| BY ESTHER HOON |

Most people, if not all, are acquainted with the idea that residential units with a pool view, a north-south orientation

or on a high floor carry a price pre-mium. While real-estate appraisers and seasoned salespersons can easily estimate this premium, the rest of us could do with a systematic way to establish such a premium. This would be useful when comparable transactions are lacking or if we simply want to do our own home-

work to ensure we get a fair value of the property.

The premiums for units with a pool view, north-south orientation or on a high floor differ across dif-ferent developments. However, there appears to be some thresholds that real-estate appraisers work with. We spoke with senior appraisers from four consultancy firms who declined to be identified.

As a broad guide, these appraisers apply a premium of 0.3% to 0.5% per floor level for private, non-land-ed projects in Singapore. If the price quantum of the subject property is

large, a smaller percentage of 0.3% would be applied and vice versa. Separately, appraisers apply a pre-mium of between 1% and 3% each for units with a pool view or north-south orientation.

In a hypothetical scenario, a sub-ject property is located on the third floor, with a pool view and north orientation. If a recent comparable transaction in the same development is $1 million for a unit on the sec-ond floor, without a pool view and with a west orientation, the appraiser might add a premium of $3,000 for a higher floor and $10,000 each for

a pool view and north-south orien-tation, putting the value of the sub-ject property at $1.02 million.

Smaller units also carry a price premium on a psf basis. The adjust-ment for size is slightly trickier, with about 10% discount applied for every doubling of floor area. For example, a 10% discount might be applied to a comparable transaction that is 500 sq ft in size when the subject prop-erty measures 1,000 sq ft.

An appraiser should preferably obtain at least three comparable transactions to value a property. He will also conduct an inspection of

the subject property and may carry out additional adjustments for phys-ical conditions and other factors. As valuation is considered both an art and a science, another appraiser ap-pointed to value the same property would likely derive a different val-ue. For straightforward valuation cases, the law generally tolerates up to a 5% difference in value by oth-er qualified appraisers should any disputes arise.

A formal valuation would also entail studying the premium trend specific to the development, rather

CONTINUES ON PAGE EP4

Best of both worldsMiddle ground for fi xed and fl oating rate packages PG2

Deal WatchFreehold District 9 condo selling at below $1,400 psf PG5

First impressionsPointers on decorating the entrance to your home PG6

Be your own valuerAre you paying too much for that pool view?

Visit TheEdgeProperty.com to find properties, research market trends and read the latest news

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THE WEEK OF MARCH 7, 2016 718

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There are two categories of mortgage loans in general — floating rate or fixed rate. Banks seldom offer very long tenures for fixed rate mortgage

loans. Such home loans are typical-ly fixed for a certain period of time, ranging from one year to five years, and they revert to floating rates after that.

Banks face a challenge of offer-ing fixed or floating rate packages. The latter are best for a bank as it can simply mark up its cost of funds, typically Sibor (Singapore interbank offered rate), SOR (Singapore swap offer rate), or cost of funds or in-ternal reference and, most recently, pegging to fixed deposit (FD) rates.

Floating rates transfer the interest rate risks to the borrower. For exam-ple, if a bank charges Sibor + 1%, it can be assured of earning the spread of 1%, while the borrower takes on the risk of interest rate fluctuation via Sibor.

Fixed rates are more costly for the bank as they are priced higher and therefore, are harder to sell. Is there a middle ground between fixed and floating rate packages?

Why fixed rates are more expensiveFixed rate packages are almost always more expensive than floating rate packages. As banks are unsure of the future interest rate, they will need to enter into hedging contracts, which incur a fee, to guarantee borrowers the future rates. It is like buying an insurance policy against interest rates going crazy.

For example, if the current borrow-ing cost of the bank is 1.5%, it may decide to create a fixed rate package that is 2%, fixed for three years. However, it does not know what will happen in the second and third years. What if the cost of borrowing were to rise to 3% by then?

This would mean the bank’s profit would be:• Year 1: 2% – 1.5%

(cost of funds) = 0.5%• Year 2: 2% – 3%

(cost of funds) = -1%• Year 3: 2% – 3%

(cost of funds) = -1%• Total over three years = -1.5%

A bank is unlikely to create a product that has a risk of losing money. So, it would typically pay a fee to go into a hedging contract. The bank will buy a hedging prod-uct that would guarantee it 2% for years two and three, and maybe pay a fee of about 0.3% to do so. It is similar to insurance.

Hence, the bank’s profit would be:

• Year 1: 2% – 1.5% (cost of funds) = 0.5%

• Year 2: 2% – 1.5% (cost of funds) – 0.3% (hedging cost) = 0.2%

• Year 3: 2% – 1.5% (cost of funds) – 0.3% (hedging cost) = 0.2%

• Total over three years = 0.9%

A guaranteed profit for each mort-gage loan product is probably more important for the bank than the po-tential to make more money, but it also open to the possibility of losing money.

Birth of innovative DBS FHR and OCBC FDMR packagesThere are many types of floating rate structures, and they are:• Pegged to the bank’s internal board

rate (that is, board rate minus dis-count)

• Pegged to Sibor rate (Sibor + 1%)• Pegged to SOR rate (SOR + 1%)• Pegged to cost of funds (COF + 1%) • Pegged to fixed home rate

FHR12 based on 12-month FD rate (FHR12 + 1%)

FHR18 based on 18-month FD rate (FHR18 + 1%)• Pegged to FD mortgage rate

FDMR36 based on 36-month FD rate (FDMR36 + 1%)

Borrowers want the stability of fixed rates and cheaper floating rates — an almost impossible combination.

Credit should be given to DBS’ product team for creating the FHR package, which addresses the risks

of rising interest rates, yet is able to provide the lower cost of floating rates. OCBC soon followed with the FDMR. These two products come close to “cheap and stable”, depend-ing on a few conditions which we will explain later.

DBS’ FHR was pegged to its 12- month FD rate, and later versions are pegged to the 18-month rate. OCBC’s FDMR is pegged to its 36-month FD rate.

The historical trend of DBS’ FHR12/24 and FHR18From January to September 2008, DBS’ FHR was lower than Sibor. But when Sibor was on an uptrend be-tween January and February 2016, FHR lagged it. This meant lower costs for the borrower if he had taken an FHR home loan package.

However, DBS has also been adjust-ing the spread, so borrowers should look at the FHR + Spread% to figure out whether the rate is worth it.

The historical trend of OCBC’s FDMROCBC followed suit with a mortgage loan package pegged to its 36-month FD rate. It is important to know the historical trend of the FDMR36 as it has a direct bearing on the overall package interest rate.

As we can see, the FDMR36 stayed flat from October 2005 to April 2015, giving depositors very little interest. When the general interest rate envi-ronment is rising (Sibor going up), FD rates tend to lag in going up. When Sibor is dropping, FD rates lag in go-ing down as well.

Hence, there is some advantage in taking FHR or FDMR packages when interest rates are rising, as they tend to lag the rise in Sibor. However, if the interest rate envi-ronment is dropping, it is better to take Sibor- or SOR-based packages as FHR and FDMR tend to lag in re-ducing their rates.

The historical three-, six- and 12-month FD trendsFrom Chart 3, we see that between the three- and six-month FDs, there is

EP2 • THEEDGE SINGAPORE | MARCH 7, 2016

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THEEDGE P R O P E R T Y PROPERTY TAKE

Finding middle ground between fixed and floating rate packages

| BY PAUL HO |

Historical view of 36-month FHR and three-month Sibor

Historical trend of FHR18, FHR and three-month Sibor

Average of 12 banks’ three-, six- and 12-month FD rates from January 2010 to January 2016

Chart 1

Chart 2

Chart 3

CONTINUES ON PAGE EP4

If you wish to contribute columns, please write in to propertyeditor.sg@bizedge.com

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Sibor rises,FHR rates lag

3-month Sibor

FHR

FHR18 1.252

0.67500.6000

Sibor rises,FDMR rates lag

4.003.503.002.502.001.50

00.501.00

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3-month Sibor36-month FDMR

36-month FD

Date (%)

Before Nov 8, 2005 0.875

Nov 8, 2005 0.925

March 9, 2009 0.800

Oct 1, 2010 0.700

Nov 1, 2011 0.650

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3-month FD

6-month FD12-month FD

Sibor drops,FDMR rates lag

THEEDGE SINGAPORE | MARCH 7, 2016 • EP3

a gap of 0.1%. Between the six- and 12-month FDs, there is a 0.15% to 0.2% gap.

The 12-month FD rate is about 0.35%. The difference between the 24-month and 12-month FD is perhaps +0.2% (that is, 24-month FD should be around 0.35% +0.2% ~ 0.55%). The difference between the 36-month and 12-month FD is perhaps +0.4%, hence an estimated re-lative fair value is 0.35%+0.4%=0.75%.This gives you an idea of how much these differ-ent-duration FD rates are likely to be priced.

However, it is uncertain how the Monetary Authority of Singapore (MAS) calculates these average FDs from 12 banks. Are they based on deposit-volume-weighted FD rates or simply based on published rates averages.

What banks typically offer for their FDsA look at OCBC’s website, as at Feb 29, showed the following FD rates:

• 12 months — 0.25% (Promotion: 12 months from $20,000 to

$999,000 — 1.7%)• 18 months — 0.5%• 24 months — 0.55%• 36 months — 0.65%

It seems that DBS offers better rates for its 24-month FDs — 1% — than OCBC’s 36-month rate — 0.65%. A look at UOB’s website reveals that it pays almost similar FD rates as DBS and OCBC. However, Maybank pays higher interest rates than those three banks. Maybank’s website, as at Feb 13, in-dicated a 2% interest rate for its 24-month FD. Meanwhile, CIMB pays 1.95% (for de-posits of $20,000 and above) for its 24-month FDs whereas OCBC’s 36-month rate ($5,000 to $20,000) is 0.65%.

In short, depositors in OCBC, DBS, UOB are underpaid by more than 1% in FD rates.

When depositors finally realise that there is a big difference whether they deposit with DBS, OCBC, Maybank or CIMB, local banks may have to raise rates or lose their FD funds to other banks that pay much higher interests.

A few reasons explain the differences:• Brand premium (people knowingly and will-

ingly accepting less)• Fear, ignorance and inefficient market ( people

do not know they have a choice and are fearful of new encounters)

• Convenience (people knowingly and will-ingly accept less because it is convenient)

However, these reasons are dominant factors that may need further study.

It is possible that depositors at the local banks will continue to accept a much lower FD interest rate. Hence, mortgage loan bor-

rowers pegged to FHR and FDMR structures may have good savings when the interest rate trends gradually upwards.

Is the FDMR or FHR safe?Depositors in Singapore are very loyal and risk-averse. Many have the mistaken belief that its banks are safer than foreign banks in the city state.

In Singapore, depositors’ funds are insured up to $50,000. What this means is that if you deposit between $5,000 and $50,000, even if a foreign bank were to go bankrupt, you would not lose your deposit.

All qualifying full banks and finance com-panies are members of the Deposit Insurance scheme, except those exempted by MAS.

Paul Ho is chief mortgage consultant of iCompareLoan. He can be contacted at paul@icompareloan.com.

THEEDGE P R O P E R T Y COVER STORY

Typical premiums for pool view, level and orientation may not apply to high-end projects

FROM PAGE EP2

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Singapore depositors are loyal and risk-averse

than simply applying the broad guide. Take the case of A Treasure Trove, one of the most transacted resale projects last year. A unit on the 11th floor was sold for $1,049 psf last De-cember. In the same month, another unit on the fourth floor of the same stack was transacted at $1,020 psf. This anecdotal evidence suggests a compounded premium rate of 0.4% per level in the development. An ap-praiser would look for more such evidence while conducting a for-mal valuation.

Other anecdotal evidence sug-gests that a pool view in the devel-opment carries a premium of up to 4%. A 1,044 sq ft, low-floor unit with a pool view changed hands at

$1,149 psf last October. Meanwhile, another unit of the same size on the same floor but without a pool view fetched $1,121 psf just two days ear-lier. The premium for the pool-view unit works out to about 3%. Sepa-rately, a 1,206 sq ft, low-floor unit with a pool view found a buyer at $1,070 psf in the same month. An-other 1,206 sq ft unit just one floor below was transacted at $1,020 psf two months later. After adjusting for floor level, the premium is esti-mated at 4%.

On the city fringe, similar trends were observed for City Square Resi-dences, another project with a high resale volume. A 1,518 sq ft unit on the ninth floor was sold for $1,318 psf last May. Another unit on the

24th floor of the same stack and size was transacted at $1,370 psf last June, suggesting a compounded pre-mium rate of 0.3% per level. There were no resale transactions for low-floor units with a direct pool view in 2014 and 2015.

Notwithstanding this, one ap-praiser cautioned that such broad guides usually do not apply to high-end projects. The percentage adjust-ment for high-end properties could be significantly different and needs to be computed on case-by-case ba-sis, he notes.

There has been talk of some devel-opments defying these trends, with big units commanding higher psf prices, owing to their limited supply or lux-

ury appeal. PropNex Realty CEO Mo-hamed Ismail Gafoor says he hardly sees such cases, especially in a tough market environment. “One of the few exceptions would be penthouses, as they are limited in supply and offer premium views. Large units in devel-opments with an exclusive number of apartments may also carry a price premium. Even so, the price premi-um would be marginal,” he notes.

ERA key executive officer Eugene Lim is of the same opinion. “In to-day’s market, bigger units take much longer to sell, owing to their larger price quantum. More than 75% of the transactions nowadays are $1.5 mil-lion and below. The Additional Buy-er’s Stamp Duty on a higher-priced

property is very painful for the buy-er. And if the buyer is a foreigner, it would mean a 15% ABSD. As a re-sult, it would be impractical for the seller of a large unit to price it high-er than smaller units [on a psf ba-sis],” he says.

Alan Cheong, head of research at Savills Singapore, also singles out penthouses as the exception to the trend. He notes that if roof gardens and ancillary spaces are excluded, the psf price of penthouses is higher than for conventional units. “Pent-houses are considered a luxury be-cause they carry a high quantum value and buyers are often the well-heeled, who choose opulence over functionality,” he adds.

FROM PAGE EP1

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Despite their large size, penthouses may command higher psf prices as they are limited in supply and offer premium views

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POOL VIEW

NORTH-SOUTHORIENTATION

PER LEVEL

1%to 3%

1%to 3%

0.3%to 0.5%

Price premium for a pool view and other attributes, all other things being equal

EP4 • THEEDGE SINGAPORE | MARCH 7, 2016

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PROPERTY TAKE

THEEDGE SINGAPORE | MARCH 7, 2016 • EP5

THEEDGE P R O P E R T Y DEAL WATCH

| BY TAN CHEE YUEN |

More prime district units surfaced as bargain deals. A 1,206 sq ft, three-bedroom unit at Parc Emily has been listed on TheEdgeProperty.com at $1.68 million, or $1,393 psf.

The Edge Fair Value, a valuation tool on The EdgeProperty.com, puts the indicative valueof the property at slightly above $1,500 psf. Property investors might also be interested in

this unit, which is understood to be tenanted at around $4,100 a month until 2017.

The property’s latest transaction was in No-vember 2015, when another 1,206 sq ft unit on a low floor was sold for $1.97 million, or $1,634 psf. This represents a 20% premium above the subject property’s asking price of $1,351 psf. The last time prices for similar-sized units dipped below the $1,400 psf mark was in May 2010.

Parc Emily is a freehold condominium in prime district 9 located on Mount Emily Road.

Completed in 2008, the 295-unit development is a short walk from the Wilkie Edge shopping mall and within 400m of the Rochor MRT sta-tion on the Downtown Line. Schools within a 1km radius of the property include Anglo-Chi-nese School (Junior), St Margaret’s Prima-ry School, Stamford Primary School and LA-SALLE College of the Arts.

There were four rental contracts involving 1,200 to 1,300 sq ft three-bedroom units in Parc Emily in 4Q2015. Monthly rents for these con-

tracts ranged from $4,700 to $6,400.

Scan the QR code for value deals at Parc Emilyand nearby projects

As TheEdgeProperty.com is not party to the contract between the client and agent, it is unable to verify information provided by the agent

Freehold District 9 condo selling at below $1,400 psf

The 1,206 sq ft unit at Parc Emily is understood to be tenanted at around $4,100 a month

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Recent rental contracts for 1,200 to 1,300 sq ft, three-bedroom units at Parc Emily

Historical transactions of 1,206 sq ft units at Parc Emily

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MONTHLY RENT LEASE DATE $ $ PSFNovember 2015 4,900 3.90October 2015 5,400 4.30October 2015 6,400 5.10October 2015 4,700 3.80

CONTRACT DATE PRICE ($ MIL) PRICE ($ PSF)Nov 27, 2015 1.970 1,634April 8, 2013 2.330 1,933June 20, 2012 1.870 1,551May 24, 2011 1.950 1,617July 22, 2010 1.870 1,551April 15, 2010 1.908 1,583

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EP6 • THEEDGE SINGAPORE | MARCH 7, 2016

THEEDGE P R O P E R T Y INTERIOR DESIGN

Make first impressions

count

Just as you would take the time and care to be appropriately dressed and groomed before you leave for the office or go out on a date, how you decorate the

foyer or entrance area of your home is important for making a good first impression.

The entrance is the first space that welcomes a visitor into your home. It is also the first place you step into when you return home after a hard day at work.

Hence, it really pays to have a point of view here depending on how you want your family and visitors to feel when they first step into the house. It could offer a warm tropical em-

brace or a cheerful funky vibe. Or something in line with the homeowners’ personality, which could run the spectrum of bohe-mian to minimal and austere!

No matter what you choose, keep in mind that nothing says welcome more than a sense of style and heaps of personality at the front door.

Start with that stand-out piece of furniture. Always have an anchor piece at your entrance. Choose something that can store away your keys, mail, briefcase and more — so, it’s best if it comes with some handy drawers. It could be a vintage French commode or a beaten-up butcher’s table from an old farmers’ market. Just make that piece of furniture work for you.

Light it up!An entry vestibule must be appro-priately lit at any time of the day. A modern angle poise lamp comes in handy when you need to check your mail while a big crystal chandelier overhead screams drama. There are so many lighting choices out there, so there is no excuse for keeping your guests in the dark when you greet them.

| BY RAYMOND LEE |

A vintage Anglo-Indian teak table anchors the private lobby of a condo designed by the writer

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pensive and polished, use glossy paint. I believe a house should have different rooms for differ-ent moods. Sometimes you want to feel refreshed, and sometimes you want to exude sophistication.

Art worksHanging that all-impressive art-work, whether it is an original

oil painting by your favourite artist or a large photographic print from your recent holiday to Rome, is key to making the right impact at any entrance. Sometimes, all you need is a rare piece of textile or fine old sarong from grandma’s cupboard. Vintage movie posters saved from a visit to a local flea market or in-expensive black-and-white posters from Ikea can be good options too.

Add a mirrorA mirror at the entrance is great for a last-minute check before you leave the house. A well-placed mir-ror also helps reflect more light into a room, making it look brighter and feel more spacious. Your choice of mirror, whether modern and bold or elegant and glamorous, will make that welcome more sparkly.

Texture underfootA rug can make an immediate state-ment. Whether modern and jazzy or exotic and oriental, it adds colour and texture to a foyer. It also works per-fectly on any flooring, be it marble, timber or tiled, providing contrast and plush comfort as you walk in.

Accessorise, accessoriseAccessories are the crowning touch to any space and your foyer or en-trance is no exception. For example, a hand-carved box on your foyer table not only looks pretty but helps you keep keys and access cards neat and tidy. Dramatic and bold sculptures placed in a corner give a sophisticat-ed and arty look. A large and leafy houseplant in an elegant planter is a great finishing touch too. Even an umbrella stand can make a positive difference to that space.

Raymond Lee is an interior designer and founder of Xceptional Interiors. He can be contacted at raymond@xceptional-interiors.com, or check outwww.xceptional-interiors.com.

This story first appeared in TheEdge-Property.com

Colour it rightColour can make the difference be-tween ho-hum and high style. Paint the entrance area in one of your fa-vourite colours. For a space to feel ex-

A smartly framed black & white photo and handcrafted glass vases by Guaxs add sophistication (print and vases from Gudang BSC)

This ebony-based table lamp by Jose Leite de Costa exudes an understated elegance

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