Source : Straits Times - 1 Nov 2008
SINGAPORE could have faced its own sub-prime crisis in the 1985 recession, says economist Chew Soon Beng, a professor at Nanyang Technological University.
This was because there was a policy then encouraging every Singaporean to buy a Housing Board flat.
When growth slowed, wages were cut and many lost their jobs.
Singapore averted a situation similar to that in the United States only because HDB was not a commercial entity, unlike US banks that offered loans to home buyers there.
The US sub-prime crisis occurred because people at the bottom of the economic ladder were allowed to buy houses on mortgages, and they then defaulted on the loans when they lost their jobs and incomes.
Professor Chew identifies three reasons such a situation was averted here.
One, most people bought their flats with an HDB loan, and not a commercial bank loan. The HDB is more lenient about deferred payments.
Two, HDB homes are immune from bankruptcy law - that is, your creditors cannot seize your flat even if you file for bankruptcy. These flats cannot be put on the market, and so HDB flat prices are in a sense ‘protected’.
Three, the Government extended the HDB housing loan period from 20 to 25 years, and urged commercial banks to do the same.
This meant owners had five more years to pay off their home loans. Hence, monthly payments were smaller during the difficult period.
This was not the case in the US recently, says Prof Chew.
He adds that another key reason a sub-prime crisis was averted here is the lack of unemployment benefits.
‘In Singapore, if you don’t work you have no money. If you work you have an income. And when you earn an income, we force you to save,’ he explains.
No comments:
Post a Comment