What is a Property-backed Secured Investment and what do you need to know as an investor?
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What is Property backed Secured Investment?
Property backed Secured Investment is a financing product secured by a mortgage / charge on an immovable property as a form of collateral against the total outstanding amount of the financing. This means that in the event of a default, the property mortgaged under the financing may be liquidated or foreclosed (subjected to the necessary legal proceedings) where its net proceeds (after deducting the cost of such proceedings) will be used to settle the total amount outstanding due and owing to the investors under the respective investment notes issued under the financing.
What are the types of Properties that can be pledged?
They can be residential, commercial, or industrial.
Who owns the Properties pledged?
The property being pledged may be owned or co-owned by a Director/Owner of the SME company itself or by a related entity.
Who will hold the mortgage or charge on the Properties?
FS Capital Pte. Ltd. or any other appointed agent / custodian (so appointed from time to time) will hold any such property as security, by way of a charge or mortgage for and on behalf of all investors.
How is it secure?
The security backing the notes are Singapore based residential, commercial and industrial properties owned by the SME or its Director(s) / Owner(s) and Funding Societies mostly accepts the first mortgage or charge on the property for all notes.
Our panel lawyers help us in the creation of the mortgage or charge and FS Capital Pte. Ltd. holds the mortgage or charge on the property on behalf of the investors.
What is LTV and how does it affect the total financing amount of Property Backed Secured Investment?
LTV or Loan to Value is a ratio that determines the total financing amount any one applicant of Property backed Secured Investment is entitled to be granted. The LTV refers to a percentage of the value of the Property to be pledged as security of the financing
For example, if the total financing amount to be granted is SGD$1,500,000 and the property is estimated to be valued at SGD$3,000,000, the LTV is 50%. Property value is provided by an approved panel of independent valuers. The LTV for Property Backed Secured Investment is up to a maximum of 80% of the estimated value of the mortgaged property at the time of financing, which provides at least a 20% buffer for price adjustments based on market conditions in property value.
Do the properties pledged have existing loans tied to them?
Most of the Properties accepted as security or collateral are unencumbered or free of charge or mortgage.
For Properties with existing mortgage, Funding Societies will only accept security on such Property as a second mortgage of the financing taken out with Funding Societies when the LTV ratio of the financing amount to the remaining equity in the Property (which is the estimated Property value less the value of the first mortgage) falls below the LTV ratio prescribed by Funding Societies.
How do you make sure that the property isn’t mortgaged to multiple institutions?
The relevant title searches Singapore Land Authority on the said property will be conducted by the appointed lawyer to verify this before the property is accepted as a collateral. The note issuer shall not be further mortgaging the mortgaged property to Funding Societies to a future financier or lender after it being mortgaged to us without our consent and approval.
What are the returns?
Returns range from 4% to 8% per annum on a simple interest basis. Please refer to the fact sheet for individual notes’ rate of return. More information on the interest rates here.
Why are returns lower than Term or Invoice Financing?
We adopt a risk adjusted returns approach for all our products. As these notes are backed by assets, it increases the likelihood of recovery of Principal and Interest since the asset can be liquidated or foreclosed by the mortgagee (i.e. FS Capital Pte. Ltd.) in the worst case scenario of a default. There is a late interest charged to the SME in case of delays in repayment, which is fully credited to the investors.
How much is the minimum contribution / investment?
The minimum contribution usually starts at $20. However, it may vary from note to note, so investors are encouraged to refer to each investment opportunity for details.
What is the tenor for Property backed Secured Loans?
The tenor will be capped at 12 months unless it is extended further.
What are the fees?
The service fees remain unchanged at 18% on interest earned. For example, if you receive Interest of $100 for a particular note, we will retain $18 and credit the balance of $82 to your account.
Are there any late interest charges?
Late interest is chargeable at 0.1% per day of the overdue principal.
What are the risks involved?
Market Risk - The valuation of the property can fluctuate during the note tenor
Liquidity Risk - In the case of a default, your principal will likely be held for a longer duration than the initial note tenor
When is a note considered to be in default?
A note will be considered to be in default when it reaches 90 days past due.
What happens in the case of a default or SME can’t pay principal at end of tenor?
We will proceed with the relevant debt recovery actions which may include issuance of letters of demand, legal suits or foreclosure proceedings where a lawyer will be engaged for the matter.
What happens if the proceeds from the property sale is insufficient to repay the note?
In such an exceptional scenario the Personal Guarantor/s (PG), Corporate Guarantor/s (CG) and SME will be liable for the balance amount.
What happens if the proceeds from the property sale exceeds the outstanding due?
The remaining proceeds after paying off the note will be returned to the SME.
How much time does it take to liquidate the property?
Typically, an auction house will take between 6 months to 1 year to sell the property, and the proceeds from the sale will be used to repay the note. All costs incurred during this process will either be paid by the defaulting note issuer or to be netted off from the proceeds of sale.
If you have more questions, feel free to reach out to us via live chat. You may do so by using the messenger icon at the bottom right of your screen. Or, you could email us at email@example.com.
Alternatively, you may drop us a call at +65 6221 0958 (9am to 6pm, Monday to Friday, excluding public holidays).
The rate of return for this investment normally falls within 4%-8% p.a., but the actual rate of return will depend on the individual offerings in question. This article provides general information on the type of investment, and you are encouraged to seek independent financial and legal advice before investing.