HOME buyers who like the certain-ty of a more fixed mortgage ratehave another option to consider inthe form of a new package rolledout by DBS Bank.

Its fixed deposit home rate, orFHR, is pegged to the bank’s fixeddeposit interest rate and not theSingapore Interbank Offered Rate,commonly known as Sibor.

Sibor reflects the day-to-daymoney market and so can fluctu-ate, especially in volatile financialperiods.

That means mortgages peggedto it are exposed to the samemovements.

The new DBS package aims toiron out many of these potentialups and downs and reduce the anx-iety for some mortgage holders.

The FHR, which is now at 0.4per cent, is derived by calculatingthe simple average of the bank’s12-month and 24-month fixed de-posit interest rates.

A premium, known as thespread, is tacked on, resulting inthe final interest charged. So ifthe spread for the first year is0.95 per cent, it adds up to an ef-fective interest rate of 1.35 percent (0.4 + 0.95).

So the question for home buy-ers comes down to: Sibor or FHR?

At first glance, a simple experi-ment with a mortgage calculatorshows the difference to be negligi-ble.

A 30-year-old taking out amortgage of $500,000 for 30years will have to fork out $1,690a month in the first year of anFHR loan or $1,762 a month if hetakes up OCBC Bank’s or UnitedOverseas Bank’s (UOB) Sibor pack-age – a difference of only $72.

But the real benefit of FHRkicks in when there are fluctua-tions in the economy.

The Sibor has stayed abnormal-

ly low as a result of sluggishgrowth in the United States sincethe 2008 global financial crisis.

The three-month Sibor, whichis the common rate offered, nowstands at 0.403 per cent. It has re-mained low since September 2011,creeping up by just 8 per cent, ac-cording to Bloomberg filings.

This makes Sibor-linked loansattractive propositions and is areason for their popularity, notedMs Phang Lah Wah, who is headof consumer secured lending atOCBC.

But Mr Sean Lim, founder ofmortgage portal FindaHome-Loan.sg, pointed out: “Compared

with fixed deposit rates, the Siboris likely to fluctuate more since itis re-priced every day and depend-ent on the daily demand and sup-ply of liquidity.”

The three-month Sibor was1.32 per cent during the 2008 fi-nancial crisis, well up on DBS’fixed deposit rate which at thattime was 0.88 per cent.

So the FHR might be better al-though this does not mean that itis immune to fluctuations.

Mr Dennis Khoo, head of per-sonal financial services at UOB,noted that fixed deposit rate loansare subject to change at the bank’sdiscretion.

And the FHR is also related tothe Sibor, since both are essential-ly interest rates. So if US growthpicks up, said CIMB regional econ-omist Song Seng Wun, the Siborwill rise and fixed deposit rateswill invariably follow suit since lo-cal interest rates track those inthe US.

Despite this, analysts say DBShas the ability to keep the FHRlow. Fixed deposit rates, whichare essentially the cost of itsfunds, are less likely to rise signifi-cantly as the bank already holdsan estimated 26 per cent of Sing-dollar deposits – the lion’s shareof the market.

However, it seems an evenfight between both options if bor-rowers consider the premiumsthat are tacked on.

While the premiums charged

for FHR loans are higher thanthose offered for most Sibor pack-ages, it is no secret that they canbe negotiated, especially for bigloans.

The FHR charges a premium of1.25 per cent in the third year ofthe loan. OCBC’s Ms Phang saidpremiums of “preferential rates”for Sibor customers may be as lowas 0.85 per cent. So if the gap be-tween the benchmarks does notwiden significantly, Sibor borrow-ers could end up with a betterdeal.

DBS says that one benefit ofthe FHR is its transparency, but inthe Internet age, the same can besaid of Sibor rates, which can beeasily tracked on mobile devicesor the Monetary Authority of Sin-gapore’s website.

So perhaps the track record offixed deposit rates may be theclincher.

CIMB’s Mr Song expects inter-est rates to climb noticeably fromthe second half of next year,which could leave the Sibor above1 per cent by the end of next yearand even at 2 per cent by the endof 2016.

It boils down to a matter of“perceived stability”, as Mr VinodNair, chief executive of financeportal MoneySmart.sg, puts it.The FHR loan, with DBS’ historyof low fixed deposit rates and sol-id base of deposits, will have thaton its side.

ocheryl@sph.com.sg

By CHERYL ONG

INTEREST in Paya Lebar Central is rising fast as plans to develop it into a major commercial hub take shape.

Its location near the city centreand upcoming developmentsaround it make it an attractive tar-get for investors, analysts said.

A new 3.98ha commercial sitewas put on the confirmed list ofthe Government Land Sales pro-gramme for the second half of theyear just last week.

A new building, able to accom-modate up to 132,000 sq m ofgross floor area, could comprise amix of office, retail and hotel com-ponents, experts said. It will havedirect links to transport nodes atthe Paya Lebar interchange andMRT station, where the Circleand East-West lines meet.

“With the new available site,there will be renewed interestfrom developers in this area,” saidMs Alice Tan, research head at

Knight Frank.Paya Lebar Central has long

been home to a handful of industri-al properties and factories, withthe Singapore Post Centre themain commercial building in thevicinity.

Mr Ong Kah Seng, director ofR’ST Research, estimated that12ha of land is available for devel-opment in the area, which trans-lates to about 500,000 sq m ofcommercial floor space.

The Government’s plans for Paya Lebar have spurred much in-terest in the area, and led to brisk sales at SunVenture’s Paya Lebar Square when it was launched in April 2012.

The 99-year leasehold develop-ment, next to the Paya Lebar MRTstation, sold 281 of its 556 strataoffice units at about $1,750 per sqft (psf).

There were also 26 sub-saleunits at Paya Lebar Square thatchanged hands at $2,000 to$2,200 psf from the fourth quar-

ter of 2012 to the second quarterthis year, Urban RedevelopmentAuthority (URA) data shows. Thisrepresents a gain of at least 10 percent for buyers of units at theproject’s launch.

A mall of about 132,500 sq ftwill be part of the commercialbuilding. It is expected to add tothe area’s vibrancy and help its of-fice owners achieve better re-turns, said Mr Ong.

Older office developmentssuch as Roxy Pacific’sWIS@Changi along Everitt RoadNorth have also recorded pricegains. The 83-unit building had 15caveats lodged with the URA lastyear, while its average sellingprice climbed 12.4 per cent to$1,828 psf in the same 12-monthperiod.

There were 21 retail units trans-acted at Centropod@Changi – al-so a Roxy Pacific project – in thesame period. The average pricesof units at the Changi Road build-ing rose 19.7 per cent to $3,931psf over the year.

Although Paya Lebar Central isshaping up to be the next commer-cial hub, the supply of office andretail space in the central regionposes some competition, said Ms

Tan.But monthly rents of older of-

fices in the Central Business Dis-trict have averaged about $7.50 to$8 psf, while rents in Paya LebarCentral are about $7 psf on aver-age, noted Mr Ong.

This could give firms some in-centive to relocate to a suburbanoffice, he said.

ocheryl@sph.com.sg

Fixed deposit ratesversus Sibor:Win, lose or draw?

Recent profitable transactions

ProjectWiS@ChangiCentropod@Changi Pavilion Square

Totalprofit ($)152,000122,00061,942

Price sold($ psf)1,7853,9306,039

Datesold

March 18, 2014Nov 1, 2013March 21, 2014

Price bought($ psf)1,5993,0595,559

Datebought

March 11, 2013July 18, 2012April 22, 2013

Sources: STProperty,Singapore Property Watch

By CHERYL ONG

NEWSANALYSIS

Home buyers have the option of taking loans based on Sibor or FHR. Althoughthe difference in interest charged is currently small, the benefit of FHR-peggedloans kicks in when there are fluctuations in the economy. ST FILE PHOTO

Location near city centre, direct linksto transport nodes among plus points

HOT SPOT

Paya Lebar Centralgenerating buzz

C2 MMOONNEEYY S A T U R D A Y , J U N E 2 1 , 2 0 1 4