderid=11482