Home loan in Singapore against property in Australia

[b7277]

Hi,

I am currently based in Singapore. I heard there are few expats who take a home loan here in singapore for a property in Australia thus end up paying 1% - 1.5% on the loan in singapore. How does it work and isnt exchange rate a big factor. Cant get my head around this concept.

Look forward to some explanation. Anyone from singapore here on the forum?

Cheers B7272

 

[Aaron_C]

Yes this is possible. Exchange rate is a major factor - I think it's a silly idea but oh well. Lots of people got burnt back in the 80/90s when they borrowed in low currencies (YEN, CHF) and then got hammered when the rates went down in AUS and the AUD depreciated massively...

 

[alexlee]

Obviously, the exchange rate risk is an issue. In addition, the overseas lender might have a margin call built into the loan based on exchange rate moves.

It becomes a rather large bet on the AUD going up or at least steady.

 

[Peter_Tersteeg]

The really low rates available from some areas are certainly attractive, but they are also risky and there are some qualification criteria.

It's been a while since I looked into this, but as I recall the LVRs available were very low. You could only borrow something like 50% or 60% of the property value. This is essentially to hedge against currency fluctuations.

That's the next risk. If the currency moves against you, you could find that your cheap loan becomes very expensive, very quickly. Even worse, the bank may demand a review and want you to reduce your debt on short notice, essentially like a margin call on shares. This is all completely out of your control.

My advice is that if you are going to borrow to purchase an asset in another country, borrow the money in the same currency as the income from that asset. This goes a long way to eliminating currency risk.

 

[Melbournian]

Hi,

I am currently based in Singapore. I heard there are few expats who take a home loan here in singapore for a property in Australia thus end up paying 1% - 1.5% on the loan in singapore. How does it work and isnt exchange rate a big factor. Cant get my head around this concept.

Look forward to some explanation. Anyone from singapore here on the forum?

Cheers B7272

i know quite a few ppl who do this and my friend whose dad bought him a condo also did it this way. but the ones who do it have like a fully paid off property whether it be HDB or condo or house. they then refinance and take the money across to australia to buy in cash. Majority of these do not take the rental returns and is mainly to park cash or just to use it as a base for their kids. the ones who do get the rental returns well if you paying 1-2% it's pretty good actually - only thing is the forex exposure you need to take into account

since the AUD is low - and you're paying in SGD the risk i believe is minimal if you are working or generating income in singapore. if i am not mistaken you could even get 0.99% at HSBC SG subject to you knowing a few ppl i have a few who is VP there. then again everyone seems to be VPs in Asia
you could possibly take out an option to cover hedge the currency risks depending on how big a loan it is.

 

[Deltaberry]

Hi,

I am currently based in Singapore. I heard there are few expats who take a home loan here in singapore for a property in Australia thus end up paying 1% - 1.5% on the loan in singapore. How does it work and isnt exchange rate a big factor. Cant get my head around this concept.

Look forward to some explanation. Anyone from singapore here on the forum?

Cheers B7272

Anyone who did that 12 months ago would've been burnt severely now with the fall in AUD.

 

[alexlee]

since the AUD is low - and you're paying in SGD the risk i believe is minimal if you are working or generating income in singapore.

AUD is low compared to what? A year ago? Making SGD doesn't mean anything unless you're making enough to meet the margin calls. 10, 20% of the loan value?

 

[Rolf Latham]

right now, i reckon youd have a better outcome with a bungy jump with no cord ...........

forex margin based mortgages are great with a stable or rising currency, but can be a hazard in times as now unless you have bulk cash to make up any margin call

ta

rolf

 

[Melbournian]

AUD is low compared to what? A year ago? Making SGD doesn't mean anything unless you're making enough to meet the margin calls. 10, 20% of the loan value?

depends what the objective is. majority of ppl i know who do this are just buying because they want a place for their kids or a base in australia. then again assuming you making 2K payments as opposed to $400 with 5% and 1% interest rates - why wouldn' you?

AUD is still low compared to when i remember SGD was like 1.2-1.3 to 1AUD back in later 90s if not mistaken

 

[sanj]

AUD is low compared to what? A year ago? Making SGD doesn't mean anything unless you're making enough to meet the margin calls. 10, 20% of the loan value?

AUD/SGD is certainly the lowest i can remember it for a number of years, dropped below 1.13 yesterday

a couple of months ago it was in the 1.25-1.32 range from memory

 

[Rentwithpets]

since the AUD is low - and you're paying in SGD the risk i believe is minimal if you are working or generating income in singapore. if i am not mistaken you could even get 0.99% at HSBC SG subject to you knowing a few ppl i have a few who is VP there. then again everyone seems to be VPs in Asia
you could possibly take out an option to cover hedge the currency risks depending on how big a loan it is.

Citibank also offers option to hedge against currency risks. I haven't done it with borrowed money before...but you can take the SGD, buy the option and convert it all to AUD when the rate is favourable. If option expires you get the interest in SGD, which will probably be very low right now. This could be a good strategy if you anticipate the AUD dropping. I haven't followed this currency pair for a long long time, so have no idea what the trend is now. They also offer different "options" depending on your risk appetite.

 

[Melbournian]

So far singapore is the one with the better interest rate deals. I wish I could do something like that but the banker required me to be pr of Singapore or have property in Singapore to approve the loan.

 

[marks]

Many of the Australian banks have branches in Singapore and they offer moving all or part of the loan to SGD and the SG interest rate. You can then pay the AUD part with AUD (rent) and the SGD part with your local income.

I looked at this in 2007 when I lived there. The loss due to exchange rates margin converting the AUD to SGD was huge. Never ended up doing it. I ended up moving back in late 2008 and I would've been ahead with a short time. Maybe if your were doing this for 5+yrs it could be worthwhile. You could also be faced with a "margin call" situation if the exchange rate moved too much as well.

I was better off using term deposits which gave me AUD at the end (set interest and exchange rate upfront) or wholesale forex providers like ozforex who gave regular customers better rates.

You need to look how much that differential is in $$ rather than % and see what your situation and strategy allows.

 

[kum yin lau]

Hi, been there, done that.

AUD/SGD was 1.04

I bought AUD masssively when it dropped below parity. Lowest I ever paid was 0.88

1.13 is not too bad.

Are they offering SGD loans again? 3 years ago, I tried & the banks were not lending.

I was offered 0.8% rate but the valuation was 10% lower than 'real' value. I sold for 20% higher than the quoted value of the house.

All this for you all to compare.

KY

 

[Rentwithpets]

So far singapore is the one with the better interest rate deals. I wish I could do something like that but the banker required me to be pr of Singapore or have property in Singapore to approve the loan.

Can you open a joint account with someone that is a Singapore citizen or PR?

 

[berkeley]

Thanks for sharing..

I am considering this option. Just bought a oz property... would likely to pay off in sgd 470K which I already borrowed against an existing property at 1.16% (pegg to Sibor). (interest expense deductible from tax) I am most likely to park the rental income in AUD deposit. (any recommendation?)

And someone mentioned selling AUD option.. any one knows which banks do this?

i know quite a few ppl who do this and my friend whose dad bought him a condo also did it this way. but the ones who do it have like a fully paid off property whether it be HDB or condo or house. they then refinance and take the money across to australia to buy in cash. Majority of these do not take the rental returns and is mainly to park cash or just to use it as a base for their kids. the ones who do get the rental returns well if you paying 1-2% it's pretty good actually - only thing is the forex exposure you need to take into account

since the AUD is low - and you're paying in SGD the risk i believe is minimal if you are working or generating income in singapore. if i am not mistaken you could even get 0.99% at HSBC SG subject to you knowing a few ppl i have a few who is VP there. then again everyone seems to be VPs in Asia
you could possibly take out an option to cover hedge the currency risks depending on how big a loan it is.

 

[one world]

and my friend whose dad bought him a condo .

Why did his Dad buy him a condo? Was the kid disabled or something?

Normal people get a job and pay for their own homes.

The only thing my Dad ever gave me was a clip around the ears.

And someone mentioned selling AUD option.. any one knows which banks do this?

You would get a better deal on any large exchange from one of the licensed money changers in Change Alley. I once needed to change several hundred thousand AUD to JPY and USD and was amazed at how easily these guys did it, with a minimum of fuss and form-filling. Going through a bank would have cost me several thousand dollars more. Some of these firms are pretty reputable and have been in business for decades, I am told.

 

[berkeley]

Thanks for your reply!

I guess the kids are going to study in Australia. Its not uncommon for Singapore parents to pay for their children's education + accomodation, rather than renting a place, esp in Australia where the rental can be quite high.

After posting, I realised selling AUD option is not viable as I will earn little (option money) and incur unlimited risk.

I have account with a security firm that deals with FX, and could buy FX with free telegraphic transfer to banks. I could get up to 10 fx points to spot rate. eg. AUD at 1.1550, I could buy at 1.1560

Citibank quote me 50-80 fx points.

I am in a huge dilemma now, to buy AUD at 1.15+ now (pay 1.16-2% interest rate) or go for AUD loan around 6%, with free unlimited switching between SGD and AUD.

For SGD loan, (no switching), my interest cost will allow me to have a good AUD cashflow which I will keep in the bank or buy some AUD investment product. (and no worries if my apartment is vacant).

For AUD loan, I think my interest cost will wipe out all the rental and I may need to top up a few K.

However, if AUD drops to 0.9, and I took a SGD loan (no switching), I will lose around 100K. As I just bought the property at around 100K below last year's price.....

any comment is appreciated....

Why did his Dad buy him a condo? Was the kid disabled or something?

Normal people get a job and pay for their own homes.

The only thing my Dad ever gave me was a clip around the ears.



You would get a better deal on any large exchange from one of the licensed money changers in Change Alley. I once needed to change several hundred thousand AUD to JPY and USD and was amazed at how easily these guys did it, with a minimum of fuss and form-filling. Going through a bank would have cost me several thousand dollars more. Some of these firms are pretty reputable and have been in business for decades, I am told.

 

[DavidMc]

To summarise, even with the 50-60% LVRs, is it possible to get a loan from a SG bank at 1-2% interest rates in AUD using an AU property as security?

 

[berkeley]

I cash out , as in take a loan with my existing singapore property.
Around 90%, as i paid the deposit too soon. The interest incurred could be used as ecpense when filing australia tax even though i took a loan from another property.

I borrowed in sgd. For aud the interest is around 6% as the cost of funds is high.