HOUSING AND DEVELOPMENT BOARD (Lowering concessionary rates for mortgagors)

Mr Steve Chia Kiah Hong asked the Minister for National Development if his Ministry will look into ways to lower the concessionary rates charged to Housing and Development Board mortgagors to below 2.6%, without asking them to go for private bank loans.

The Minister of State for National Development (Dr Vivian Balakrishnan) (for the Minister for National Development): Sir, the HDB borrows funds from the Government at the CPF Ordinary Account interest rate for its concessionary rate loans to eligible HDB mortgagors. The CPF Ordinary Account rate is computed based on the sum of 80% of the Fixed Deposit rates and 20% of the Savings Deposit rates of the three major local banks, subject to a minimum of 2.5%, as provided for under the CPF Act. By committing to a minimum rate of 2.5%, the Government ensures that CPF members enjoy a good rate of return on their CPF funds. Today, in contrast, the average fixed deposit rate of the three major local banks is only 1.33 % per annum.

HDB pegs its concessionary interest rate at 0.1% above the CPF rate in order to cover its administrative cost. With the current CPF Ordinary Account interest rate at 2.5%, HDB's concessionary interest rate is 2.6%.

HDB can lower its concessionary interest rate only if the CPF lowers the Ordinary Account rate that it pays its members. HDB, therefore, has no plans to adjust its concessionary interest rate.

Mr Steve Chia Kiah Hong: Sir, is it a statutory requirement for HDB to borrow funds only from the CPF?

Dr Vivian Balakrishnan: It is not a statutory requirement for HDB to borrow its funds only from the Government who, in turn, takes it from the CPF Board. But Mr Steve Chia, as someone who used to work in the finance industry, must be familiar with the concept of the difference between borrowing funds from long-term sources versus short-term sources, and he should not confuse the two. The HDB and the Government have decided, quite rightly, that we should use funds from the CPF Board, because this is a long-term source of funds which are taken on 20-year repayment terms. And as anybody who has borrowed money to fund his mortgage from HDB will know, these are often terms running from 10, 20 to 30 years. Consequently, it is a prudential and sensible arrangement for the HDB to continue to rely on the stable source of long-term funding.

The rates which we see the banks offering right now are, in a sense, promotional rates. To give Members an example, if we look at what the concessionary rate had been for HDB over the last three years, it had been flat at 2.6%. For those who have borrowed money from banks, if we look at the non-promotional rates over the last three years, it had, in fact, been at around 5 or 6%, more than double the concessionary rate which HDB had been charging. So, what we have right now is a sensible, safe and a secure system that works. 2.6% is a reasonable rate to pay for any mortgage. And anyone who has been in this business for any length of time will know that this is a system that works; this is a system that is secure. However, we have provided choices. So, if people feel that they are willing to enter the market and subject themselves to market risks at market rates, they are entitled to do so. But if they do that, they cannot come back to HDB and say they now want a concessionary rate loan again.