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The government rolled out new rules regarding the use of the Central Provident Fund (CPF) and housing loan with effect from 10th May 2019. This provides property buyers with greater flexibility, without compromising the duration of their lease and their retirement funds. It is a pivotal shift from just focusing on the remaining lease, to whether a property can last a homeowner for life. Some speculated that with these new rules being put in place, it will spark the demand in resale markets for older properties and encourage people to plan for their retirement.

There were many public debates with regards to the depleting leases of ageing HDB flats and this resulted in the change in rules for the use of CPF and housing loan in an effort to “increase the liquidity of the resale market, making it easier for people to buy and sell old flats” as mentioned by Prime Minister Lee Hsien Loong last August.

Below is a table which summarises the change in rules:

Old Rules New Rules (WEF 10 May 2019)
HDB flats must have at least 30 years left on their leases for CPF savings to be used for the purchase HDB flats must have at least 20 years left on their leases for CPF savings to be used for the purchase
The property lease must cover the youngest buyer till the age of 80 The property lease must cover the youngest buyer till the age of 95
CPF restrictions kicked in when a flat has between 30 years and less than 60 years left. The 60 years restriction is being removed
Can withdraw any amount above the Basic Retirement Sum (BRS), if they pledged a property with a remaining lease of at least 30 years. The remaining lease will be raised to at least 40 years, to ensure that their flat covers them to age 95.

 

CPF members had to set aside the BRS before excess Ordinary Account monies could be used to purchase subsequent properties. CPF members who do not have a property that covers them till age 95 will need to set aside the Full Retirement Sum – twice the BRS – before they can use excess OA funds to buy other properties.
Pros and cons of the new rules

There are always two sides to a coin, nothing in the world is perfect and same for these new rules. They do have their pros and cons as there is no one policy that can satisfy all.

Pros:

  • Increase demand for old flats

The new rules will help to widen the pool of buyers who are able to use CPF to purchase an aged property. This is extremely beneficial to those who wish to live near their parents who are living in a mature estate and those who are looking for a larger and more spacious apartment. This will, in turn, unlock the additional value of older properties and inject more liquidity into the resale market for older HDB flats and private leasehold properties.

With an easier transaction of older properties, the homeowners of aged properties will greatly benefit as they no longer faced the challenges of selling the property at a mutually acceptable price for both buyer and seller. However, the prices of these aged properties are not expected to spike now.

The new rules will also help buyers who previously face difficulties in financing their older properties due to the restrictions imposed for the usage of the CPF funds. With fewer restrictions in place with the usage of CPF for both the buyer and seller, the demand for aged properties might start to increase.

  • Stabilise prices

Since the new rules of CPF and housing loan are likely to drive up the demand for the older resale flats, hence this could help in reducing the price gap between the newer properties as compared to those aged properties.

The new rules also allow buyers to finance their older leasehold estates, this will help to support the valuation. Therefore with a smaller price gap and more convenience in financing their aged properties, this will, in turn, drive a stabilising effect on prices.

  • Allay fear of people owning ageing assets

Most of the owners of properties at Bedok Court, Horizon Towers and Mandarin Gardens (which are some of the aging 99-year leasehold properties in Singapore) have failed in their recent attempts at collective sales bids.

With these new rules in place, it will provide more convenience for such collective sales since they will be able to hold the value of their properties longer and this might actually alleviate the fear that Singaporeans have. This is especially the case for those who own properties with remaining leases of 30 years or less, where financing options were limited due to the shorter leases.

  • Help older buyers to plan for retirement

Under the new rules, older couples are able to withdraw more of their CPF savings to be eligible for a bigger loan on their older resale flat. Hence, this would encourage them to plan for their retirement, since they might want to make use of these new rules to use their CPF savings to finance their property purchases in order to have more future cash reserves.

Cons:

  • Discourage younger buyers to purchase older flats

Let’s compare the differences between a middle-aged couple and a young couple who both wish to purchase an aged property.

Let’s take for example, John (43 years old) and Jennifer (40 years old) who want to buy a 4-room HDB resale flat with a remaining lease of 55 years at a price of $450,000. The lease will be able to cover the youngest buyer, Jennifer till she is 95 years old.

Previously, they could only use their CPF to pay up to 80% of the valuation limit which is the property price or valuation, whichever is lower, which amounts to $360,000. They could also take an HDB loan of up to 90% of the property’s value, which translated to S$405,000.

With the new rules, the couples would be able to tap on the CPF to pay up to 100% of the valuation limit, if they have not set aside the Basic Retirement Sum. The HDB loan cap still remains the same.

For a younger couple (assuming both aged 25) who want to purchase an aged property with 65 years of lease remaining can use their CPF to pay only 90% of the valuation limit, down from 100%. They would also be entitled to a smaller loan limit of 81%, compared to 90% for the HDB loan cap.

Therefore, these new changes are disadvantageous to the younger generation purchasing aged properties since they are unable to use their CPF to the full valuation limit. Thus, this discourages them from buying older leasehold properties as they would not be able to own the property for a lifetime which is the new benchmark age of 95.

  • Limited pool of buyers

Since the new rules will discourage younger buyers from purchasing old resale leasehold properties, prospective buyers for such properties will therefore be limited to those older ones.

However, the pool of buyers of such leasehold properties will still be limited to older buyers, as they now have fewer restriction on their CPF usage when it comes to purchasing aged leasehold properties.

  • Might not be the same for all

Though commercial banks are likely to follow the steps of the government’s change in policy to extend the home loans for aged leasehold properties, this is still subjected to the individual banks’ terms and conditions. However, in the private housing market, the loan-to-value (LTV) limits that were imposed as of 6th July 2018 still exist.

Conclusion

With the new rules rolled out by the Ministry of National Development (MND) with regards to the usage of CPF and housing loan, some are bound to benefit from this while others may not. However, according to the ministries, majority of Singaporeans will not be affected by these changes since 98% of HDB households and 99% of private property households own homes that will cover them till they are 95 years old.

Therefore, these new rules provide home buyers with greater flexibility and help to ensure that more Singaporeans will be able to have a roof to live under for a lifetime.

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Source: URA

A conversion of office spaces to residential and hotel spaces in the CBD, an increase in the amount of green spaces, improved connectivity in the city and an enhanced focus on the Arts – these are some of the many changes that the URA Draft Master Plan 2019 has in place.

The URA Master Plan is a land use plan that details the government’s plan for Singapore’s development in the next 10 – 15 years. Besides being a base for the government’s future plans for the country, it also serves to provide relevant and useful information for real estate developers, property investors and people interested to purchase property. With the plan, it is easy to locate areas in which property value will appreciate over time, due to government intervention, and analyse how future developments will affect its surroundings.

Although changes that have been detailed in the URA Draft Master Plan 2019 are not final, most of these changes are likely to be implemented in reality. What will these changes mean for you as a Singaporean, and how can you make full use of the Master Plan to maximise your investments?

The following are some of the main changes; they also provide a rough idea on how to maximise usage of the plan.

  1. Conversion of offices in the CBD to residential spaces and hotels

Selected office spaces in the CBD and Marina Bay area will be converted to hotel and residential spaces, rather than being used only for business. This decision follows a steady increase in CBD Grade A office rental prices in recent years. Grade A CBD office rents stand at $10.63 psf as of Q1 2019, which marks a 3.7% QoQ increase, and hitting a decade high on rent prices, according to JLL’s estimates. Among all the CBD office spaces, rents in Marina Bay stood at the highest, standing at $12.54 psf, marking a 4.8% QoQ increase.

“For the CBD, the vision is to continue to transform it into a well-connected and vibrant mixed-use district offering a dynamic and innovative business environment,” URA explained on their decision to broaden the CBD’s zoning.

To people like you and me, an increase in the supply of residential spaces in the CBD could mean more affordable residential areas in the city’s business hub, which in turn also increases convenience by decreasing travelling time to work. Having your home in the CBD also allows easy access to many parts of Singapore, with a plethora of MRT stations just a stone’s throw away, and also increases the accessibility to many amenities around the CBD area. If you are looking to invest, this might be your most opportune time to purchase a residential property in the CBD for the purpose of renting it out to office workers in the CBD.

  1. Increase in green spaces

About 1,000 hectares of green spaces will be built, adding to the current 7,800 hectares of green spaces in Singapore currently. These green spaces include parks, nature areas, community gardens, nature reserves and park connectors. The eventual aim of this would be to have at least 90% of households within walking distance of a park.

In a broader sense, Singapore is expected to boast 400km worth of park connectors in total over the next 15 years.

This news comes as a great one in terms of improved walking accessibility for us all, and more green spaces mean more public areas for relaxation, gatherings, and a cooler and more aesthetically pleasing environment. Properties with increased walking accessibility and green spaces around it are also likely to have an increase in prices due to the appreciation of the intrinsic value of these properties.

  1. Improved connectivity and focus on active mobility

More than 5km of cycling paths will be added to the existing 22km network already present in central Singapore. This comes in conjunction with the possible plan to transform Robinson Road, a current bus corridor connecting two big business hubs Raffles Place and Tanjong Pagar, into a transit-priority corridor, by allocating more space to buses, cycling paths and pedestrian walkways.

Another change in accessibility is highlighted by the plan that by 2021, all buildings in the downtown city area will be within a 10-minute walk to an MRT station. This comes hand-in-hand with the many plans to expand the city’s public transportation system, with the addition of many different subway lines and stations on existing lines.

Improved connectivity in the city will benefit everyone who commutes to anywhere for whatever purpose. Excessive travelling times will be cut, and shorter commuting journeys mean more time for the important things in life.

In the near future, you can finally fulfil that dream of cycling comfortably and safely in Downtown Singapore, with the many improvements and upgrades in the cycling paths and amenities. This could possibly be an alternative for both private cars – which are costly and heavily increases road traffic – and public transportation, which can be time-consuming and squeezy during peak hours. Building a car-lite Singapore not only improves congestion, but also improves the environmental condition of Singapore, by reducing carbon emissions from private vehicles, hence allowing an improvement in air quality.

  1. Revitalisation and rejuvenation of areas

Paya Lebar Air Base will be vacated, freeing up 800 hectares of land, which is expected to be developed into a new HDB town.

The stretch from Pasir Panjang to Marina East will be developed into a 2,000 hectare Greater Southern Waterfront, with this project set to begin within the next 5 – 10 years. This will be a significant waterfront node that will give the district its own unique identity.

Several locations including Pasir Panjang Power District, the former Bukit Timah Fire Station, and the Beauty World area, which will be transformed into new lifestyle and heritage destinations.

Downtown city heritage and arts districts in Bras Basah, Bugis, Civic District and Fort Canning will be expanded and enhanced, with improvements to be implemented over the next few years.

These improvements in the arts scene will mean more outlets for expression, more areas and structures to interact with the arts, and an overall improvement in Singapore’s aesthetic beauty and involvement in the arts. The land that Paya Lebar sits on now could possibly be a BTO location if you are looking to settle down in the near future, while the development of a Greater Southern Waterfront signals a new destination for waterfront activities and living, spicing up the Southwest area, and giving it a new, non-industrial lease of life.

In conclusion,

The URA Draft Master Plan 2019 details several plans for Singapore’s future land use, including but not limited to:

  • A shift of focus from office-intensive spaces in the CBD, to a mixed-use district which includes housing and hotel options
  • Increase of green spaces in the city
  • Improved connectivity and encouraging active mobility and a car-lite Singapore
  • Rejuvenation of old, and creation of new heritage and arts districts

These changes come in conjunction with the addition of several new lines in Singapore’s subway system, and increases transportation convenience for everyone, while building a car-lite Singapore. A rejuvenation of the Arts in Singapore also allows for a greater involvement in the scene, which signals an improvement in the current focus on the Arts. If you’re looking to invest or looking for a new location in the city to relocate to, this might be an opportune time to make use of the land use plan to maximise your earnings or to find a suitable location to relocate.

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A simple way to generate a stable source of income is to invest in rental properties. However, pros and cons are unavoidable. Hence, this article provides you with six great tips for you to ensure it goes as smoothly as possible…
The primary objective of getting a rental property is simple: to generate a stable source of income. Many have been doing this as a form of investment. Just like all other investments, there are bound to be both pros and cons when investing in a rental property.  Needless to say, not all rental properties are income-producing and definitely, not all are a good investment. Now you must be wondering which particular rental property is a worthwhile investment and one that allows maximum returns. The following six tips may not definitely guarantee you good investment returns, more or less you would not go too wrong and be on the safe side. Invest In Affordable And Completed Properties

You should always start investing in a property that you are able to afford so that you would not be troubled by the excessive debt that you would have to pay off. This is because the objective of getting a rental property is to ensure that there is cash inflow and not have the profitability of the rental yield sabotaged.

Completed properties are considered to be better since you would be able to rent them out quickly without having to wait. There may be unforeseen circumstances that might happen to uncompleted properties; delays are common and what’s worse is if the uncompleted property is never completed.

Note The Property Cycle

It is important to understand which phase of the property cycle the market is in now as it may determine how quickly you are able to secure a tenant and whether it will allow you to secure a lucrative rental yield. You may ask what the property cycle is, and which phase is the best to invest? First, let’s understand the property cycle in Singapore, as there are 4 phases involved.

The first phase is the value stage. This is the phase where prices are flat and the market is stable; a small amount of investors would also start entering the market anticipating for future price surge. The second phase is growth – where economic activity starts to pick up, landlords start to ask for higher rents and competition for prime locations rises. A large amount of investors will start to enter to the market.

The third phase is the peak, where prices record rapid gain, bank lending rates decrease thus increasing the take-up of mortgages. With this, the number of investors in the market surges. The last phase is correction: this is the phase where real estate prices follow a downward trajectory. Investors gradually withdraw from the market, rents fall and the number of vacant premises rises.

With this knowledge, we can now dive deeper into the analysis. There is actually no specific stage that is the “best” for investment since at any stage of the property cycle, it is possible to make a sound investment. This is because the property cycle is not the only determining factor when it comes to real estate prices and there are many other factors that would affect your purchase.

Familiar Location

A location that you are familiar with will allow you to better understand the advantages and disadvantages of the location. This will allow you to make a more informed choice and that will ensure good rental yield or capital appreciation.

According to the rental market report in 2018, properties in the city fringe are rather popular and properties that are close to amenities are a good bet. Why is the city fringe so popular? This is because the close proximity of all the different MRT stations ensures that traveling is convenient, properties at city fringe are of great value since they are still affordable. It is also a precinct of possibilities with numerous amenities such as cafes, schools, and libraries for people to enjoy.

Secure Financing And The Right Mortgage

There are many different types of mortgages in the market, so it is important to choose the right mortgage that suits you. At the time of writing, the US FED rate is remaining relatively constant and FD rates are on the rise. Given this information, SIBOR-rate loans could be a better choice instead of choosing a loan package with its interest rate pegged to a bank’s Fixed Deposit (FD) rates. This is because there will be a significant amount of cost savings if the FD pegged rates packages were to have an interest rise.

For the uninitiated, you can always get a free consultation with the experts, who will help you navigate through the technical jargon and act in your best interest.

Good Agent

Property agents are the ones people think of when it comes to buying, selling or renting a property. Whether you will get a good price or not, the agent plays a very important role, thus it is important to have a good agent. A good agent would be able to help you secure a tenant quickly and screen the prospective tenant since they would make the effort to curate for the best landlord-tenant match.

Tenancy Agreement

A tenancy agreement is a detailed and legally-binding document. In the event of any legal disputes, the final outcome often hinges on this document. Therefore, it is very important to ensure that there is a tenancy agreement in place between the landlord and the tenant so that the rights of both parties are protected.

Conclusion

With the aforementioned pointers taken into account when you are thinking of financing your rental property, it will definitely help you determine whether or not you are buying into a sound investment. That being said, all investments are still coupled with risks and rewards, so be careful before making any decisions.

This article was first published on PropertyGuru.

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Do you know the real potential of your property? Generally, every real estate owner or prospective buyer only has their personal (or even perceived) interests at heart. What this means is that one decides to buy a property because he/she fancies it based on merely physical characteristics, or even on an unfound basis that it is a ‘good investment…and its value will go up in the future’ without even doing any analysis.

If you are someone like the above description, then this article is for you.

This article is designed to allow you to understand the right mindset to put yourself in, with respect to any future real estate investments or developments that you wish to undertake. As such, therein lies the concept of ‘Highest and Best Use’ – a strategic mindset to utilise on a preliminary basis when you identify a real estate opportunity (it is used by every developer/investor as well, intentionally or not).

The ‘Highest and Best Use’ analysis can be defined as a concept of producing the highest value for a property based on the target of maximum productivity. By maximum productivity, what we meant is the reasonable, probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value.

This concept is usually used by developers in analysing a site of land and planning the potential development on it that can yield the highest results. Nevertheless, should a site already contain improvements, the highest and best use may determine to be different from its existing use. Simultaneously, besides profit-making, this analysis style also takes into account the contribution of a specific use to the community and community development goals, as well as the benefits of that use to individual property owners.

Keeping all that in mind, we will now proceed with a brief overview of how to determine the maximum potential of a property or land use. Generally, developers often have to embark on a three-step analysis involving property analysis, entitlement and constraint analysis, and market analysis. In order to be considered as the highest and best use of a property however, the expected potential use must pass a series of tests. The exact definition of highest and best use varies, but generally the aforesaid ‘tests’ are as follows:

  1. Legally permissible
  2. Physically possible
  3. Financially feasible

Legally permissible

In this aspect of the highest and best use analysis, we should only consider those uses that are legally permitted. This is a highly important first step in deciding a prospective real estate investment opportunity. There is a need to take into consideration and understand what is allowed to be built as well as the uses that are not permitted by zoning, land-use planning, and also uses forbidden by the government regulations and any other uses that are prohibited by the deed restrictions.

Nevertheless, there is the possibility of leeway in the regulations for flexible changes as well. As such, although there are some uses that are currently not legally possible, it is important to conduct proper due diligence as there may be a reasonable prospect that the regulation, zoning, deed restriction, etc. which can be changed with certain fee for a proposed use.

Physically possible

Any potential use must be physically possible given the size, shape, topography, and other characteristics of the site. Of course, what is physically possible can be determined by what is legally permissible as well. Rules and legislations have generally predetermined what is allowed and what is not for a specific site thus making things easier for investors or developers.

Nevertheless, it is important to check the maximum GFA, space efficiency and net lettable area (NLA) allowed for a specific development for maximum productivity as well.

Financially feasible

The highest and best use of a property also must be financially feasible:  whereby the proposed use of a property must generate adequate revenue to justify the costs of construction plus a profit for the developer. This is highly important in order to ensure the sustainability and profit-driven ability of a specific project.

Nevertheless, should the property on site have limited remaining economic life (for example, expiring lease or approaching economic obsolescence), the question of financial feasibility becomes a question of the maximally productive use of the site – how to improve and make do with the current plot of land.

On the other hand, if the aforesaid situation worsens and the value of the land as vacant exceeds the value of the property as improved less reversion/demolition costs, then redevelopment of the site becomes the maximally productive use of the property, and continued use of the existing improvements, which can be said to not be the highest and best use of the site, is considered to be financially unfeasible.

Maximum Productivity

Finally, the aforementioned three factors all will be deemed to contribute to this final element; the maximum productivity of a project. Similar to analysing financial feasibility, this factor analyses the prospects of highest returns on a project. As such, depending on the investor or developer, the highest returns can mean represent different gauges – IRR, NPV, ROE, ROA, development profit or residual land value.

All in all, we hope that we have given a clear overview of the concept of Highest and Best Use analysis. Although of course it is being made out of assumptions and opinions, keeping in mind this train of thought would greatly assist you in yielding the best results one way or another for yourself in any real estate projects.

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There are certain conditions to inheriting a property. For instance, the inheritance must be under the terms of a will by the deceased or in cases where there is no will, it has to be by the possession of the Interstate Succession Act.
To whom does your property go to after you pass on? Are you entitled to any form of property inheritance? Here is what the Singapore law says about it. What Is Property Inheritance?

Property inheritance is the practice of passing on property to another person upon the death of an individual. The person who was entitled to receive a share of the deceased individual’s property is called the heir. The inheritance is either under the terms of a will or by the possession of the Interstate Succession Act which will be abided to if the deceased has no will.

The Importance Of Creating A Will

The owner of any property or land may pass on their property through a valid will. To be valid, one must be at least 21 years of age and the will has to be signed in the presence of two or more witnesses. It gives the testator (the person writing the will) the power to decide who he wants to pass on his property to. This way, you can legally ensure where your property goes after your death.

If you do not have a will, it means you have died “intestate”. When this happens, the intestacy laws of the state will determine how your property will be distributed. In Singapore, these rules are stipulated in the Intestate Succession Act, and if you are a Muslim, the rules apply under the Administration of Muslim Law Act.

The interstate laws are simple. It basically depends on two things – the relationship of the beneficiary with the deceased and how many beneficiaries there are. The order of what the beneficiaries are entitled to are as follows:

Beneficiaries What they are entitled to
Only spouse The whole estate
Only parents Estate is divided equally between them
Spouse and children Spouse is entitled to half and the other half is divided equally between children
Spouse and parents Spouse is entitled to half and the other half is divided equally between parents
Only brothers and sisters Estate is split equally amongst them
Only grandparents Estate is divided equally between them
Only uncles or aunts Estate is divided equally between them
If none of the above apply Government is entitled to the estate

Singapore’s law on inheritance with regards to owning an existing property:

Source: CNPLaw LLP

If you inherit a private property and own an HDB flat, whether you can retain ownership of both properties depends on your resident status and if your HDB flat is still within the Minimum Occupation Period (MOP).

The rule of thumb is, you cannot own two HDB flats regardless of residence status. Should you inherit one while you have an existing HDB flat in your name, you would have to sell one of the properties. However, if you own a private property, you may or may not be able to keep the inherited HDB flat, depending if the HDB flat was originally purchased unsubsidised before 30th August 2010.

Can Foreigners Inherit Landed Property In Singapore?

In general, only Singaporeans can own landed property in Singapore. Under the Residential Property Act, foreigners are not allowed to buy or own any landed property except for those in Sentosa. Foreigners and PRs are only allowed to own restricted residential properties if they have obtained prior approval from the Land Dealings Approval Unit (LDAU).

Should you be willed a landed property as a foreigner or PR, a foreign beneficiary would have to get LDAU approval before you are eligible to own this property. If approval is not granted, the trustee would have to dispose of the property within the 10-year time limit.

Do You Need To Pay ABSD And Estate Tax On An Inherited Property?

According to the Inland Revenue Authority of Singapore (IRAS), Estate Duty has been removed for deaths on and after 15 February 2008. The answer is simply, no, if the property has to be inherited in accordance to:

  • A will stating clearly who the beneficiaries are
  • The intestate succession act or;
  • The administration of Muslim Law Act

However, if the distribution of property is not in accordance with the above, the document will be regarded as a transfer by way of gift or sale. Buyer’s Stamp Duty (BSD) and Additional Buyer’s Stamp Duty (ABSD) will be charged where applicable.

If you inherit a property under your name, and you want to buy another property, it will be considered as a second property and ABSD would be payable in this case.

Meanwhile, Seller’s Stamp Duty (SSD) could be payable should the beneficiary want to dispose of the property in the future.

This article was first published on PropertyGuru.

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Growing up, we’ve all heard about the five Cs. Singaporeans are obsessed with getting cash, car, credit card, condominium and country club membership. But are we familiar with the five Cs of Housing?

1. Capital

Buying a house requires money. And depending on the type of house you choose, that amount varies.

If you are leaning towards getting a BTO, remember that while there are a number of grants and loans available, you will have to fork out a minimum 10 per cent down payment with an HDB loan, and 25% down payment for a bank loan. This means that if the BTO costs $350,000 you have to come up with $35,000 upfront (for HDB loan), and $87,500 for a bank loan.

Note that the required down payment will increase if you don’t meet the Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR). The TDSR limits your monthly loan repayments to 60 per cent of your monthly income, and MSR limits your home loan (excluding other loans) to 30 per cent of your monthly income.

Not meeting either means having a longer loan tenure, or having to make a bigger down payment.

If you want to be prudent, the price of the property that you are eyeing should be around five times your annual income, and never more than seven times your annual income.

2. Capital Appreciation Some believe houses in mature estates appreciate more; others believe the direct opposite is true.

Capital appreciation refers to the rising value of your property over time.

If you’re planning to upgrade from a resale flat to a condominium, or counting on your home as a retirement fund, capital appreciation is important. But the question is, how much can a property appreciate?

This is a speculative question with no guarantees. For example, some might say houses in mature estates appreciate faster because all the amenities are already in place. Others might say non-mature estates are better, as you buy for cheaper (and there’s room for the value to rise as the area becomes more built up, as was the case with Jurong Gateway).

You might want to consider checking the URA Master Plan, to help you estimate the potential capital appreciation of a property. Because the resale of your property will probably take place many years down the road, it’s important to look at what the neighbourhood will be like at the time; not just as it is now.

However, do note that while the URA Master Plan provides valuable information, it is not a guarantee. Plans can change, and even the URA’s efforts to develop an area don’t always go as intended.

3. Cooling Measures

The main cooling measure to note is the Additional Buyer’s Stamp Duty (ABSD).

It is hard to predict what rule and regulations the government will implement next.

ABSD does not affect Singaporeans buying their first property but it does affect Permanent Residents (PRs) and some foreigners.

As of 6 July 2018

  • PRs are subjected to ABSD rate of 5% when they buy their first property (no change from the former ABSD rate)
  • Foreigners buying any residential property will be subjected to ABSD rate of 20% (it was formerly 15%).
  • Foreigners who are Nationals and Permanent Residents of Iceland, Liechtenstein, Norway or Switzerland Nationals of the United States of America are eligible for ABSD Remission under Free Trade Agreements. They will pay the same ABSD rate as Singaporeans who are buying their first and subsequent property.

A key takeaway here is that government interventions have an immediate impact on the housing sector. It’s hard to predict what rule and regulations will be implemented next.

4. Capacity

Yes, size does matter.

Shoebox units (500 square feet or under) seem to be the popular thing now but do buyers actually know what they’re getting themselves into? Buying a private property first might be problematic – if you want to settle down later, the shoebox is too small. And yet, you will have to sell your shoebox before being eligible to own an HDB flat.

The reverse is also problematic. You might decide on a landed property, and find your children moving out when they get married. Now, you’re left all alone with your spouse, and there are five vacant rooms.

Don’t assume your capacity needs will remain the same throughout your lifetime.

HDB regulations limit the number of occupants that can live in an apartment – owners take note!

Capacity also matters if you are planning on rental income.

According to the HDB regulations, owners are not allowed to rent out the bedrooms in anything less than a three-room flat. They can only rent out the unit as a whole, and the maximum number of tenants allowed in such flats is four.

The same does not apply for owners of three-room, four-room and five-room flats. Three-room flat owners can rent out one of their bedrooms, and have a maximum of six occupants allowed in each flat.

Four and five-room flat owners can rent out two of their bedrooms, and have a maximum of six occupants allowed in each flat.

5. Community

If you find yourself constantly hanging around areas far from home, this could be a sign of a community mismatch.

Sometimes, you might have gone out of your way to conduct extensive research prior to buying that house. But after three years, you realise that you have few friends there, the area bores you, or it’s inconvenient. So what happened?

It’s important you recognise your needs are constantly changing. What you kept a lookout for at the beginning might not be relevant years later. For example, you may have moved into an area just because your child’s school is nearby. But once your child is off the university, you may find that you loathe the quiet or dullness of area.

Remember to adopt a futuristic mindset whenever you’re looking to buy a property. Consider not just your short term needs, but whether you’ll be happy to live there 10 or 15 years from now.

You are entitled to receiving a Proximity Housing Grant (PHG) of $20,000 if you live near your parents! For most people, living in an environment that is suitable for their family is their main priority.

It’s worth considering getting a house in senior-friendly communities such as Admiralty, Whampoa and Bedok if you have elderly family members.

In these areas, there is an added focus on senior citizen’s healthcare needs which makes it convenient for the elderly to visit the doctor or get access to community support.

Alternatively, if your family has young children, you might want to look out for neighbourhoods with an abundance of childcare centres, schools and tuition centres.

You might also want to consider getting a flat near your parents home if you have young children. Practical reasons include receiving a Proximity Housing Grant (PHG) of $20,000 and saving money on childcare expenses by having them look after your children while you’re at work.

In some cases, the community outweighs the more obvious value of the property. For instance, although Geylang is just ten minutes away from the Central Business District (CBD), many families are unwilling to settle there due to the proximity of the Red Light district, and the sort who frequent it.

This post originally appeared on 99.co.

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Known as Singapore’s premier shopping belt since the 1960s after the area was zoned for retail, Orchard Road is no stranger to the retail scene. However, Singapore’s once-famed shoppers’ paradise is slowly losing its significance. This is evident in the falling foot traffic along the 2.2km retail strip and the five-year high vacancy rate of 8.7% since the first quarter of 2016.

Several factors can be said to have contributed to the gradual demise of Orchard Road – such as rising rents, rise of e-commerce and decentralization of Singapore. In understanding the reasons behind the shift away from Orchard Road as the center of Singapore’s retail scene, more effective strategies can be formulated to address the problem while it is still salvageable. Here are several more prominent factors that might have caused the decline in importance of Orchard Road:

Astronomical rents

Based on a report released by Colliers International, average rents of prime shopping spaces along Orchard Road rose 0.3% quarter-on-quarter to SGD40.62 psf pm. In comparison, though regional center malls also increased over the same period, average prime floor rents are only at SGD33.45 psf pm. Coupled with falling foot traffic along Orchard Road, malls along this shopping belt are faced with higher tenant turnovers and increasing vacancy rates.

For instance, in 313@Somerset alone, many changes have occurred over the past few years. To name a few: (1) One of the mall’s anchor tenants, Forever21, downsized from four to two storeys, (2) international retailer, Victoria’s Secret, has been replaced by Swarovski, (3) Uniqlo, leading retailer in casual wear, has moved out and (4) surf brand Rip Curl, is no longer open for business.

Not only will constant changes in tenants/tenant mix negatively affect the identity and theme of a mall, a more notable impact would be on the experience of shoppers. Patrons of a certain brand may no longer visit the mall due to the absence of certain brands and hence, contribute to the falling foot traffic. As a result, a domino effect is created – decrease in foot traffic, retail sales decline, vacancy rates on the rise and rents continue to creep up.

Rise of e-commerce

In the United States, several key department store chains have lost value in recent years, and department stores have discarded around 500,000 jobs since the start of this century. This situation is not faced by the US alone, many countries around the world are also experiencing declining retail sales from brick-and-mortar stores. Physical retail stores are being challenged by online shopping and the rise of e-commerce.

This comes as no surprise – if you are able to browse 30 different shops at once, compare prices internationally and make a purchase in a click of a button (all while enjoying a Chinese take-out in the comfort of your home in the wee hours of the night), why then would you need to visit any brick-and-mortar store?
As shopping on Orchard Road will still continue to attract tourists, more needs to be done to entice shoppers to stay on the shopping strip itself. Such incentives include a wider variety of food and beverage options, complementary services such as baggage drops and complimentary parking or outdoor spaces to relax and unwind after a full day of shopping.

Decentralization of Singapore

With reference to the Urban Redevelopment Authority’s (URA) Master Plan, the entire city is being decentralized. Plans for several new Central Business Districts (CBDs) are already underway and suburban malls can now provide similar if not the same retail experience as many Orchard Road Malls.

Take Nex at Serangoon for example. Anchor tenants of this suburban mall located in the North-East region of Singapore include H&M, Uniqlo and Shaw Theatres, just to name a few. These brands are also found in malls along Orchard Road – H&M in Ion Orchard, Uniqlo in Orchard Central and Shaw Theatres in Shaw House.

With the increased decentralization of Singapore, suburban malls will see an increase in foot traffic as they are conveniently located within neighbourhoods and parking is generally cheaper in these malls. With increased foot traffic and lower rental rates, retailers may then move away from the glamour of Orchard Road.

Nevertheless, the Singapore Government has plans in place to revamp Orchard Road and hopefully, restore it to its former glory. Some strategies include the pedestrianizing of Orchard Road (similar to that of Oxford Street in London which has proven to be successful) and the flexible use of existing spaces within the Orchard area to inject vibrancy into the shopping belt (such as the recent Flashbang Street Market held at the Grange Road open-air carpark). Instead of concentrating efforts on improving the retail scene alone, a greater need is to look beyond shopping itself and work on developing an “Orchard Road experience” in which no suburban mall can replicate.

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A home loan package with its interest rate pegged to a bank’s Fixed Deposit (FD) rates was widely popular among homeowners during its initial inception. FD rates were first pioneered by DBS, and her peers came up with their own versions soon after.

The FD rates’ popularity was attributed to a very low rate in the initial phase. However, in recent years, FD rates have increased significantly when compared with the initial rates. This increase in interest rates is due to many factors, one of them being that the Singapore Interbank Offered Rate (SIBOR) rate is constantly increasing, thus resulting in the increase in the cost of borrowing for the banks.

Since this is directly correlated to the liquidity of the banks, an increase in their FD rates is apparent. The table below summarises the recent rate hikes by various banks as compared to when it was first introduced:

Bank Product First Introduced Rate Revised Rate Increment
DBS FHR 0.40% 1.40% 1.00%
FHR9 0.25% 1.35% 1.10%
FHR18 0.60% 1.40% 0.80%
FHR8 0.20% 0.95% 0.75%
Maybank FDMR36 1.20% 2.05% 0.85%
SRFR 4.00% 4.50% 0.50%
SRFR2* 4.50%
OCBC 15FDMR 0.25% 1.25% 1.00%
36FDMR 0.65% 1.55% 0.90%
48FDMR 0.95% 1.75% 0.80%
OHR 1.00% 1.70% 0.70%
MRP* 1.50%
UOB FDPR_36 0.65% 1.65% 1.00%
FDPR_15 0.25% 1.40% 1.15%
FDPR_14 0.25% 1.15% 0.90%
MR* 0.85%
Standard Chartered Bank FDR9 0.30% 0.90% 0.60%
FDR48 0.50% 1.35% 0.85%
FDR36 0.72% 1.22% 0.50%
HSBC TDMR24 0.65%

Legend:
*Packages that are not pegged to fixed deposit rates
Packages in red indicate each bank’s current offer
At time of posting, rates are accurate; however, they can be subjected to change.

Now, when looking at the SIBOR rates’ trend over the years, we would have realised that it has been increasing over the years as shown in the trend line below.

Figure credit to ABS Co.

This increase is directly correlated to the increase in the US Fed rates since there is a high correlation of the US Fed rates with SIBOR rates. The increase in the US Fed rates is attributed to quantitative easing which causes the US dollar to appreciate against the Singapore dollar thus resulting in the increase of the Swap Offer Rate (SOR).

So what causes the increase in SIBOR?

In the 2008 global financial crisis, the United States (US) central bank introduced quantitative easing in 3 tranches. Thus there was a decrease in interest rates to 0-0.25% since business entities would not deposit monies to the central bank; instead, the bank would lend out money. The lower borrowing cost made it easier for companies to borrow.

Next, more money was printed, which resulted in an increase in the supply; when the supply increased, the US dollar is no longer as valuable as before, thus its depreciation. Companies at that time were borrowing money at lower costs to revive company cash flow so they could focus on production, increase in research and development (R&D), and increase employment. More jobs were created in the market, wages started to increase and people, in turn, had a higher spending power which would spur economic growth.

Depreciation of the US dollar also allows other countries to buy the exports from the US at a cheaper price which then result in an improvement in the export industry.

Since it was unwise to deposit their money in the US back then, all the money started flowing into Asian markets. Singapore, in turn, benefitted the most from liquidity. In recent years, the US started making claims about hiking interest rates; however, no action was taken until December 2015, when the first increase came about. Following that, there were 8 more increments.

As interest rates start to increase, central bank rates become higher. People will once again start putting money back into the US and exit the Singapore market. Therefore, liquidity once again becomes a problem, which has since resulted in an increase in SIBOR.

Current SIBOR trend

The US Federal Reserve has signalled that the growth in the FED rates will be pretty modest. There are speculations that the FED funds rate will stay at the current range of 2.25-2.50 percent until at least the end of 2020. Since FED rates are likely to remain relatively constant and that SIBOR and FED rates have a high correlation, it is likely to see the SIBOR stay relatively constant. This is evident in the recent SIBOR growth trend, when looking at the first quarter of 2019.

Figure credit to ABS Co.

Conclusion

In view of FED rates remaining relatively constant yet FD rates are rising, it may be wise to refinance to SIBOR-rate loans instead of choosing a loan package with its interest rate pegged to a bank’s Fixed Deposit (FD) rates. This will protect you from having to pay more if you choose FD rate-pegged packages should interest rates soar in the near future, and this will definitely be a significant amount of cost savings.

However, this is not a one-size-fits-all solution, and many of the claims are based on the current speculations of the FED rates staying constant. If you are still unsure, then it would be best to consult the experts, such as our team of mortgage advisors at Redbrick.

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General Trends in 2018

Looking back at the trend of mortgages in 2018, we would have noticed that people are all big about fixed rates and many of you would have to ask why?

The reason is simple, fixed rates were at a 1.55%, 2-years fixed whereas floating rates were at 1.6%, and looking at this minimal difference between the 2, it’s obvious why people would rather opt for a fixed rate mortgage. The US Fed had forecasted 4 increases for the US Fed rate and people widely believe that the SIBOR rates have a very high correlation with the Fed rate and thus speculated the instability with regards to SIBOR.

True to their forecast, the Fed rate hiked up 25-50 basis points at every end of Quarter last year. Hence, clients were fearful that SIBOR-linked packages would only follow suit. Since many homeowners may not have the relevant financial knowledge to predict or forecast the expected behaviours and trends for interest rates, fixed rates were therefore, safer and more popular.

The fixed deposit link (FD) rate pioneered by DBS in 2016 was widely popular among homeowners as well and many other banks such as Maybank and HSBC came up with their own versions soon after. The FD rates’ popularity were attributed to very low rates in the initial phase and there was common belief that these rates will remain subdued. Looking at the historical track record, most banks have not changed their FD rates from 2012 – 2017, and even up till the first of January 2018, the rates have remained the same. However, along with the US Fed rate increases, the banks saw an increase in the general trend and thus increased their FD rates as well later in the year.

Comparison of packages for 2018 and 2019 (Start of Year)
Type of Mortgage 2018 2019
Fixed Rate mortgage 1.55%, 2 years fixed 2.48 – 2.5%, 2 years fixed
SIBOR 1.82% 1.928%
FD Rate 1.68% 2.2%

Taking a glance at this table, we would have realized that SIBOR packages had barely changed as compared to the other rates and packages available. With the difference between the fixed and the floating rates at more than 0.5% now, more and more people are willing to take some calculated risks to review a floating rate mortgage. The Fed holds the line on rate this year, with an initial forecast of 3 increases in 2019, but all of these are no longer on the table based on latest update as at March. Signups for SIBOR packages had at the same time steadily increased and are still increasing.

On the other hand, Fixed rate packages were refreshed at much higher rates now than compared to a year ago, and other floating rate packages like FD-linked rates and Board rates are still relentlessly increasing, much to the unhappiness of many existing mortgage clients.

SIBOR vs FD Rates

The lowest FD Rate is from Standard Chartered in 2019 at 2.2% linked to their 36 months FD rates. The SIBOR rates in 2019 as compared to the FD rates are still cheaper by about 0.2-0.3%, though the difference is not as huge when compared to the 0.5% difference between the fixed and floating rates.

Nonetheless, it is still a difference worth noticing because of the movements and the general increase in the trend that the FD rates had in the entire 2018 to the start of 2019.  The original sense of stability that people once had for FD rates no longer exist. Therefore, current preferences are more for transparency over presumed stability. More customers are now favouring a market determined SIBOR over frequent changes in FD-linked rates as ultimately, Board rates are still the banks’ discretion.

Additional Risk Hedging Features in SIBOR Linked Packages

Though SIBOR packages provide cheaper and more transparent options, stability may still be a real concern for many loan clients. So what if our beliefs, assumptions and expectations were inaccurate? What if the Feds resume interest rate hikes again in the 2nd half of 2019, or early 2020? Clients will be glad to know that the SIBOR packages offered by some banks do come with “risk-hedging” features to help mitigating some of the above-mentioned rate risks.

Firstly, there is a free one-time conversion. A package conversion is not usually available until lock-in period ends and it will also cost clients admin/reprice fees of $500 – $1000. To hedge against unexpected fluctuations for the SIBOR rates, one-time free conversions are being offered by some banks after lock-in, while other like SCB and HSBC are offering one-time conversions anytime. Therefore, if SIBOR does increase or even if SIBOR does not increase but there is a better package within the same bank, clients can exercise the feature and flexibility to switch.

Partial Capital Repayment without Penalty; the next feature is catered to clients who are ever looking to pay down on their loans. Some SIBOR packages will allow clients to partial repay on their loan capital amount anytime during lock-in period without penalty. Otherwise, the repayment penalty chargeable during lock in period is usually 1.5% of the amount repaid, or $1,500 for every $100,000 of loan repayment.

This penalty waiver will help some clients who can afford to make capital repayments to better manage their interest rate risks and costs while benefiting from a SIBOR-linked floating rate package.

Last but not least, only 3 banks are offering this pretty interesting feature which is extremely suitable for clients with cash sitting by the side in the short term. Business owners or savvy investors looking to deploy monies into opportunities in the short to medium term can in the interim place their funds in an interest offset account.

The interest offset feature from these accounts will help clients bring down their effective loan interest rate, subjected to the following 2 factors; The amount of deposits in the interest offset account and the Offset Factor. For example, 50% of deposits in the offset account will earn the same interest rate as the home loan rate. This feature is also totally flexible. Clients can deposit or withdraw the monies in these accounts anytime without lock in period, penalties or fees. This is also a good in-between option for clients who are half-minded about liquidity and loan capital repayment.

Conclusion

The changes in the facts and figures of different mortgage rates and packages between 2018 and 2019 so far, plus the changes in opinions of clients for their view, expectations, and preferences, is a good reminder to all, including us as professional advisors, that there is never ever a 1 size fits all solution when it comes to helping our clients manage their property loan borrowing costs over their entire property ownership journey.

Instead, helping them promptly review their loan portfolios and be updated on changing interest rate trends and to adjust their financing arrangements accordingly and on a consistent basis will ensure much better success from a cost management perspective.

––––

With the recent increase in interest rates, our team at Redbrick has seen a spike in the enquiries that come through to us. As such, we’re looking to expand our team! Know of someone who might be a suitable fit to be part of the Redbrick Team? Click here to find out more.

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The post Brief Review of Mortgage Rates in 2018 and 2019 and a Revisit for SIBOR? appeared first on Redbrick Mortgage Advisory.

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General Trends in 2018

Looking back at the trend of mortgages in 2018, we would have noticed that people are all big about fixed rates and many of you would have to ask why?

The reason is simple, fixed rates were at a 1.55%, 2-years fixed whereas floating rates were at 1.6%, and looking at this minimal difference between the 2, it’s obvious why people would rather opt for the fixed rate mortgage. The US Fed had forecasted 4 increases for the US Fed rate and people widely believe that the SIBOR rate has a very high correlation with the Fed rate and thus speculated the instability with regards to SIBOR.

True to their forecast, the Fed rate hiked up 25-50 basis points at every end of Quarter last year. Hence, clients were fearful that SIBOR-linked packages would only follow suit. Since many homeowners may not have the relevant financial knowledge to predict or forecast the expected behaviours and trends for interest rates, fixed rate was therefore the safer and more popular option.

The fixed deposit link (FD) rate pioneered by DBS in 2016 was widely popular among homeowners as well and many other banks such as Maybank and HSBC came up with their own version soon after. The FD rates’ popularity was attributed to very low rates in the initial phase and there was common belief that these rates will remain subdued. Looking at the historical track record, most banks have not changed their FD rates from 2012 – 2017, and even up till the first of January 2018, the rates have remained the same. However, along with the US Fed rate increases, the banks saw an increase in the general trend and thus increase their FD rates as well later in the year.

Comparison of packages for 2018 and 2019 (Start of Year)
Type of Mortgage 2018 2019
Fixed Rate mortgage 1.55%, 2 years fixed 2.48 – 2.5%, 2 years fixed
SIBOR 1.82% 1.928%
FD Rate 1.68% 2.2%

Taking a glance at this table, we would have realized that SIBOR packages had barely changed as compared to the other rates and packages available. With the difference between the fixed and the floating rates at more than 0.5% now, more and more people are willing to take some calculated risks to review a floating rate mortgage. The Fed holds the line on rate this year, with an initial forecast of 3 increases in 2019, but all of these are no longer on the table based on latest update as at March. Signups for SIBOR packages had at the same time steadily increased and are still increasing.

On the other hand, Fixed rate packages were refreshed at much higher rates now than compared to a year ago, and other floating rate packages like FD-linked rates and Board rates are still relentlessly increasing, much to the unhappiness of many existing mortgage clients.

SIBOR vs FD Rates

The lowest FD Rate is from Standard Chartered in 2019 at 2.2% linked to their 36 months FD rates. The SIBOR rates in 2019 as compared to the FD rates are still cheaper by about 0.2-0.3%, though the difference is not as huge when compared to the 0.5% difference between the fixed and floating rates.

Nonetheless, it is still a difference worth noticing because of the movements and the general increase in the trend that the FD rates had in the entire 2018 to the start of 2019.  The original sense of stability that people once had for FD rates no longer exist. Therefore, current preferences are more for transparency over presumed stability. More customers are now favouring a market determined SIBOR over frequent changes in FD-linked rates as ultimately, Board rates are still the banks’ discretion.

Additional Risk Hedging Features in SIBOR Linked Packages

Though SIBOR packages provide a cheaper and more transparent option, stability may still be a real concern for many loan clients. So what if our beliefs, assumptions and expectations were inaccurate? What if the Feds resume interest rate hike again in the 2nd half of 2019, or early 2020? Clients will be glad to know that the SIBOR packages offered by some banks do come with “risk-hedging” features to help mitigating some of the above-mentioned rate risks.

Firstly, there is a free one-time conversion. A package conversion is not usually available until lock-in period ends and it will also cost clients admin/reprice fees of $500 – $1000. To hedge against unexpected fluctuations for the SIBOR rates, one-time free conversions are being offered by some banks after lock-in, while other like SCB and HSBC are offering one-time conversions anytime. Therefore, if SIBOR does increase or even if SIBOR does not increase but there is a better package within the same bank, clients can exercise the feature and flexibility to switch.

Partial Capital Repayment without Penalty; the next feature is catered to clients who are ever looking to pay down on their loans. Some SIBOR packages will allow clients to partial repay on their loan capital amount anytime during lock-in period without penalty. Otherwise, the repayment penalty chargeable during lock in period is usually 1.5% of the amount repaid, or $1,500 for every $100,000 of loan repayment.

This penalty waiver will help some clients who can afford to make capital repayments to better manage their interest rate risks and costs while benefiting from a SIBOR-linked floating rate package.

Last but not least, only 3 banks are offering this pretty interesting feature which is extremely suitable for clients with cash sitting by the side in the short term. Business owners or savvy investors looking to deploy monies into opportunities in the short to medium term can in the interim place their funds in an interest offset account.

The interest offset feature from these accounts will help clients bring down their effective loan interest rate, subjected to the following 2 factors; The amount of deposits in the interest offset account and the Offset Factor. For example, 50% of deposits in the offset account will earn the same interest rate as the home loan rate. This feature is also totally flexible. Clients can deposit or withdraw the monies in these accounts anytime without lock in period, penalties or fees. This is also a good in-between option for clients who are half-minded about liquidity and loan capital repayment.

Conclusion

The changes in the facts and figures of different mortgage rates and packages between 2018 and 2019 so far, plus the changes in opinions of clients for their view, expectations, and preferences, is a good reminder to all, including us as professional advisors, that there is never ever a 1 size fits all solution when it comes to helping our clients manage their property loan borrowing costs over their entire property ownership journey.

Instead, helping them promptly review their loan portfolios and be updated on changing interest rate trends and to adjust their financing arrangements accordingly and on a consistent basis will ensure much better success from a cost management perspective.

Want to find the best mortgage rate in town? Check out our free comparison service to learn more!

Read more of our posts below!

The post Brief Review of Mortgage Rates in 2018 and 2019 and a Repeal for SIBOR appeared first on Redbrick Mortgage Advisory.

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