(19-12-2015, 12:01 PM)BlueKelah Wrote: There will be more defaulted property loans once sibor doubles. Means the monthly repayment almost doubles going from 1.13 to 2 percent. Most people salary wont be double in a year...
Gonna see some panic selling in the new year. The tide is going out...
sent from my Galaxy Tab S
A doubling of SIBOR to 2%, assuming you are on a SIBOR+X% loan will see someone who loaned 80% of a 1 million property, pay 0.01*800k = 8000dollars extra interest every year. This translates to ~667sgd/month, not exactly requiring an average salaried household (median income ~8000sgd/month) to double their income to cope with it. They may however need to do some of the following: (1) stick with a holiday in an ASEAN country, (2) downgrade or sell their car/s, (3) give up extra-curriculum activities like piano for their kids, (4) Lower down their rental expectations to secure a tenant even though it may become cash flow negative after accounting for interest payment.
On the contrary, if one were to sell - for every 2% drop in price (every 6 months), a lelong sale on a 1mil property incurs a 20k capital loss. These households wouldn't be able to get any tax credits for losses like the way companies do. A rational being might think that it is better to cut loss by incurring the capital loss, but the human heuristic of loss aversion most probably will make the general crowd not sell unless he is
forced to, by actions that is beyond his expectation. An example would be if the breadwinner in the household is retrenched due to economic restructuring, then that is a different issue altogether..
One might also think that banks will ask loan owners to top up when LTV is breached. But doing that means banks have to start reporting a NPL increase on their books and markets don't like that - Share prices drop, Board members start to question and heads will roll. Banks generally have larger holding power than individuals and do not need to do lelong sale even in an auction.