As you would have noticed we have started offering more property-backed investments on our Funding Societies platform in recent times. We introduced this product for you to have an additional option for product diversification and the potential for you to create a more balanced portfolio of unsecured as well as secured investments.
Typically, the interest rates for property-backed financing, between 4%-8% per annum, is lower than the regular business term financing and invoice financing products. Many of you must have wondered why. We will try and list down some of the main reasons for that :
- Our interest rate pricing is risk-based and given that there is an asset backing the investment as collateral, the risk is perceived to be lower compared to other products on the platform. This security is taken over and above the Personal or Corporate Guarantee that we take in most of the other financing opportunities, thus providing an additional recourse to the investors.
- The properties taken as collateral are usually residential properties and sometimes commercial properties which can be auctioned off in case of defaults.
- While the financing is secured by this property, we are cautious of the market valuation of the said property. Accordingly, the maximum Loan to Property Value (LTV) ratio is 80% (while majority of the cases are approved at 70% and below). This means that there is a buffer for any market correction in property prices.
- We also take into account forced sale value in a situation where we need to liquidate the property and never offer funding beyond this value.
- The property valuation, including the forced sale value, is provided by professional agencies that also work with multiple other financial institutions and hence have the expertise and track record to estimate the property value and the forced sale value.
- We also consider historical purchase and sale transaction values for similar properties in the locality before deciding on the LTV for the financing.
We believe that even though having a property as collateral does not mitigate default risk, it does provide an additional recourse for recovery of funds, in an unfortunate incident of default. The interest rates on our property-backed secured financing at 4%-8% per annum, though lower than our business term financing and invoice financing, is still potentially higher than some of the other investment products in the Singapore market including fixed deposits, certain bonds, other fixed repayment investments. We encourage investors to study the product and invest only if it is within their risk appetite.
Below is the snapshot of a typical Property-backed Financing Fact Sheet with Loan to Valuation (LTV), Property Market Value, and Forced Sale Value that are highlighted.
We are happy to share that in the past few months we have given out property-backed financing totaling to $13,617,000. Majority of them were between 6-8% interest rates, per annum.
If you would like to know more about the product then click on the link below to our Help Centre Article: Property-Backed Secured Financing