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HDB: Why not so easy to downgrade

Leong Sze Hian/

Over the last few weeks, we have encountered more than 10 cases of Singaporeans with HDB housing problems and homelessness.

There was a Singaporean divorcee in her mid 40s, who works as a security guard for $1,300 a month, who downgraded to homelessness.  When we asked her where is she staying now?  She said “Most of the time in the security guards office”.

Then there was the case of a 44 year old single Singaporean lady staying in a homeless shelter who had lodged 18 appeals to the HDB in her attempts to apply for a subsidized rental flat after selling the four-room flat in Sembawang that she co-owned with her brother. (“HDB: 18 appeals and still homeless“).

So why is it so hard to downgrade your HDB flat?

More downgraders than upgraders?

Thanks to the National Development Minister’s blog entry “Who buy resale flats”, we finally have statistics on the people who purchase resale flats.

According to the statistics, 8 per cent were private property downgraders,  and 37 per cent of the 34 per cent second-timers bought 3-room or smaller flats. Not counting the number of those downgrading to BTOs, and the fact that second-timers preferred smaller flats, it may indicate that the trend may be more people downgrading than upgrading.

I believe most people downgrade because they are cash-strapped, can’t afford to pay their mortgage, or need to monetise their HDB flat, etc.

Their typical downgrading problems are:-

  • not enough cash to pay for the Cash-over-valuation (COV), which is once again rising to a record high  (“COV for HDB resale flats rises again“)
  • no bank willing to lend them a housing loan because of a poor credit record, current or discharged bankrupt, having income of less than $2,000,  the loan amount  being less than $100,000, or having been sued for non-payment of debt previously.
  • the HDB refused to give a housing loan because those who have ever owned a private property or Executive Condo (EC) are barred, household income insufficient to support the mortgage and number of persons in the household (this hits particularly larger families), irregular income record, borrower unable to come up with half of the cash proceeds from the last HDB flat sale (regardless of how long ago), the entire CPF and accrued interest from the last flat sale which may have already been withdrawn for other purposes such as education, unable to pay the Resale Levy of up to $50,000, etc.

With recent media reports that even about 200 licensed moneylenders have joined the credit bureau, may mean that even more Singaporeans may have difficulties getting a housing loan, because previously only bank debts were recorded in the Consumer Credit Bureau, and not moneylenders’ debts.

In this connection, in the Parliamentary debate on allowing banks to start offering HDB housing loans from 1 January 2003, the then-National Development Minister assured the members of the House that the HDB would help Singaporeans who may face difficulty in getting a housing loan.

However, in the past ten years that I have been providing free financial counseling for the needy, I hardly see any HDB housing loan problem cases where the loans were made prior to 1 January 2003!

All HDB housing loans prior to the 2003 ruling were either HDB Concessionary Loans for up to two times, or HDB Market Rate Loans for third-timers, without all the complicated rules that we now have for HDB bank loans.

Have CPF, but no  COV?

To illustrate the difficulty of downgrading, with a live example, let’s do an update on the article “HDB: $431,000 CPF – But homeless soon?”.

Mr and Mrs. Lim received a telephone call on 27 June from the HDB informing them that their appeal for a $30,000 HDB housing loan has been rejected, and that a letter of rejection would be sent to them.

The HDB also advised them to go to Credit Counseling Singapore (CCS) to work out a monthly installment plan for Mrs Lim’s debts.

In my view, the HDB may be quite out of touch with the realities on the ground.  Mrs Lim’s estimated $80,000 debts cannot be negotiated by CCS with all the bank creditors concerned, because their net monthly income is not enough to support even the longest installment plan generally allowed by the banks.

I estimate a five year installment plan on her $80,000 debts to be about $1,700 a month.

Also, as Mrs Lim is already in default on some of her debts, an installment plan or even reverting to paying the normal minimum amount every month may no longer be acceptable to the banks, because it is already in the hands of the debt collector or lawyers.

After struggling for the past seven years, due to Mr Lim’s business failure during the 2003 SARS crisis, they are at their wits end, and have already sold their EC, in a final act of desperation with the approval of the Official Assignee.

Why do we call it a final act of desperation?  Because if the wife is sued by any of her creditors for bankruptcy, the only avenue and hope of selling their EC to downgrade to a resale flat, may no longer be possible.

Based on the information and documents given to us, our best estimate of their current debt situation is as follows:-

  • CPF available for the resale flat purchase - $420,000 ($11,000 cannot be used as this was from their CPF Special Account allowed for the mortgage repayment on a special ‘hardship’ appeal basis).
  • Compulsory discharge of Mr Lim’s $117,000 bankruptcy creditors’ debts from the EC sale cash proceeds, of about $213,000.
  • Mrs Lim’s debts (excluding employer’s loan, loans from relatives, friends, etc) - $80,000
  • Net EC cash proceeds left after the above -  $16,000.

Therefore, without the $30,000 HDB loan that they have been appealing for, it may almost be impossible for them to buy a resale flat and pay the COV (Note: COVs are hitting a record high again now).

The seller of the resale flat (in Jurong West which the Lims have been told is the cheapest area) for which they have already signed the option to purchase, is sympathetic to their plight, and has agreed orally to given them until the end of this month, to exercise the option.

As they have to vacate their EC at the end of July, what will happen to them, if they cannot get the $30,000 HDB loan?

Change 'mindset' towards marriage?

To conclude I would like to refer to an article published on Channel Newsasia where the Acting Minister for Community Development, Youth and Sports called for Singaporeans to change their ‘mindset’ in their attitude towards marriage.(“S'poreans need to change mindset towards marriage: Chan Chun Sing”, Channel NewsAsia, Jun 25)

However, if we take the Lim family as a case in point, all their financial problems may go away if they do not have three children.

So, is it any wonder why Singapore’s marriage rate fell to a record low last year, while the number of divorces has increased, and the procreation rate is at a historical low?

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Alex Lew, Lee Mei Wei, Ko Siew Huey and Leong Sze Hian provide free financial counseling every Thursday from 8 – 10 pm., at Block 108, Potong Pasir Ave 1