By Leong Sze Hian

I refer to the article “895 HDB flats repossessed since 2003” (TODAY, Feb 28).

It states that “seven per cent of those who took HDB mortgage loans were in arrears of at least 3 months”.

As at the end of last year, banks have completed the mortgagee sale of 895 HDB flats financed with bank loans since the start of bank origination in January 2003. In recent months, the rate is about 60 cases a month.

Seven per cent of the 89,000 HDB flats with bank loans means that about 6,230 HDB flat owners have not been able to pay for more than 3 months. Some of these may become foreclosures.

As more Singaporeans have no choice but to take bank loans, because they have used up the two HDB concessionery loans allowed by just upgrading once by themselves or with their parents, more may lose their flats.

If there is a shortfall between the foreclosure sale proceeds of the flat and the housing loan outstanding, banks have sued such flat-owners for bankruptcy.

Banks have repossessed 1,445 flats since HDB bank loans started in January 2003, and have sold 895 of them. This means that 1.6 per cent of HDB flats on bank loans have been foreclosed.

As I understand that there are about 800,000 HDB flat-owners, if they had all been with bank loans, just imagine the amount of misery in Singapore with about 12,800 flat-owners having been foreclosed (1.6% foreclosure rate). If the average number of members in a flat is four, it translates to about 51,200 people who may be adversely affected. We should be concerned that every month, about 60 families are losing their homes.

In countries like the United States, which is arguably the highest credit-consuming country in the world, the delinquency rate is 2.11 per cent, the highest in four years, for real estate home loans which are over 90 days post-due or in foreclosure.

Singapore’s current rate of over seven per cent (seven per cent in arrears over three months plus 1.6 per cent foreclosure) may be about three times that of the United Sates.

How do we compare with other countries, particularly our neighbours ? I think at the rate that we are going, we may chalk up another top world ranking in this regard.

As to “from 2002 to 2006, some 360 households voluntarily surrendered their flats after defaulting on their mortgage loan repayments”, can the HDB please clarify what do they mean by “voluntarily surrendered”? Are they implying that no one has ever been forced to vacate a flat ? I am somewhat puzzled as to why anyone would “voluntarily” give up the family home, all the CPF life savings of the owners, and maybe continue be in debt to the HDB for any shortfall between the market valuation and loan outstanding ?

A key finding of a research paper by Associate Professor Ong Seow Eng, Research Director of the Centre for Real Estate Studies at the National Univesity of Singapore, is that protecting the CPF utilised in a mortgage, reduces significantly the tendency of borrowers to be delinquent on their mortgages. Why are HDB concessionary loan mortgages not on a non-recourse basis, like practically all residential mortgages in the United States ?

On non-recourse mortgages, the borrowers are not liable for any shortfall between the repossessed flat’s market value and the outstanding loan balance.

Perhaps the only salvation for the thousands who are in arrears (HDB’s annual report said that it provided financial assistance to 28,386 flat-owners in its last financial year), is for their flats’ value to increase at a rate higher than the 2.6 per cent accruing on their indebtedness, into the future.

How many more Singaporeans have to lose their homes and CPF, before we continue to describe a 1.6% foreclosure rate as being not very high?


About the author:

Sze Hian has 5 degrees and 13 professional qualifications. A Wharton Fellow, alumnus of Harvard University and the United Nations University International Leadership Academy, he has served as Honorary Consul of Jamaica, President of the Society of Financial Service Professionals, Representative of the Inter-American Economic Council, Chairman of the Institute of Administrative Management, and founding Advisor to the Financial Planning Association of Indonesia. He has been invited to speak more than 100 times in over 15 countries on 5 continents, authored 3 books and quoted over 700 times in the media.

Sze Hian’s website is here.

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