Those looking for a property loan would be well advised to check out the rates offered by DBS Bank and United Overseas Bank (UOB). The two giants are leading the way in loan interest rates, with a 0.2% rate currently used by both banks. Both banks are looking to maintain a competitive advantage in an increasingly underwhelming market. The Straits Times reported how the use of the Singapore interbank lending rate (Sibor) and the swap offer rate (SOR) has allowed both DBS and UOB to set the bench mark for the lending market. The Sibor indicates the rate at which banks lend to each other, which in turn follows the rise and fall of interest rates. The Association of banks in Singapore dictates the SOR rate, with the amount being a combination of the Sibor rate and the lending costs incurred by the bank.
(Buyers take heed: interest rates for property loans are dipping.)
Singaporeans may now be questioning why current rates are currently so good. Often banks use these low rates during a promotional period in order to maintain a particular level of business. In addition the Sibor and SOR rates commonly factor in the banks’ own profit margin. With these factors in mind it is thought that the objective when implementing rates such as these is to attract short-term property investors to the market in order to generate sufficient activity for long-term sustainability.
Providing further support to the reasons why banks are charging such low rates, Dr Chua Hak Bin, economist at Bank of America-Merrill Lynch, suggested that the market for mortgage loans had dipped and as a result banks are looking to incentivise customers into entering the market. With SOR packages in particular, lenders can use extremely competitive rates to nurture investors into the market. Another important point to factor into the equation was that certain governmental cooling measures may instigate a change in market behaviour. As a result banks may be looking to protect themselves by using greater promotional techniques to maintain customer activity.
In contrast to this argument Mr Tan Kok Keong, head of research and consultancy at Orange Tee suggests banks are most likely not to enter a price dominant market (for interest rates), as there are a limited number of banks that can compete at the low interest level. Mr Tan extended further by claiming certain cooling measures (due to be introduced) will affect the level at which banks will operate on low lending rate packages such as the 16% stamp duty which will affect property sellers. A daily breakdown of Sibor and SOR rates at siborratesingapore.com seems to back up the move by DBS and UOB.
A few examples of these rates kicking in include the Far East Organization project Woodhaven, launched last month in Woodlands. DBS is offering an SOR plus zero packages applicable to the loan period until the property's completion, before the zero-rating rises. UOB have consequently finished the SOR Sibor zero packages, with the last project The Boutiq in Killiney Road, incorporating a SOR plus zero package.
For buyers, the market is seemingly on its way to dipping slightly. Property struggles in the US and Europe continue to affect growth and trends worldwide and as a result Asia Pacific may see more fluctuations in lending rates for the remaining two quarters of the year.
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Related Categories: Loans and Financing
Tags: home loan, interest rates, lending, loans, mortgage, property investment, property loan, property trends in Singapore, Short-term investment, SIBOR, Singapore property market forces, SOR
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