Singaporeans love overseas property. They also really like leveraging it. There are, however, now some serious issues to contend with. Lenders are tightening up on mortgages and property in their favourite markets is becoming much more expensive, putting it well out of the range of most investors.
Australia has largely stopped issuing mortgages to foreigners — with its biggest banks even toughening lending criteria for home loans for Australians. Matters may only get worse: the Bank of England recently hinted that the first rate rise in almost a decade is now on the cards. Many financial professionals are darkly talking about how cross-border money is about to get a lot less liquid.
Next up is the situation with the huge prices to be paid. The average property price in the London is now £610,000 - which is S$1,090,000 - putting it in the rarefied air of the high net worth individual (HNWI). But there is some good news for those looking to buy into overseas markets where finance is not necessarily forthcoming and the prices are high: there is a new (old) kid on the block - property crowd funding.
FinTech insiders have coined a phrase that gives a glossy new shine to an old practise. People have been buying houses together for ages - spouses do it all the time, as do friends and syndicates. The whole concept isn't exactly revolutionary, but how it’s done now is definitely new.
Singapore has become Asia’s FinTech and crowd funding hub — property platforms are sprouting like mushrooms. There are companies emerging that are now actively putting together groups of like minded people who can fund a special purpose vehicle (SPV) in its entirety to buy million dollar properties out right in cash.
The advantages seem straightforward: no mortgage costs, investors get significantly higher returns, without the stress of having to watch the mortgage rate - all while owning physical bricks and mortar. Finally, and this is probably the most fascinating part of the property crowd funding story, investors can exit much more easily.
Typically, the only way to get out of owning a property is to sell it - but when that property is crowd funded, investors have more options. The simplest is to sell your shares to your fellow SPV shareholders.
Is this all another nail in the coffin of the big banks, following the recent, massive regulatory clamp downs and restrictions on bank transactions? Could it be that the little guy could well be back on top again when it comes to owning property?
The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Singapore Business Review. The author was not remunerated for this article.
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Alexander Knight is a Singapore-based property commentator.