Bill passed to prevent homeowners from using HDB flats as collateral for loans

Source : Channel NewsAsia – 19 Jul 2010

The government has plugged loopholes in the law to prevent moneylenders from egging homeowners to use HDB flats as collaterals for any debt other than as mortgage for the purpose of financing the purchase of the flat.

Changes to the Housing and Development Bill were passed on Monday under a “certificate of urgency”, which means it was read and passed in one Parliamentary sitting.

There has been an increasing number of HDB homeowners using their flats as collateral to pay off loans.

In 2008, there were 12 registered resale applications with caveats lodged by moneylenders.

One year later, the figured jumped to 546.

In the first six months of this year alone, there were 556 cases.

It is a worrying trend that the government wants to put an immediate stop to.

“A HDB flat is for long-term homeownership. I cannot over-emphasize this fact,” said Minister for National Development, Mah Bow Tan.

But this approach will only work if people do not encash their retirement asset prematurely.

The old law had allowed moneylenders to use a seller’s flat as collateral for debt repayment.

“Instead of just the 1.5 per cent interest that was touted before they took the loan, they ended up paying as much as 15 per cent interest rates in some cases. Their shock starts when they discover that they have nothing left after paying off their debts to the moneylenders, which they had to clear first since it is protected by the caveat,” said Mdm Halimah Yacob, MP for Jurong GRC.

MP for Holland-Bukit Timah GRC, Christopher de Souza added: “These lenders have hence made agreements with their borrowers to lodge caveats against their flats. This way, they have the first claim on the sales proceeds. It is all perfectly legal and above board; and the lenders have security in recovering the principle sums loaned, plus an obscene amount of interest.”

Minister Mah said: “Some homeowners may want to get a quick personal loan and therefore allow moneylenders to lodge a caveat on their flats. Moneylenders are more willing to give loans, especially to low-income borrowers, if they are able to secure the loan on the sale proceeds of the flat, as this reduces their risk.

“If the flat owners already plan to sell their flat and take a loan from a licensed moneylender, for example as a bridging loan to meet some urgent needs, the caveat ensures that the loan would be paid from the sales proceeds.

“However, there are some flat owners who originally had no intention to sell their flats, but still allowed moneylenders to lodge caveats against their flat. These flat owners may be pressured to sell their flats to raise money quickly to repay debts.”

So the seller who has sold off his flat and repaid the moneylender, may not be able to afford to buy his next flat.

Some may also join HDB’s queue for rental flats when they do not in fact qualify for rental housing.

With the amended Bill, moneylenders can now no longer claim caveats to have first cut of the sales proceeds of a seller’s flat.

Mr Mah said existing contracts with valid caveats lodged will not be affected. This is in recognition of the sanctity of contracts already legally entered into.

The changes also do not affect banks and financial institutions, which can continue to grant loans on the security of the flat for the purpose of financing its purchase.

“This policy change does not mean that HDB flat owners can no longer borrow from moneylenders. They can continue to do so. But they cannot use their HDB flat as a security and they must find other ways to ensure that they can repay their debts,” said Mr Mah.

The Moneylenders Association of Singapore said a lot of the cases involve real estate agents who are also licensed moneylenders.

It added the new law will mean less protection for moneylenders, which may drive them to raise interest rates.

Interest rates are now between 18 to 25 per cent and this may go up to more than 30 per cent.

HDB: Divorcee should be able to get loan

Source : Sunday Times – 8 Nov 2009

We refer to the letter from Ms Norliah Abu, ‘Divorced and can’t afford a flat’ (Oct11).

We have looked into Ms Norliah’s circumstances. She has enjoyed housing subsidies in the form of a Central Provident Fund (CPF) housing grant and HDB concessionary loan. She transferred her executive flat to her ex-husband in December 2007.

Based on her CPF savings and her monthly salary, she should be able to obtain a bank loan to purchase a flat.

Ms Norliah and her two children are currently living with her brother. She has applied for a four-room flat in Jurong West under our Sale of Balance Flats exercise.

The average purchase price of a four-room flat in Jurong West is about $260,500.

Based on the Housing Board’s preliminary assessment, she will need a bank loan of about $140,000 for the intended flat purchase. She can pay her monthly instalments solely using her monthly CPF contributions.

She can also consider buying a more affordable flat to minimise her loan.

Ms Norliah is not eligible to apply for a subsidised rental flat, as it is meant for the needy who have no other housing options.

If she is unable to obtain a bank loan, she may contact the HDB on 6490-3827 for assistance.

Tay Koon Quie
Deputy Director (Sales)
Housing & Development Board

Counsellors find way out of debt for families

Source : Straits Times – 18 Sep 2009

ABOUT 800 families who owed the Housing Board money have downgraded to smaller flats in the past year, after receiving debt-management advice from specially trained HDB staff.

In an apparent move to tackle the growing number of households in arrears, the HDB, in September last year, started deploying these housing counsellorsin its branch offices.

And one of them, Ms C. Arasi, said that patience is key when it comes to dealing with home owners with difficult cases.

The bulk of her cases are the ‘more complex’ ones, such as divorced couples who try to push responsibility for settling the loan to the other party, or jobless workers who are unable to keep up with repayments.

The majority of those in arrears are odd-job workers without a stable income or Central Provident Fund (CPF) contributions, she added.

‘Previously, the block officers in charge handled these cases but they may not have the time or skills to deal with these people,’ she said.

‘We are trained to counsel, to empathise.’

She said that many families start to work on settling their debts when they realise that the ‘HDB is willing to listen to their problems and is not there to take over their flat’.

Ms Arasi said some of the home owners she advises have been in arrears for 18 months or even longer.

The counsellors help such people explore their options for settling their debts.

Solutions might include subletting a room to earn some income or downgrading to a smaller flat.

They also refer the unemployed to community development councils to help them in their job searches.

And for families who have to move to smaller flats, housing counsellors will also help to facilitate and speed up the process.

Father of three Abdul Rashid, 49, was one of those counselled by Ms Arasi.

The sole breadwinner started falling behind in his loan payments after he was retrenched from his job as a technician in 2004.

Then, his instalment for his five-room Sengkang flat was about $800 a month but he could not pay for eight to nine months after becoming jobless.

Although he has since found work as a driver, Mr Abdul was advised to sell his flat and move into a smaller unit as his current income of about $1,500 is significantly lower than what he was bringing home when he was working as a technician.

Mr Abdul said that Ms Arasi helped him find a three-room flat and, with the sale of his five-room unit, he has been able to repay his $240,000 loan to the HDB.

‘Now, I feel much lighter and the burden is gone,’ he said.

During the past year of economic turmoil, Members of Parliament said they have seen an escalating number of home owners asking for help after falling into financial trouble.

In February, National Development Minister Mah Bow Tan told Parliament that the HDB has a range of help measures.

These include allowing cash-strapped home owners to reduce or defer their payments.

Mr Mah also said the HDB is prepared to be flexible when it comes to rules stating that second concessionary loans are available only to people upgrading to larger flats.

While the rules will remain in place, he said downgraders would also be considered for loans on a case-by-case basis.

When asked, the HDB did not provide the latest numbers of those who default on their housing loan payments.

However, a Straits Times report in January stated that the number of home buyers defaulting on their home loans for periods of three months or longer has risen significantly over the last five years.

Such defaulters have climbed from 5 per cent to 8 per cent of all HDB home loans.

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A SYMPATHETIC EAR

‘We are trained to counsel, to empathise… Many of these families have the misconception the HDB is there to take over their flat’. - Housing counsellor C. Arasi

HDB to help home owners avoid defaults

Source : Straits Times - 7 Feb 2009

THE Housing Board has prepared a range of measures to help the increasing number of home owners who are defaulting on their home loans in this downturn.

The steps include a mix of short- and long-term measures such as deferring or postponing payments, counselling and, only as a last resort, compulsory acquisition, said National Development Minister Mah Bow Tan yesterday.

The moves come as evidence mounts that more owners are getting into difficulties as the number of job layoffs increases.

MPs Amy Khor (Hong Kah GRC) and Teo Ser Luck (Pasir Ris-Punggol GRC) told Parliament there has been an increase in appeals by struggling home owners at their Meet-the-People sessions.

‘This number will certainly only increase,’ said Dr Khor.

One key measure is that the HDB can reduce or defer payments for up to six months as home owners adjust to tougher times.

However, Mr Mah said this is not a solution as the longer the payments stretch, the more interest will accumulate.

‘More seriously, households may be lulled into a false sense of financial security, and reduce their resolve to settle their financial problems decisively,’ he added.

Citing numbers from the last recession in 2003, Mr Mah said the HDB allowed ‘very long periods of reduced repayments’.

Today, there are some 6,500 households in arrears for periods of more than two years; some are in arrears for three or four years even.

This is why the HDB has shifted its focus from short-term relief to long-term sustainable solutions.

These steps include downgrading. To this end, the HDB is prepared to depart from usual practice and extend a second concessionary loan to downgraders on a case-by-case basis, said Mr Mah.

Many MPs, such as Mr Charles Chong and Mr Teo from Pasir Ris-Punggol GRC and Mr Baey Yam Keng from Tanjong Pagar GRC, have called for this step. Under current rules, such loans are only for upgraders.

‘There’s no overall change in policy but recognising the situation, HDB will be more flexible to help those in difficulty to get another loan,’ said Mr Mah.

The HDB will also source for low-cost flats, either from its existing stock or from the open market, for ‘exceptional cases of financial difficulties’.

It is introducing a new concept of ‘interim housing’, which is essentially for those who may need to downgrade urgently but have bought a new flat that has yet to be completed.

The HDB will refer such cases to its managing agent, for temporary rental of a room at below market rate, while their smaller flat is being built, said Mr Mah.

Although downgrading is a tough decision, Mr Mah stressed it is ‘ultimately in the best interest of the family as it allows them to get a fresh start to rebuild and recover from their financial setback’.

Gardener Tan Suay Yan, 52, is one person who has had to make this difficult choice.

She and her husband, a 59-year-old cook’s assistant, bought a five-roomer in Woodlands in 1999 for $210,000 but soon started defaulting on payments as he was in and out of jobs.

Madam Tan told The Straits Times that HDB officers advised her on her options for a long time and finally, after an eight-year grace period, the family bit the bullet and downgraded to a $90,000 two-room flat in Toa Payoh.

Today, they are debt-free and own their own home. Madam Tan wrote a thank-you letter to the HDB in Lianhe Zaobao newspaper, which was cited by Mr Mah in Parliament yesterday.

Such advice and counselling will continue to be offered by the HDB, he said.

HDB officers made more than 60,000 house visits on arrears-related matters last year and conducted over 35,000 interviews and financial counselling sessions.

This is a ‘complex and painstaking task…but HDB will press on, as we want home owners to find a viable long-term solution,’ said Mr Mah.

He also urged home owners to be realistic and spend within their means. ‘And we will do our best to support you every step of the way.’

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The HDB is introducing a new concept of ‘interim housing’, which is essentially for those who may need to downgrade urgently but have bought a new flat that has yet to be completed. The HDB will refer such cases to its managing agent, for temporary rental of a room at below market rate, while their smaller flat is being built, said Mr Mah.

HDB help for homeowners affected by recession

Source : Channel NewsAsia - 6 Feb 2009

The Housing and Development Board (HDB) will temporarily reduce or defer loan repayments for up to six months to help households affected by the current recession.

National Development Minister Mah Bow Tan, speaking during the debate on his ministry’s budget estimates in Parliament, said this move aims to help homeowners who have had their incomes affected by retrenchments or pay cuts.

“This gives them time to make adjustments to their lifestyles and consider longer-term options,” he said.

“However, reducing the loan repayment cannot be a solution in itself, especially in cases where the poor financial situation is likely to persist.

“The longer we stretch the reduced repayments, the more the interest accumulates,” he added.

Mr Mah warned that households could also be lulled into a false sense of financial security because of this.

He pointed out that HDB allowed very long periods of reduced repayments during the last economic downturn in 2003 and 2004.

Because of this, there are now 6,500 households in arrears.

Mr Mah said: “So we’ve got 6,500 households who are owing arrears for more than two years. Some of them are owing three years, four years. We had hoped by giving them more time, they would be better able to resolve their financial problems. Instead, they remain unable to service their loans and they are not nearer to a sustainable solution. In fact their circumstances have worsened significantly and their arrears have gone up.”

That is why instead of providing short-term relief to its arrears cases, HDB now helps them find longer-term sustainable solutions to their problems, said Mr Mah.

To do this, affected households must be prepared to make tough adjustments and these include subletting a room or even the whole flat.

Homeowners can also consider downgrading their flats to help them get through these difficult times, said Mr Mah.

Govt unveils measures to support home ownership even in hard times

Source : Channel NewsAsia - 6 Feb 2009

The National Development Ministry has announced a slew of measures to ensure Singaporeans have a roof over their heads, especially during these difficult times.

Speaking in Parliament on Friday, National Development Minister Mah Bow Tan said the key thrusts are to keep home ownership affordable, help home owners with financial difficulties, increase help for the needy and safeguard rental flats.

Madam Tan Suay Yan’s family has been unable to pay the S$1,000 monthly mortgage instalment on their five-room flat since her husband lost his job. The family of six eventually decided to downgrade and buy a smaller unit, after being counselled by the Housing and Development Board.

In April, they will move to a studio apartment in Toa Payoh. It will be a squeeze, but Madam Tan will pocket a profit of about S$10,000 after selling her bigger flat and paying off other debts.

Madam Tan is among the many homeowners approaching the HDB these days for help amid the recession. Some 6,500 households are currently in mortgage arrears for more than two years.

Mr Mah said: “So HDB will help households in financial difficulties to downgrade. They will facilitate this process. HDB generally will not provide another loan to downgraders. Why? Because they usually have enough proceeds from the sale of their larger flat.

“But for those who need help in these difficult times, HDB will help them with another loan to buy a smaller flat. So there’s no overall change in policy, but recognising the situation, HDB will be more flexible for such things.”

For new homeowners with tight purse strings, the government will increase the supply of studio apartments, two- and three-room flats to add to the 4,800 such units already available.

1,400 such flats will be launched in the first half of this year, and another 2,000 a year on average over the next two years.

To make such flats more affordable, there will be tweaks to the Additional CPF Housing Grant (AHG). The maximum grant quantum for first-time flat buyers will be increased by S$10,000.

The buyers must be continuously employed for at least a year instead of two. The income ceiling will be raised to include households earning up to S$5,000 a month.

Here’s how the grant works out.

For a household with a monthly income of S$1,500 buying a new two-room flat at S$90,000, they will get a grant of S$40,000.

To take out a loan of S$50,000, they will have to pay only S$200 a month to service the loan and can do so using their CPF so that they do not have to fork out any cash.

For a household with a monthly income of S$4,000 buying a resale 4-room HDB flat at S$315,000, they can get a combined grant of S$55,000 and take out a loan of S$260,000.

They will have to pay about S$1,000 in monthly instalments, most of them through CPF, and only about S$120 in cash.

For elderly Singaporeans, they can look towards the Lease Buyback Scheme from March. This scheme helps to monetise the value of their flats. Some 25,000 households are expected to be eligible for this.

Mr Mah said: “These are not, I emphasise, not short-term reactive measures - reacting to the current situation. These are long-term solutions designed to help Singaporeans in need while we strengthen the social security framework so that people not only have to not worry about a roof over their heads but they will also have security in their old age.”

Mr Mah however cautioned that the generous subsidies from the government should not be seen as a windfall to be spent prematurely. He said the sums are meant to help citizens build nest eggs for their golden years.

The minister also urged first-time homeowners to live within their means - buy a right-sized flat and upgrade only when they can afford it.

Helping home owners

Source : Sunday Times - 4 Jan 2009

Two years ago, renovation contractor Ting Kah Ping was up to his neck in debt, owing the Housing Board more than $80,000 for his home loan. He was unable to meet the instalments.

Today, the father of four owns a flat without an outstanding loan - and he said it is thanks to the HDB.

Mr Ting, 54, and his wife bought a four-room flat in Tampines in 1998 for $112,800 but started having problems paying the instalments about five years ago.

Work as a renovation contractor was inconsistent and he was unable to service his loans regularly. He approached the HDB for help and it agreed to let him make smaller payments and, for a time, postpone his payments for half a year.

Still, despite his wife taking on part-time jobs while looking after their four children, now aged 11 to 21, they had difficulty paying their debts.

The HDB advised the couple to downgrade their flat and, earlier this year, they sold their home for $303,000. With the money, he bought a three-room home nearby and fully paid up his debt to the HDB.

‘I’m just glad the HDB did not force me to give up my flat or take it back. I think banks wouldn’t have had as much patience,’ Mr Ting said in Mandarin.

He is one of many home owners whom the HDB hopes to help with its various initiatives.

The board will consider allowing them to pay reduced loan instalments on a temporary basis and work out a solution to their financial situation.

Owners can also sublet a room to generate income, or include working family members as joint owners to help pay for the flat.

The board may also consider providing an additional HDB loan to help owners downgrade to a smaller, more affordable unit.

HDB home loan defaults on the rise

Source : Sunday Times - 4 Jan 2009

Number of cases has jumped by 8,000 since year-end 2003, making up 8% of all such loans

The number of home buyers defaulting on their home loans for three months or more has risen significantly over the last five years.

Figures obtained by The Sunday Times from the Housing Board show that the number of these defaulters has jumped by about 8,000 since the end of 2003.

Also, such defaults have climbed from 5per cent to 8per cent of all HDB home loans.

The figures underscore what seems to be a growing problem. From one in 20 borrowers being in arrears, the proportion is now one in 12.

Parliament was told recently that 33,000 out of 420,000 HDB home loan borrowers were in arrears for more than three months.

When asked for historical data, HDB said that at the end of 2003, 25,000 flat owners out of the 517,300 households with HDB loans were in similar arrears.

At the end of 2002, the number was even lower - at 4per cent, or about 21,800 of the 540,000 households.

On the decreasing number of total HDB loans, market analysts say this is likely due to new rules that took effect on Jan1, 2003, which stated that those upgrading their flats for a second time, as well as all downgraders, must borrow from banks instead of the Housing Board.

HDB loans - which offer a concessionary rate - are available only for first-time buyers or first-time upgraders.

Analysts told The Sunday Times that the increase in defaulters was likely due to the fact that HDB flat prices were ‘very much lower in 2003′ than they were last year.

HDB flat prices have risen steadily over the last four years during Singapore’s property boom to a ‘new peak’, said ERA Asia-Pacific associate director Eugene Lim.

‘Incomes were also on the rise. During good times, it is possible that some home buyers overstretched in a rising market and may now be in a fix as the economy sinks into recession,’ he said.

HDB flat prices enjoyed a spectacular bull run with a 17.4per cent gain in 2007, the strongest growth in a decade.

Latest estimates last Friday showed that while private property prices fell 4.3per cent last year, HDB flat prices rose a further 13.9per cent.

Property agency PropNex’s chief executive officer, Mr Mohamed Ismail, said an increase in affluence and higher costs of living over the last five years could have contributed to the higher incidence of people being in arrears.

Finally, HDB rarely repossesses defaulters’ flats, leaving their numbers to accumulate in the system. Some home owners in arrears can take up to a few years to pay off debts.

Still, the number of HDB home owners in trouble is clearly on the rise.

Members of Parliament interviewed confirmed the trend, noting a rise in residents seeking help for home loan problems at their Meet-the- People sessions.

Dr Teo Ho Pin, Mayor of the North West District, MP for Pasir Ris-Punggol GRC Teo Ser Luck and Aljunied GRC MP Cynthia Phua are among those who have noticed the trend.

In many cases, said Dr Teo, home owners were retrenched or had to switch to lower-paying jobs and could not maintain their loan payments.

‘A lot of them are coming to me for help to find them jobs,’ added Mr Teo.

The MPs pointed out HDB’s various assistance measures, such as allowing for the restructuring of loans, postponing payments, and even helping borrowers to downgrade to smaller flats.

The HDB also said it has several comprehensive measures to help such cases.

Banks which give market-rate loans for HDB flat purchases say they have not yet seen a significant increase in the number of defaulters.

Maybank said there had been a slight increase ‘but nothing at an alarming rate’.

OCBC and DBS said there had been no significant increase in arrears.

Mortgage consultant Dennis Ng from portal www.HousingLoanSG.com said banks generally charge defaulting home owners higher interest, but will, on a case by case basis, help those facing difficulties to restructure their home loans.

Repossession of their flats is a last resort.

Looking ahead as the recession deepens, MPs said more HDB borrowers will probably have problems paying off their mortgages.

Madam Phua said the limited supply of smaller flat types could become a problem that needs fixing quickly as families start to downgrade.

The HDB is addressing this by beefing up the supply of two- to three-room flats to around 4,000 over the next two years for lower-income families and those home owners who need to downgrade.

These, however, will be ready only in two to three years. ‘We’ll have to explore other options in helping such default cases in the coming year,’ said Madam Phua.

Credit screening is done

Source : Today - 22 Dec 2008

Loan givers have checks done on buyer’s profile

In “Risk profiling for homebuyers?”(Dec 17), Mr Ee Teck Siew suggested that the Government and industry associations consider implementing a “fact finding process” to ensure that potential home buyers buy properties they can afford, based on their abilities to service mortgage loans.

Most homebuyers would need to obtain a bank loan upfront. The homebuyers would therefore be subject to creditscreening by the banks, which will ensure that the home-buyers can afford the properties they intend to buy. In the credit checks, the banks would typically take into consideration the homebuyer’s income, age and other debt commitments.

Housing and Development Board (HDB) flat buyers taking HDB concessionary loans are required to obtain a HDB Loan Eligibility (HLE) letter before committing to the flat purchase. The HLE letter similarly takes into account the flat buyers’ age, income and other financial commitments to calculate the maximum loan quantum and the expected monthly installments to ensure that the flat buyer is not financially overstretched.

We thank Mr Ee for his feedback.

Lim Yuin Chien
Deputy Director (Corporate Communications), Ministry of National Development

Lower Sibor attracts more home buyers

0.9% rate sees more interest but analysts warn of risks

INSTALMENTS for many home loan borrowers are set to fall after the all-important interest rate at which banks lend funds to one another nosedived to about 0.9 per cent this month.

Many home loan packages are pegged to this rate - known as the three-month Singapore Interbank Offered Rate (Sibor) - so when it goes down, so do Sibor- linked home loan instalments.

According to economists, the three-month Sibor should remain at these depressed levels into the new year.

OCBC Bank economist Selena Ling said the three-month Sibor is reacting to a couple of factors.

One is the widespread market expectation that the US Federal Reserve will cut its Fed funds target rate to 0.25 per cent from 1 per cent at its meeting on Tuesday.

The Sibor closely tracks this rate.

Another factor: continued measures by the Singapore authorities to pump liquidity into the system, against a backdrop of global and domestic recession.

In September, the three- month Sibor spiked to 2 per cent as the global credit crunch hit home here. Banks were afraid to lend to one another for fear of not getting repaid.

With the rate coming down sharply, more and more home buyers are looking at Sibor-linked loan packages.

Mr Geoffrey Ying, head of the mortgage division at financial advisory firm New Independent, estimates that six out of every 10 customers he is seeing are enquiring about Sibor-linked packages not only for high-end units, but also for HDB flats.

A year ago, when Sibor was significantly above 1 per cent, only three or four customers out of 10 would show interest.

It is easy to see why Sibor- linked packages have become the talk of the town, given the potential savings.

Suppose you want to buy an HDB flat. The best rate in the market is the 2.6 per cent annual rate for those qualifying for an HDB concessionary loan. This rate is pegged at a level 0.1 percentage point above the prevailing CPF ordinary account interest rate.

By comparison, at Standard Chartered Bank, for example, if you choose a two-year lock-in, its Sibor-linked package works out to Sibor plus a spread of - in this case - 0.95 per cent.

So if three-month Sibor stands at 0.9 per cent, you pay an annual rate of 1.85 per cent - lower than the HDB concessionary rate.

Still, financial experts say homebuyers must be careful. When Sibor falls, borrowers with a loan pegged to it gain as they will be paying a lower interest rate. But conversely, if the benchmark rate heads up, mortgage instalments also rise.

‘We think though, that Sibor still has the potential to spike up, given that risks still remain out there,’ a United Overseas Bank spokesman said.

Borrowers need to think carefully about choosing between two loan options, experts say.

Since January 2003, when banks were first allowed to provide loans for HDB flats, many homebuyers have opted for Sibor-linked packages as Sibor was very low, said Mr Leong Sze Hian, president of the Society of Financial Service Professionals.

In June 2003, the three-month Sibor bottomed out at 0.5625 per cent, but then surged to as high as 3.56 per cent three years later.

Mr Leong said that historically, the HDB rate of 2.6 per cent has been lower than rates for Sibor-linked packages.

More importantly, homebuyers with an HDB concessionary loan who switch to a bank loan cannot go back to the HDB if bank rates suddenly rise above the board’s 2.6 per cent concessionary rate.

Experts think that banks are far more inclined than the HDB to repossess properties in the case of loan default.

‘During the economic slowdown, there’ll be people who’ll struggle to meet monthly payments. Sure, Sibor-linked rates are low now, but if you want certainty, you’ll choose HDB’s,’ said Mr Patrick Lim, associate director of financial advisory firm PromiseLand.

Take Mr David Lee, for instance. The 35-year-old engineer said that even though he is paying more now because he chose an HDB concessionary loan, he is not going to switch to a Sibor- linked package any time soon.

‘I don’t mind the slightly higher rate for peace of mind,’ he said.

Mrs Ong-Ang Ai Boon, director of the Association of Banks in Singapore, is on record as saying that ‘repossession would be a last resort, after all other measures have failed’.

Why Sibor is down

~ There is widespread market expectation that the US Federal Reserve will cut its Fed funds target rate to 0.25 per cent from 1 per cent at its meeting next Tuesday. Sibor closely tracks this rate.
~ Continued measures by the Singapore authorities to pump liquidity into the system.

Source : Straits Times - 13 Dec 2008

HDB loan defaults expected to rise

THE number of defaults on HDB home loans is expected to increase if the economy ‘goes down even further’, said National Development Minister Mah Bow Tan yesterday.

‘As we all expect, if there are further job losses, then inevitably there will be more arrears cases coming up,’ he said at HDB Hub.

Measures to help struggling home owners have been in place since the last downturn. These include deferring payments, downsizing flats or extending loans.

Parliament was told recently that there are about 33,000 flat owners owing the HDB arrears of three months or more. They comprise less than 8 per cent of the 420,000 households with HDB loans.

Mr Mah was responding to a question by The Straits Times about plans to help such home owners in the downturn.

‘We have to look at individual cases to see what is the situation for each particular case. The main criteria is to help them to tide over…to make sure there is a sustainable solution,’ he said.

He said deferring mortgage payments does not help in the longer term as home owners still have to pay and interest builds up.

Owners are encouraged to downgrade if they cannot afford a large flat, and if they have financial difficulties, HDB could extend another loan, he added.

This is an example of a sustainable solution, ‘making sure that their loans are smaller… and they are able to survive this crisis and build up their finances from then on’, said Mr Mah.

Source : Straits Times - 13 Dec 2008

Long term measures to help HDB mortgage defaulters is best solution

Source : Channel NewsAsia - 18 Nov 2008

The Housing and Development Board (HDB) will continue to keep tabs on flat owners who default on their HDB mortgage payments.

It stressed that long term measures to help these owners manage their mortgage payment is the best solution, and that compulsory acquisition of the flat is a last resort.

As of October 2008, some 33,000 flat owners owed HDB arrears of three months or more. They make up less than 8 per cent of the 420,000 households with outstanding HDB loans.

Giving this update in Parliament on Tuesday, Parliamentary Secretary for National Development Mohamad Maliki Osman said home owners should buy within their means.

But he recognised that there are some who are affected by the economic downturn and one option for them is to downgrade to a smaller unit.

More 2 and 3-room HDB flats will be coming on stream next year to cope with the growing demand for smaller flats.

Dr Maliki also said heavily subsidised rental flats should be given to those who are in dire need.

How a sub-prime crisis was averted in 1985

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.

Be prudent, start small

Source : Sunday Times - 5 Oct 2008

These are not the best of times, but the Housing Board’s new and resale markets are still holding strong. Last week, in its balloting exercise, the HDB drew an overwhelming response for some of its priciest flats at the 50-storey Pinnacle@Duxton in Tanjong Pagar. There were almost 1,500 applications for the 428 four- and five-room flats on offer, or 3.5 hopefuls for every unit. The 111 five-room flats there start at $545,000 and hit $645,800 for a 49th-storey unit - the most expensive new HDB flats - yet there were still 372 applicants.

We wonder how many of them are young married couples. Assume a young couple’s combined income is $8,000, which is the HDB’s ceiling for new flat applicants, and they plan to take out a $500,000 loan stretched over 30 years. If they are eligible for an HDB loan whose interest is 2.6 per cent, their monthly instalment is about $2,000. And they can use $1,600 from their CPF. It is painless. But what they do not reckon with is that at the end of the 30-year period, they would have paid a total sum of about $800,000 because of the interest, and there will be nothing left in their CPF, except the minimum sum.

Such couples will be asset-rich, cash-poor, which is the position many Singaporeans are in today. Of course, they can imagine their pay and property prices going up over the years. But as the current financial crisis shows, bad times can come unexpectedly, and there is always the possibility of losing one’s job. There are also other young couples who commit themselves to condos and cars before they have built up adequate savings. In a downturn, they will not be able to offload them without suffering losses. To these young couples, we advise prudence. Property in Singapore is a good long-term investment, probably one of the best. But the wisest thing to do is to start small. Buy a three- or four-room HDB flat in a location that does not come with a huge premium. Then scale up as savings accumulate.

POSB mortgage plan leads market: DBS

Source : Straits Times - 14 Aug 2008

It says half the buyers ineligible for HDB loans have Home Ideal package

DBS BANK says it has reached a decisive milestone in its renewed efforts to grab a bigger slice of the Singapore mass mortgage market with its POSB brand.

It adds that it has pulled ahead of rival banks in offering loans to HDB flat dwellers.

The bank says it has captured more than half of the market for loans to Singaporeans who are not eligible to take up a Housing Board concessionary loan.

The HDB currently provides loans for 60 per cent of flat resale transactions, with banks in Singapore offering the remaining 40 per cent. Of this latter group, one in two Singaporeans currently has a POSB Home Ideal mortgage, which offers transparent interest rates.

In 2003, the HDB liberalised the market to allow Singapore banks to serve this customer base. Two years later, there were a handful of players battling neck and neck for customers, including Hong Leong Finance, OCBC Bank and DBS.

In 2006, DBS started to pull ahead after launching its flagship POSB Home Ideal product with interest rates pegged to the Central Providend Fund (CPF) Ordinary Account rate.

This product offered the stability and transparency that appealed to HDB homebuyers and helped POSB to notch up an all-time record of sales during one month in the second quarter of this year, said Mr Koh Kar Siong, DBS’ head of consumer deposits and secured lending, in an interview yesterday.

Over the past three years, POSB has seen a compounded annual growth rate of 20 per cent in its HDB home-loans business.

And growth was still sizzling in the second quarter of this year. POSB saw a 22 per cent rise in the number of new mortgage accounts in this period, compared to the preceding three months. Meanwhile, loan volumes grew by more than a third.

During this period, the total number of resale transactions increased 22 per cent to hit 7,760, compared with the preceding three months.

DBS chief executive Richard Stanley has declared that POSB will be relaunched. It will celebrate its long history by offering better service and more products to Singaporeans, as part of his strategy to aggressively grow the bank’s Singapore and Hong Kong business.

With more than 70 per cent of people in Singapore living in an HDB flat, the Housing Board mortgage market is - not surprisingly - high on POSB’s agenda for aggressive expansion.

Mr Koh acknowledged that loans growth is expected to moderate in the coming months, as buyers and sellers of flats take a ‘more prolonged time’ to negotiate and complete transactions.

But POSB will still be coming up with ways to enhance its Home Ideal mortgage in order to attract ‘even more significant market share’, he said.

The best price in the market is the current 2.6 per cent annual rate for those who qualify for an HDB concessionary loan. This rate is pegged at 0.1 per cent above the prevailing CPF interest rate.

But for those who need to take up a bank loan, the POSB Ideal package’s average annual interest rate over three years is 3.1 per cent.

This is based on the first-year rate of the CPF rate plus 0.25 per cent; the CPF rate plus 0.5 per cent in the second year; and the CPF rate plus 1 per cent in the third.

This compares with 3.5 per cent for the variable-rate loans offered by United Overseas Bank as well as OCBC, and an average of 3.18 per cent over three years for a Hong Leong Finance variable-rate loan.

CPF keeps OA interest rate at 2.5%

Source : Business Times - 14 Aug 2008

Concessionary rate for HDB mortgage loans remains 2.6%

THE Central Provident Fund Board (CPF) will continue to pay 2.5 per cent interest per annum for members’ savings in their Ordinary Account (OA) from Oct 1 to Dec 31.

Savings: The interest rate for the Special, Medisave and Retirement accounts (SMRA) for October to December will be announced next month

CPF said that although its computed interest rate derived from the rates of major local banks for the period May 1 to July 31 works out to be 0.74 per cent per annum, the higher rate of 2.5 per cent will be paid because that is the minimum specified under the CPF Act.

The Housing and Development Board (HDB), meanwhile, has announced that the concessionary interest rate for HDB mortgage loans, pegged at 0.1 of a percentage point above the CPF interest rate for the OA, will remain unchanged at 2.6 per cent per annum from Oct 1 to Dec 31.

The interest rate for Special, Medisave, and Retirement accounts (SMRA) for October to December will be announced next month.

The prevailing CPF interest rate for SMRA is 4 per cent, based on the 12-month average yield of the 10-year Singapore Government Security plus one per cent.

To help members adjust to this floating rate, the 4 per cent floor for the SMRA rate will be maintained for the first two years, as earlier announced.

An extra one per cent interest will continue to be paid on the first $60,000 of a member’s combined balances, with up to $20,000 from the OA.

The extra interest from the OA will go into members’ Special or Retirement accounts to enhance their retirement savings.

Applicant made profit selling flats

Source : Straits Times - 4 Jul 2008

I REFER to the letter, ‘How can a single mother of three afford a five-room flat?’ by Madam Kok Wee Ming (June 20).

HDB provides concessionary interest-rate housing loans to two main groups: one, first-time buyers to set up home; and two, second-time buyers who wish to and can afford to upgrade their home.

HDB does not grant a concessionary loan to second-time households that are downgrading or buying a flat of the same size. This is because such households can generally use the sales proceeds from their first flat to finance the purchase. Alternatively, they can seek mortgage financing from the banks.

In Madam Kok’s case, she has sold two HDB flats previously with profits. She has also previously enjoyed one HDB concessionary loan. Hence, she is not eligible for a second HDB concessionary loan unless she is upgrading to a larger flat. She should use her previous sale proceeds to finance the purchase of a smaller flat.

Nonetheless, HDB recognises there may be some second-timers who are required by circumstances to buy smaller flats.

HDB is prepared to consider granting them an HDB loan on a case-by-case basis, if they are unable to obtain a loan from the banks.

HDB has written to Madam Kok for more documentation to evaluate her appeal.

Quek Kwong Phow
Deputy Director (Admin & Accounting)
For Director (Estate Administration & Property) Housing & Development Board

Many still not aware of housing finance limits

Source : Straits Times - 14 Jun 2008

I WOULD like to highlight an issue on housing finance in Singapore.

Through recent conversations, I realised that many of my friends who have bought Housing Board and/or private condominiums are not aware of the policies on the 100per cent Available Housing Withdrawal Limit (AHWL) and 120per cent to 150per cent cap on Central Provident Fund withdrawals if they bought a unit recently.

For example, my friend bought a unit for $300,000. After paying for it for 10years at $1,500 a month, he hit the 100per cent

AHWL at the halfway mark of a 20-year loan. Because he has insufficient Central Provident Fund (CPF) Minimum Sum, he has to put aside that $1,500 in cash from his monthly income, which requires a big adjustment.

If he had been more aware of the policies, he could have lowered his monthly instalments, lengthened his loan period, while saving up cash as early as possible.

Over the next few years, those who have reached the 100per cent AHWL and cannot use their CPF to pay, may not have enough cash to pay their instalments.

This is especially so for many who bought their flats in the late 1990s, since the ruling came into effect only in the mid-2000s.

Most people think they can depend on their CPF, and may not have enough cash savings or income to pay the instalments.

I hope the HDB and CPF Board can come together to organise programmes to create more public awareness about the issue, and also review their policies to allow owners to maximise their CPF before they hit the AHWL. This is so that home owners do not inadvertently have to depend on cash, while their CPF remains locked in.

Currently, owners get a notice letter only a year in advance, which may not be sufficient time for them to make the necessary adjustments, such as saving up, or even downgrading.

Ng Cheow Siang

43,000 rental flats - but they are for the genuinely poor

Source : Sunday Times - 22 Jun 2008

The Housing Board says it guards its 43,000 rental units judiciously, reserving them for the genuinely poor who need a roof over their heads. In its reply to The Sunday Times, it reiterated this point: ‘HDB rental units are limited and reserved only for families who have no housing options.’

Depending on household income and other factors, rentals are between $26 and $205 a month for a one-room flat; and between $44 and $275 for a two-room unit.

Families whose monthly household incomes are $1,500 or less can apply for rental housing. However, they must wait for 30 months after selling their flats before being eligible for subsidised rental homes.

During this year’s Budget debate in March, National Development Minister Mah Bow Tan highlighted cases where applicants who were hoping to take advantage of subsidised rentals drove up demand for rental flats.

Last year, more than half of those who applied for rental units were former home owners who did not owe the HDB any money when they sold their flats.

The HDB advises those planning to sell their flats to first find a place to stay before they proceed with the sale.

It said: ‘HDB has encountered flat owners who sell their flats, then turn to HDB to apply for a subsidised rental flat. Some even harbour the notion that they are more deserving than those already in the queue for a rental flat and demand one immediately.’

The HDB cited the case of a couple who sold a four-room resale flat in February this year and received about $126,000 after paying off their bank loan. They had sold off two other flats before, both at profit as well.

After the latest sale, the couple sought to buy a resale three-room flat valued at $158,000. When it came to paying the 5 per cent cash payment of $7,800, the couple claimed they were unable to pay and appealed to be allowed to pay the amount in instalments.

The request was turned down as the 5 per cent cash payment had to be handed over to the seller if the deal were to go ahead.

The sale fell through and the husband appealed to rent a flat instead, even though the couple’s monthly household income of $2,300 exceeded the income ceiling for HDB flat rental.

HDB said: ‘Flat owners should not sell their flats with the expectation of obtaining a subsidised rental flat.

‘If they are not buying another home, they have to make their own alternative housing arrangement before selling their existing flat, with family members as their first line of support.’

Since January last year, all buyers need to obtain an HDB Loan Eligibility (HLE) letter before they can buy a unit. The HLE maps out the loan available to them, the repayment scheme and the monthly instalments.

The HDB advised that families should also factor in the repayment of any outstanding loans on properties they are selling.

Do away with HDB cash upfront payment

Source : Straits Times - 27 Jun 2008

I HOPE the HDB will review its policy on 5 per cent cash upfront payment for those taking bank loans.

In the current market, HDB flat sellers ask for cash above valuation, on average at least $20,000 to $30,000. A buyer who takes a bank loan has to fork out another lump sum to meet the HDB’s 5 per cent rule, which for a four- or five-room flat could mean $15,000 to $20,000. Throw in renovation cost of about $15,000 to $20,000 (and this is a low estimate) and we are talking about at least $60,000 in cash outlay.

The HDB says the 5 per cent policy was introduced ‘to encourage prudence’. But how does making people pay 5 per cent in cash ensure they will buy within their means? The measure of affordability should surely take into account CPF balance, regular job and so on.

My wife and I have enough in our combined CPF to pay for the flat in full if need be, yet we have to spend our savings to pay for part of it. If the principle is to ensure prudence, it is contradictory if I have to pay cash from my savings when there is a large sum in my CPF.

If the policy is meant to help curb profiteering, it penalises the majority who move for genuine reasons. People move home for various reasons.

In any case, I am perplexed why there is a difference between buyers taking bank loans and buyers taking HDB loans. Those who take bank loans are already at a disadvantage since HDB loans are below market rates. Why should one be further penalised for not qualifying for an HDB loan?

Yeo Yu Jin