So it's been awhile since the 1st COVID-19 case touched down on our shores.
Sadly, many lives have been lost around the globe, and many more livelihoods affected.
At this point in writing, perhaps no end is yet in sight and only God knows where we will be when this storm finally passes us.
These days, the media is covered in nothing much of interest more than COVID related news; politics has taken a back seat, trade war and bitter disputes between rival nations are on hiatus and perhaps the only good thing out of this is that everyone around the world, regardless of status, wealth, nationality and race are united in a common cause to beat the pandemic.
Perhaps it is a divine way to wake us up to our excesses and sins, to put us in our place and to restore what should be most important in our lives - our health, our family and our community.
The services of those in underappreciated roles in society such as cleaners, drivers, front-line service staff, supermarket employees, security, deliverymen etc are the very ones carrying the bulk of the weight today to help our community function as well as it possibly can.
As the rest of us begin social distancing more amid the stricter measures imposed, jobs losses in many industries will have the next huge impact on the livelihoods of our community.
Through this article, I hope that those who will be or are going through difficult times will find some methods helpful for their families to cope with the storm ahead.
If you're the type who likes just the 5 points briefly, without elaboration, this is it:
1. Equity loans
2. Refinancing and/or stretching your loan tenure
3. Mortgage deferment schemes
4. TDSR Waiver for properties with <50% loans
5. Sell and downgrade or rent temporarily
Otherwise, read on for an explanation of each.
5 Ways for Property Owners To Tide Through Crises
The 1st Way: Using equity loans from your property to provide temporary cash flow
For private and commercial property owners who have an income (or sufficient assets to pledge), you can take out a low interest equity loan to help you cope with immediate cash flow requirements.
This is especially suitable for business owners who are facing a drought In their retail or F&B business or for those who need to standby some funds for the days ahead to make ends meet.
HDB owners unfortunately, are not able to take out equity loans with their flats as the regulations prohibit this.
The cost of equity loans are as low as mortgage loan rates and range from 1.3% to 1.7% at this time of writing.
Although this increases your monthly installments as you’re effectively increasing your outstanding loans, the lump sum can solve many of your pressures today.
Paying off your other higher interest rate loans are one instant way to save money if you have not already done so and i highly encourage it.
Take note though that CPF funds cannot be used to pay for your equity loan installments. Only cash is allowed.
As evident in past crises, margin calls on properties, unlike in stocks, are historically less likely to happen even if property prices were to depreciate so you should have more breathing space even if that happens.
The 2nd Way comprises 2 parts: Refinancing your loans to lower interest rates and/or stretching the loan tenure at the same time
Interests have once again dropped to new lows in Singapore as we track the interest rates of the US, which recently cut rates to zero.
Current mortgage loan rates are as low as 1.3-1.4% and it would be silly not to refinance your loans and save on interest rates if you are eligible.
By eligible, I mean you are not in any locked-in packages that stops you from refinancing today.
In fact, just this afternoon, one of my colleagues shared a story about his client, who was still under a locked-in package, getting a call from DBS, to refinance his loan to lower rates with no penalties.
In today's circumstances, there may be leeway granted so give your bank a call anyway if you’re currently serving your locked-in period.
You have nothing to lose and the banks might just be willing to waive the penalty to do their part to keep markets stable. In times like this, new rules are made on the go and I won't be surprised if banks do so.
When refinancing, you can also choose to stretch the tenure of your loan further. It is a little known fact that mortgage loans can be stretched till one is 75 years old or to a 35 years period max.
The upside is that it reduces your monthly mortgage installments until you are financially more comfortable to reduce the tenure or do partial repayments. The downside is this increases your interest paid over the long term.
Another enhanced possibility is to do the above and gear up (take an equity loan) at the same time.
This achieves the effect of lowering your interest rates, lowering your monthly installments and provide you with a lump sum of cash to weather storms.
The 3rd Way: Apply for principal, interest or total mortgage deferments for the time being
Announced today, MAS has allowed banks to defer mortgage payments totally or choose interest or principal free mortgage payments until 31st Dec 2020.
This is useful for those who are slightly financially tight but do not have the home equity or need to draw out a term loan.
People from all industries can apply for this package (Unlike a previous UOB package that only applied to certain hard-hit industries) provided that they are not past 90 days due on loan payments as of 6 April 2020.
In the same announcement, there are also schemes to help SMEs with SME loans and those with personal unsecured loans defer or lower their interest rates (As shown below).
The 4th way: Using the little-known TDSR waiver for owners with less than 50% loan on their property value
Announced on 10 March 2017, MAS exempted owners with less than 50% loans on their properties from the stringent TDSR regulations.
This relaxation was due mainly to retirees who were intending to monetise their homes for retirement through equity term loans on their properties but were restricted when TDSR was introduced in 2013.
This method allows owners to draw out an equity loan amount UP TO 50% of the property value without the need to fulfill income or asset pledging requirements; or to include their children’s name as guarantors for the loans in case their advanced age prevents them from doing so.
The 5th way: Sell and downgrade or rent temporarily
When all else fails, it may be feasible to stay afloat with the equity in your home by selling and downgrading to reduce your mortgage repayments and have cash in hand.
Old HDB flats can range from $100K - $200K and can be a temporary way to tide over your challenges and free up funds for debts or cash flow.
If buying a home after selling isn’t possible, there is no shame in renting for the time being until your finances improve.
Alternatively, you may rent out spare rooms or rent out your entire apartment and rent a cheaper place temporarily to generate more cash flow.
In the coming quarters, renting may start proving to be cheaper than owning a property and you get to live to fight another day.
When your situation improves, the market may also have corrected to a level that you can comfortably re-enter into.
In times like these, your private/commercial property can become a source of emergency funds.
Cash on hand is always king and allows you to maneuver and remain solvent when the world seems to be crashing down on you.
I hope you found some ideas useful for however tough moments you’re facing in your life today.
If you’re at a loss about what you can do, drop me a note and I will be happy to help you come up with a plan pro-bono.
If you know someone facing challenging times, share this article with them as they may learn new ways to make ends meet and provide for their families too.
Wishing you all the best in navigating through the choppy waters ahead.
May we all emerge unscathed and safe. #SGUnited
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Stuart Chng, Executive Group District Director at Huttons, is a renowned leader and personality in the real estate industry.
He adores music and can play a few instruments decently without upsetting his neighbours. When not doing so, he enjoys pillow fighting with his son and coming up with silly puns which barely amuses his wife.
Professionally, he is a licensed real estate agent, an avid stocks, options and real estate investor, business owner, team leader, speaker and columnist for several property newsletters and blogs and is often quoted in media interviews on 938FM, Channel 8, PropertyReport, PropertyGuru and other publications.