Banks slash loan amounts before disbursing them
(SINGAPORE) The rapid slide in property prices has resulted in some banks slashing the loan amount to borrowers just before it is disbursed. This has put property buyers in a quandary, forcing them to either top up the difference or pay a penalty for backing out of the loan offered.
And valuers have become the latest 'villains' as borrowers find it harder to get home loans to match their purchase prices. 'I don't tell people I'm a valuer,' sighed Lydia Sng, Knight Frank executive director.
Bankers agree that the time lag between the loan offer and disbursement can result in a final smaller loan. The loan offer, while based on an indicative valuation, contains a clause that it is subject to a formal valuation.
But borrowers who want to cancel the loan are hit with a punitive 1-1.5 per cent cancellation fee. Also, by this time, it would be hard to back out because they would have already committed to the purchase of the property.
The wobbly market is not helping. A Citigroup report last month said that, in the high-end segment, properties have seen price corrections of about 35 per cent from a year ago and they could fall by another 30-40 per cent this year.
Ms Sng said the problem is with the valuation process. 'They'll give us a call with the address, we'll give a range as we've not seen the property. It's a bit like calling the doctor and telling him your symptoms and asking for a diagnosis,' she said.
Gregory Chan, OCBC Bank head of secured lending, said: 'It is possible to receive a lower formal valuation on a property compared to the initial indicative valuation. To mitigate this, as well as to ensure valuations are realistic, OCBC Bank does not rely solely on a single valuer for indicative valuations,' said Mr Chan.
A DBS spokeswoman said the indicative value will be based on the information declared by the customer in the home loan application form.
'In the event that the formal valuation is lower due to the wrong details provided on the property, the bank will have to take the lower of either the purchase price or valuation as per regulatory stipulations. As such, the buyers will be required to top up the difference between the purchase price and valuation in cash. If the borrowers decide to abort the purchase and cancel the loan at any point after loan acceptance, a cancellation fee will apply,' said the DBS spokeswoman.
'We monitor our panel of valuers regularly to ensure that valuations are always fair and based on current market values,' said a United Overseas Bank (UOB) spokeswoman.
Jerry Tan, managing director of Jerrytan Residential Pte Ltd said his beef is that valuers sometimes look to non-comparable transactions to determine the price. But it could be comparing a five-star development to a three-star one, he said.
DTZ executive director Poh Kwee Eng said that if they were valuing a unit and there had not been a transaction in the same building for some time, they would look nearby, in similar developments. If the five-star unit was priced 20 per cent higher during last year's red hot bull market compared to a three-star one, similar premiums would still hold.
'Say, last year, your unit was sold at $1,000 per square foot and next door a unit went for 800 psf, there was a 20 per cent difference. So if the next-door unit is now selling at $500 psf, I would adjust your unit by 20 per cent upwards,' explained Ms Poh.
Some banks are said to be staying clear of certain developments where there is a wide range of valuations such as The Sail with 1,111 units and Sentosa Cove.
UOB head of loans Kevin Lam declined to comment on specific projects but offered general observations about mortgages. 'We have been conservative all along. With the recent further fall in prices, we have become even more careful,' he said.
Knight Frank's director of research and consultancy Nicholas Mak said valuations vary widely among the 1,111 units at the 63-storey The Sail. As for Sentosa Cove, 'newer developments have better views or better designs. Some earlier projects didn't have sea views,' he said.
Some ground-floor condos sited between the landed homes with the sea front were not very different to condos on the mainland, said Mr Mak. 'The value of a sea view alone is difficult to pin down,' he said.
Credo Real Estate managing director Karamjit Singh said that The Sail and Sentosa Cove, as new markets which targeted foreigners, provided their own challenges. 'The Sail was part of a new market that emerged as part of the development for the new downtown including the integrated resorts,' said Mr Singh.
He said it takes time for prices to find their equilibrium, and they have not stabilised yet. 'It's a challenge everyone faces, including banks.'
Source: Business Times - 19 Feb 2009