Property-backed financing typically offers interest rates between 4% to 8% per annum, which is lower than our regular business term financing and invoice financing products. Many of you may wonder why this is the case. Below are the key reasons:
Risk-Based Interest Rate Pricing
Our pricing model is risk-based, meaning that since these investments are backed by tangible assets (property), the perceived risk is lower compared to unsecured financing options.
In addition to a Personal or Corporate Guarantee, property-backed financing provides an added layer of security for investors.
Collateral & Market Valuation Considerations
The properties used as collateral are typically residential properties in Singapore, though sometimes they include commercial or industrial properties.
In case of default, these properties can be auctioned off to recover funds.
We carefully assess the market valuation of these properties to mitigate risks.
Loan-to-Value (LTV) Ratios
The maximum LTV for residential properties is 80%.
For commercial and industrial properties, the LTV is lower, capped at 70% and 60%, respectively.
These LTV caps ensure a buffer against market fluctuations in property prices.
Forced Sale Value Considerations
In cases where liquidation is necessary, we consider the forced sale value of the property to assess the worst-case recovery scenario.
Property valuations, including forced sale values, are conducted by professional valuation agencies with expertise and experience working with financial institutions.
Historical Transaction Data
Before deciding on the LTV for financing, we also review historical purchase and sale transactions of similar properties in the same locality.
Balancing Risk & Returns
While having a property as collateral does not eliminate default risk, it provides an additional recourse for fund recovery in case of non-repayment.
Even though interest rates for property-backed financing (4%-8% per annum) are lower than those for business term financing and invoice financing, they are still potentially higher than other investment products in Singapore, such as fixed deposits, certain bonds, and other fixed repayment investments.
We encourage investors to carefully evaluate the product and invest based on their individual risk appetite.