By Leong Sze Hian
Policy change which caused the greatest untold misery?
I promised at the end of my article “The ‘great’ MDA Parliamentary debate: So what?” – that I would write an article on the HDB policy change announced in Parliament in October 2002 – which in my view may have caused the greatest untold misery to arguably the most number of Singaporeans, than any policy change ever in our history.
Oct 2002 Parliamentary debate on HDB Act amendments
Here’s an extract from the October 2002 Parliamentary debate on amendments to the HDB Act:
“Mr Mah Bow Tan (MND Minister):
In tandem with the move to bank origination and greater responsibility, I had, in July this year, signalled my Ministry’s intention to treat certain HDB flats bought with bank loans more like private properties. I informed this House that MND was actively studying whether and how the restrictions on resale and rental of HDB flats can be relaxed.
This is also in line with the recommendations of various Economic Review Committee sub-committees, such as the CPF Working Group and the Sub-Committee on Entrepreneurship, that the Government explore various ways to help homeowners monetise their housing assets and thus free up capital in the economy.
I am pleased to announce the results of our review.
[divide]
Current policy
HDB flats are restricted by a minimum occupation period (MOP), which is the minimum period that a lessee needs to own a flat before he can sell it. The MOP is currently five years for a flat bought at subsidised prices, ie, either directly from HDB or a flat from the resale market but bought with a CPF Housing Grant, and it is 21/2 years for a non-subsidised flat bought from the resale market without any CPF Housing Grant.
Subletting of the whole flat is also currently disallowed, except in special circumstances. For example, the lessee may be overseas, or he may be elderly and, subject to various criteria, he can sublet his whole flat for income generation.
These restrictions reinforce the principle of long-term owner occupation for subsidised public housing. They help to justify the subsidies enjoyed by HDB flat lessees and are fundamental features distinguishing HDBflats from private property.
Policy refinements
The Government has considered the proposals from the ERC carefully. It has decided that, together with the move to bank origination in January 2003, HDB will relax the current restrictions on MOP and subletting for resale flats that are bought without the CPF Housing Grant and which are financed by bank loans.
[divide]
Resale flats with bank loans’ MOP reduced from 2.5 to to 1 year?
From 1st January 2003, HDB lessees who buy resale flats without any CPF Housing Grant and with bank loans will only need to occupy their flats for one year, instead of the current 21/2 years, before they can sell it in the open market.
Existing resale flats bought without any CPF Housing Grant will also qualify if the lessee re-finances his outstanding HDB market rate loan with banks or fully redeems his HDB market rate loan. The reduction in MOP will also apply to existing resale flats that are bought without CPF Housing Grant and without any loan from HDB.
Subletting relaxed for flats on bank loans? “Treated more like private properties”?
Subletting rules for these categories of flat buyers will also be relaxed. HDB will allow them to sublet their entire flat if they have occupied them for 10 years or more. With these changes, HDB resale flats bought without any CPF Housing Grant and without any loan from HDB will be treated more like private properties.
From “can rent HDB rental flat” to “cannot – case-by-case appeal” for those who couldn’t pay & lost their homes?
(If we) find that there is a case for special consideration, we will provide special consideration. And that is the rule of thumb. But to expect HDB to have a blanket ruling and say, “Don’t worry, we are going to provide you with a rental flat if you default on your loan”, I do not think that is a wise thing to do.
And it creates a moral hazard. That is not something that we would like to see. What we want to do is to explain to our people, when you make a commitment like this for public housing, or for private housing, when you go to a bank for a loan, please make sure you know what you are doing and do your sums.
Mr Chiam See Tong (Potong Pasir): Sir, the Minister says the number of eviction of lessees due to default of payments is very small. Can he please tell us how many of such evictions were there in 2001 and up to the 10th month of this year?
Mr Mah Bow Tan: Sir, I do not have the exact numbers with me. But I can recall that there were less than 10.
HDB loan got schemes to help those who can’t pay, but bank loans … ?
Mr Low Thia Khiang: Clarification, Sir. I understand one of the reasons why there was not much of default is because there were some Government schemes in place, like deferred loan, etc.
Will the Minister expect, in the event of an economic downturn like this, the banks would, like the Government, provide such services to help people who are unable to service their loans to tide over the period? And what would the Government advise the banks?
Not eligible for HDB loan – on bank loan – you die your business?
Mr Mah Bow Tan: Sir, as I said in my Second Reading speech, when somebody goes to the bank for a loan, he would have to abide by the bank’s rules of foreclosure, he would have to abide by the bank’s rules on credit assessment. So, the short answer to him is that all borrowers would have to abide by the rules that are laid down by the lender.
And it is no different for HDB’s case, it is no different for the bank’s case. In the case of HDB, when they come to HDB to borrow, HDB has to do a credit assessment. If they do not comply with those conditions, and they default on their loans, HDB can evict.
But, as Mr Low rightly pointed out, HDB is more forbearing, more forgiving. HDB has various schemes in place to help borrowers, such as stretching of repayments, and so on. We do not expect the banks to do so. Neither should we.
When they go to the bank for a loan, they have got to do their sums. And when they go to the banks currently, they may find that the banks may actually be more flexible than HDB. They may find that the banks may offer them a lower interest rate than HDB.
They may find that the banks are willing to give them a longer period of loan. I understand that some banks will allow 30 years or more. HDB has a maximum, which is less than that. All this will have to be factored by the borrower. Do you want to go to the bank to borrow or not?
Do you want to buy that flat in the first place or not? These are decisions which individuals would have to make. We are not talking about facilitating the purchase of the first flat. This is what I explained right from the outset.
The first timers who want to purchase their first flat go to HDB, and it will provide them the subsidised loan, provide them with a subsidised flat and they will have their first flat. But, now, they are looking for the second, or third flat, or they are PRs, private property owners, or high income earners.
These are the people who need to get a market rate loan. These are the ones who have to go to the bank. Is Mr Low saying that these people would also need to have a guarantee that the Government will help them if they default on their bank loans? Surely not. So we are really talking about those people who do not need a concessionary loan, who already are required to get a market rate loan from HDB.
These are the ones who will have to go to the bank to get a loan. And these are the people who should be in a good position to judge whether they would like to get a loan at that price or not. In other words, you have to make your decision based on your own situation. You have to do your sums before you get the loan. We are not talking about those who are buying HDB flats for the first time. For those people, nothing has changed.
Mr Othman Haron Eusofe: I just want to make a clarification. In fact, I am asking for consideration to be given to people who have bought subsidised flats to rent out the whole flat, and I am really referring to the hardship cases. They have bought the subsidised flats and they have stayed there for many years.
Sometimes, they want to sell it, but the market conditions do not allow them to sell. So why do you not consider allowing them to monetise the flat by renting it out for a while and get an income? In the meantime, they can stay with their children, or downgrade and rent a smaller flat. So I am just asking that the Minister consider the appeals on a case-by-case basis.
Always say “case-by-case” appeal basis?
Mr Mah Bow Tan: Mr Speaker, Sir, there are already certain schemes in place for the cases that Mr Othman mentioned earlier. In other words, if you are staying in a subsidised flat and you have financial difficulties, we already have various schemes in place, ranging from deferment of your instalment payments, reduced repayment schemes, and so on and so forth.
Quite a few of those who are in financial difficulties and come to HDB for financial assistance have been put on these schemes. So far, I believe these have been well received. So, I do not think there is a need for us to expand this scheme for subletting.
Mr Steve Chia Kiah Hong (Non-Constituency Member): Mr Speaker, Sir, can the Minister clarify and explain how the individual third-time flat buyer can factor in factors like economic recession, retrenchments and sudden job loss in the planning process? In his negotiations to buy a property and take a loan from the bank, he cannot factor in all these factors of retrenchments and job loss.
Mr Mah Bow Tan: Mr Speaker, Sir, I thought this is what happens all the time. This is what we all do. We make our decisions based on what we believe is the right thing to do. Surely, the hon. Member does not expect the Government to tell him what he should do, whether he should buy a flat or not, what is going to happen to the economy. All of us have to make up our own minds. This is what responsibility is all about, surely.
Mr Low Thia Khiang: Sir, I wish to clarify. I am talking about people who need to downgrade because of financial problems, not talking about people with private properties. The other question is: is the Minister advising Singaporeans that they should not buy more than one flat, because they would have to take a bank loan, they may be in trouble? Is that what he is talking about?
Worried about job, future – don’t buy? (This type of answer from Minister!)
Mr Mah Bow Tan: I do not think I said anything of that sort. Basically, what I am saying is that if you buy your second or third HDB flat, and you cannot get a market rate loan from HDB, you go to the bank. And when you go to the bank, the bank will ask you questions, you will have to answer those questions.
Then you have to decide whether you should proceed or not. Can you afford it or not? And if the answer is yes, you can afford it, go ahead. If the answer is no, you do not think you can afford it, you are worried about the future, you are worried about your job, you are not sure, just keep in view.
It is a bit strange, because here we are talking in this House, and Members have said so, that we should give Singaporeans more responsibility, we should not be a nanny state, we should allow them to make up their own minds.
A simple thing like this where you have to decide whether you should buy a flat and how much you should pay, these are things which every responsible person should be able to decide and make up his mind for himself. Do you expect the Government to decide for them?
Bank loan more risky?
Mr Low Thia Khiang: Clarification, Sir. Does the Minister agree that, in fact, by imposing a different risk between HDB and bank loans at market rates, when going to the bank, the person is likely to lose the whole flat as well, that there is a risk factor? The Government is actually helping Singaporeans to decide that they better not buy a second or a third flat by taking a loan from the bank.
Let the people take risks?
Mr Mah Bow Tan: The hon. Member talks about risks. I thought we were saying that we should let people take some risks. Allow them to take some risks but give them the responsibility. However, at the same time, give them some more flexibility, some more freedom.
This is exactly what we are doing. Of course, there is risk. In every decision, there is a risk involved. In this particular case, there is a risk too. But if you do not want to take the risk, then what happens?
Ms Braema Mathiaparanam (Nominated Member) rose.
Mr Speaker: Do you have a different line of questioning?
Ms Braema Mathiaparanam: No, it is clarification.
Mr Speaker: Yes.
Divorced persons – case-by-case again?
Ms Braema Mathiaparanam: Sir, for a third-time applicant, in terms of joint applications where couples are concerned – a different type of risk – the marriage goes bust, will there be any kind of consideration here, please?
Mr Mah Bow Tan: I did not realise that marriage is a risk! But I am not an expert on that, so I better keep quiet. What was your question?
Ms Braema Mathiaparanam: When a marriage dissolves and, instead of a joint application, they now become two single applicants, and they could have upgraded, so it becomes a third-time application, but it is a single parent. Could there be any concessions, please, or does it go back to the same premise of the bank loan?
Mr Mah Bow Tan: Generally, as a rule, the answer is that they would be considered as third-timers. But, the HDB has so many rules and regulations, you always tend to have somebody who runs afoul of those rules in some way or other.
We always consider all cases very carefully. And if there is a good case made out, then special consideration can be given, but not as a general rule.”
MOP reduction fueled prices?
The policy change from 1 January 2003 to reduce the Minimum Occupation Period (MOP) for resale flats with a bank loan from 2.5 to just 1 year, may have fueled the relentless rise in prices in the last 10 years.
In this regard, the HDB Resale Price Index increased at an annualised rate of about 7.5 % from the 2nd quarter of 2003 (100.3) to the 2nd quarter of 2013 (206.5).
Against the above, the annualised increase in the previous decade from 1993 to 2003 was lower, at 6.2 %.
How many lost homes, hardship?
Also, thousands of families may have lost their homes when they couldn’t pay for their mortgage, and the sky-high prices may have deprived thousands from owning a flat within their affordability.
Worse still – we don’t even know how many there were – The latest reply from the HDB to one of my newspaper forum letters was that they do not have the statistics on HDB bank loans’ delinquency or foreclosure (but a reply in Parliament a few years ago was able to disclose the delinquency rate for HDB bank loans?).
Understanding how ‘HDB’ works with trepidation?
By Leong Sze Hian
Policy change which caused the greatest untold misery?
I promised at the end of my article “The ‘great’ MDA Parliamentary debate: So what?” – that I would write an article on the HDB policy change announced in Parliament in October 2002 – which in my view may have caused the greatest untold misery to arguably the most number of Singaporeans, than any policy change ever in our history.
Oct 2002 Parliamentary debate on HDB Act amendments
Here’s an extract from the October 2002 Parliamentary debate on amendments to the HDB Act:
“Mr Mah Bow Tan (MND Minister):
In tandem with the move to bank origination and greater responsibility, I had, in July this year, signalled my Ministry’s intention to treat certain HDB flats bought with bank loans more like private properties. I informed this House that MND was actively studying whether and how the restrictions on resale and rental of HDB flats can be relaxed.
This is also in line with the recommendations of various Economic Review Committee sub-committees, such as the CPF Working Group and the Sub-Committee on Entrepreneurship, that the Government explore various ways to help homeowners monetise their housing assets and thus free up capital in the economy.
I am pleased to announce the results of our review.
[divide]Current policy
HDB flats are restricted by a minimum occupation period (MOP), which is the minimum period that a lessee needs to own a flat before he can sell it. The MOP is currently five years for a flat bought at subsidised prices, ie, either directly from HDB or a flat from the resale market but bought with a CPF Housing Grant, and it is 21/2 years for a non-subsidised flat bought from the resale market without any CPF Housing Grant.
Subletting of the whole flat is also currently disallowed, except in special circumstances. For example, the lessee may be overseas, or he may be elderly and, subject to various criteria, he can sublet his whole flat for income generation.
These restrictions reinforce the principle of long-term owner occupation for subsidised public housing. They help to justify the subsidies enjoyed by HDB flat lessees and are fundamental features distinguishing HDBflats from private property.
Policy refinements
The Government has considered the proposals from the ERC carefully. It has decided that, together with the move to bank origination in January 2003, HDB will relax the current restrictions on MOP and subletting for resale flats that are bought without the CPF Housing Grant and which are financed by bank loans.
[divide]Resale flats with bank loans’ MOP reduced from 2.5 to to 1 year?
From 1st January 2003, HDB lessees who buy resale flats without any CPF Housing Grant and with bank loans will only need to occupy their flats for one year, instead of the current 21/2 years, before they can sell it in the open market.
Existing resale flats bought without any CPF Housing Grant will also qualify if the lessee re-finances his outstanding HDB market rate loan with banks or fully redeems his HDB market rate loan. The reduction in MOP will also apply to existing resale flats that are bought without CPF Housing Grant and without any loan from HDB.
Subletting relaxed for flats on bank loans? “Treated more like private properties”?
Subletting rules for these categories of flat buyers will also be relaxed. HDB will allow them to sublet their entire flat if they have occupied them for 10 years or more. With these changes, HDB resale flats bought without any CPF Housing Grant and without any loan from HDB will be treated more like private properties.
From “can rent HDB rental flat” to “cannot – case-by-case appeal” for those who couldn’t pay & lost their homes?
(If we) find that there is a case for special consideration, we will provide special consideration. And that is the rule of thumb. But to expect HDB to have a blanket ruling and say, “Don’t worry, we are going to provide you with a rental flat if you default on your loan”, I do not think that is a wise thing to do.
And it creates a moral hazard. That is not something that we would like to see. What we want to do is to explain to our people, when you make a commitment like this for public housing, or for private housing, when you go to a bank for a loan, please make sure you know what you are doing and do your sums.
Mr Chiam See Tong (Potong Pasir): Sir, the Minister says the number of eviction of lessees due to default of payments is very small. Can he please tell us how many of such evictions were there in 2001 and up to the 10th month of this year?
Mr Mah Bow Tan: Sir, I do not have the exact numbers with me. But I can recall that there were less than 10.
HDB loan got schemes to help those who can’t pay, but bank loans … ?
Mr Low Thia Khiang: Clarification, Sir. I understand one of the reasons why there was not much of default is because there were some Government schemes in place, like deferred loan, etc.
Will the Minister expect, in the event of an economic downturn like this, the banks would, like the Government, provide such services to help people who are unable to service their loans to tide over the period? And what would the Government advise the banks?
Not eligible for HDB loan – on bank loan – you die your business?
Mr Mah Bow Tan: Sir, as I said in my Second Reading speech, when somebody goes to the bank for a loan, he would have to abide by the bank’s rules of foreclosure, he would have to abide by the bank’s rules on credit assessment. So, the short answer to him is that all borrowers would have to abide by the rules that are laid down by the lender.
And it is no different for HDB’s case, it is no different for the bank’s case. In the case of HDB, when they come to HDB to borrow, HDB has to do a credit assessment. If they do not comply with those conditions, and they default on their loans, HDB can evict.
But, as Mr Low rightly pointed out, HDB is more forbearing, more forgiving. HDB has various schemes in place to help borrowers, such as stretching of repayments, and so on. We do not expect the banks to do so. Neither should we.
When they go to the bank for a loan, they have got to do their sums. And when they go to the banks currently, they may find that the banks may actually be more flexible than HDB. They may find that the banks may offer them a lower interest rate than HDB.
They may find that the banks are willing to give them a longer period of loan. I understand that some banks will allow 30 years or more. HDB has a maximum, which is less than that. All this will have to be factored by the borrower. Do you want to go to the bank to borrow or not?
Do you want to buy that flat in the first place or not? These are decisions which individuals would have to make. We are not talking about facilitating the purchase of the first flat. This is what I explained right from the outset.
The first timers who want to purchase their first flat go to HDB, and it will provide them the subsidised loan, provide them with a subsidised flat and they will have their first flat. But, now, they are looking for the second, or third flat, or they are PRs, private property owners, or high income earners.
These are the people who need to get a market rate loan. These are the ones who have to go to the bank. Is Mr Low saying that these people would also need to have a guarantee that the Government will help them if they default on their bank loans? Surely not. So we are really talking about those people who do not need a concessionary loan, who already are required to get a market rate loan from HDB.
These are the ones who will have to go to the bank to get a loan. And these are the people who should be in a good position to judge whether they would like to get a loan at that price or not. In other words, you have to make your decision based on your own situation. You have to do your sums before you get the loan. We are not talking about those who are buying HDB flats for the first time. For those people, nothing has changed.
Mr Othman Haron Eusofe: I just want to make a clarification. In fact, I am asking for consideration to be given to people who have bought subsidised flats to rent out the whole flat, and I am really referring to the hardship cases. They have bought the subsidised flats and they have stayed there for many years.
Sometimes, they want to sell it, but the market conditions do not allow them to sell. So why do you not consider allowing them to monetise the flat by renting it out for a while and get an income? In the meantime, they can stay with their children, or downgrade and rent a smaller flat. So I am just asking that the Minister consider the appeals on a case-by-case basis.
Always say “case-by-case” appeal basis?
Mr Mah Bow Tan: Mr Speaker, Sir, there are already certain schemes in place for the cases that Mr Othman mentioned earlier. In other words, if you are staying in a subsidised flat and you have financial difficulties, we already have various schemes in place, ranging from deferment of your instalment payments, reduced repayment schemes, and so on and so forth.
Quite a few of those who are in financial difficulties and come to HDB for financial assistance have been put on these schemes. So far, I believe these have been well received. So, I do not think there is a need for us to expand this scheme for subletting.
Mr Steve Chia Kiah Hong (Non-Constituency Member): Mr Speaker, Sir, can the Minister clarify and explain how the individual third-time flat buyer can factor in factors like economic recession, retrenchments and sudden job loss in the planning process? In his negotiations to buy a property and take a loan from the bank, he cannot factor in all these factors of retrenchments and job loss.
Mr Mah Bow Tan: Mr Speaker, Sir, I thought this is what happens all the time. This is what we all do. We make our decisions based on what we believe is the right thing to do. Surely, the hon. Member does not expect the Government to tell him what he should do, whether he should buy a flat or not, what is going to happen to the economy. All of us have to make up our own minds. This is what responsibility is all about, surely.
Mr Low Thia Khiang: Sir, I wish to clarify. I am talking about people who need to downgrade because of financial problems, not talking about people with private properties. The other question is: is the Minister advising Singaporeans that they should not buy more than one flat, because they would have to take a bank loan, they may be in trouble? Is that what he is talking about?
Worried about job, future – don’t buy? (This type of answer from Minister!)
Mr Mah Bow Tan: I do not think I said anything of that sort. Basically, what I am saying is that if you buy your second or third HDB flat, and you cannot get a market rate loan from HDB, you go to the bank. And when you go to the bank, the bank will ask you questions, you will have to answer those questions.
Then you have to decide whether you should proceed or not. Can you afford it or not? And if the answer is yes, you can afford it, go ahead. If the answer is no, you do not think you can afford it, you are worried about the future, you are worried about your job, you are not sure, just keep in view.
It is a bit strange, because here we are talking in this House, and Members have said so, that we should give Singaporeans more responsibility, we should not be a nanny state, we should allow them to make up their own minds.
A simple thing like this where you have to decide whether you should buy a flat and how much you should pay, these are things which every responsible person should be able to decide and make up his mind for himself. Do you expect the Government to decide for them?
Bank loan more risky?
Mr Low Thia Khiang: Clarification, Sir. Does the Minister agree that, in fact, by imposing a different risk between HDB and bank loans at market rates, when going to the bank, the person is likely to lose the whole flat as well, that there is a risk factor? The Government is actually helping Singaporeans to decide that they better not buy a second or a third flat by taking a loan from the bank.
Let the people take risks?
Mr Mah Bow Tan: The hon. Member talks about risks. I thought we were saying that we should let people take some risks. Allow them to take some risks but give them the responsibility. However, at the same time, give them some more flexibility, some more freedom.
This is exactly what we are doing. Of course, there is risk. In every decision, there is a risk involved. In this particular case, there is a risk too. But if you do not want to take the risk, then what happens?
Ms Braema Mathiaparanam (Nominated Member) rose.
Mr Speaker: Do you have a different line of questioning?
Ms Braema Mathiaparanam: No, it is clarification.
Mr Speaker: Yes.
Divorced persons – case-by-case again?
Ms Braema Mathiaparanam: Sir, for a third-time applicant, in terms of joint applications where couples are concerned – a different type of risk – the marriage goes bust, will there be any kind of consideration here, please?
Mr Mah Bow Tan: I did not realise that marriage is a risk! But I am not an expert on that, so I better keep quiet. What was your question?
Ms Braema Mathiaparanam: When a marriage dissolves and, instead of a joint application, they now become two single applicants, and they could have upgraded, so it becomes a third-time application, but it is a single parent. Could there be any concessions, please, or does it go back to the same premise of the bank loan?
Mr Mah Bow Tan: Generally, as a rule, the answer is that they would be considered as third-timers. But, the HDB has so many rules and regulations, you always tend to have somebody who runs afoul of those rules in some way or other.
We always consider all cases very carefully. And if there is a good case made out, then special consideration can be given, but not as a general rule.”
MOP reduction fueled prices?
The policy change from 1 January 2003 to reduce the Minimum Occupation Period (MOP) for resale flats with a bank loan from 2.5 to just 1 year, may have fueled the relentless rise in prices in the last 10 years.
In this regard, the HDB Resale Price Index increased at an annualised rate of about 7.5 % from the 2nd quarter of 2003 (100.3) to the 2nd quarter of 2013 (206.5).
Against the above, the annualised increase in the previous decade from 1993 to 2003 was lower, at 6.2 %.
How many lost homes, hardship?
Also, thousands of families may have lost their homes when they couldn’t pay for their mortgage, and the sky-high prices may have deprived thousands from owning a flat within their affordability.
Worse still – we don’t even know how many there were – The latest reply from the HDB to one of my newspaper forum letters was that they do not have the statistics on HDB bank loans’ delinquency or foreclosure (but a reply in Parliament a few years ago was able to disclose the delinquency rate for HDB bank loans?).
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