PURCHASE OF HDB FLATS USING BANK LOANS (Profile of buyers)

Column No : 1980

PURCHASE OF HDB FLATS USING BANK LOANS:

(Profile of buyers): 12.

Mdm Halimah Yacob asked the Minister for National Development (a) whether there is an increasing trend of flat owners purchasing their flats using bank loans; (b) what is their profile; (c) how many of them had previously been given concessionary loans and are now refinancing their loans with the banks; and (d) with rising bank interest rates, whether there is cause for concern that many will not be able to service their loans.

13.

Mr Ahmad Khalis Bin Abdul Ghani asked the Minister for National Development in view of the rule that third-time HDB buyers must borrow from banks, from January 2004 to September 2005 (a) how many requests did the Ministry or HDB receive from such buyers to borrow from the HDB; (b) how many of the above were undischarged bankrupts and whether the Ministry knows how many buyers were unable to borrow from banks for other reasons; (c) how many of such buyers intended to buy smaller flats; and (d) what happened to those whose requests were turned down by the HDB.

The Minister for National Development (Mr Mah Bow Tan): Mr Speaker, Sir, may I have your permission to take Question Nos. 12 and 13 together, as they are related?

Mr Speaker: Yes.

Mr Mah Bow Tan: Thank you. First, let me explain that the majority of HDB flat-buyers can get concessionary loans. This includes all eligible first-time buyers, and those who are upgrading.

The few groups who need to obtain a bank loan include households with monthly incomes exceeding $8,000, private property owners, Singapore Permanent Residents, those who have already enjoyed two HDB concessionary loans, and those who have enjoyed one concessionary loan and are buying a similar-sized or smaller HDB flat.

Let me now provide some numbers in response to the Members' questions. Mdm Halimah asked what is the trend for bank loan cases. In 2005, the number of HDB flat buyers who purchased their HDB flats using bank loans was about 18,000. This number was comparable to the 17,000 bank loan cases in 2003, but lower than the 23,000 cases in 2004. So, it went up from 2003 to 2004, and it came down in 2005.

In terms of profile, nearly all the bank loan cases were for the purchase of resale flats. 22% were Singapore Permanent Resident (SPR) households, 27% had already previously enjoyed two concessionary loans, while 19% were downgraders who did not qualify for another concessionary loan. 24% were eligible for a HDB concessionary loan but chose to take a bank loan instead.

The number of flat owners who refinanced their HDB concessionary loans with bank loans has been generally small. Around 700 households have done so since bank origination started.

Next, in response to Mr Ahmad Khalis, in the 24 months from January 2004 to December 2005, HDB received about 1,700 appeals for a third or subsequent concessionary loan. Of these, two-thirds were buying smaller flat types. Among the appellants, 190 were undischarged bankrupts and ex-bankrupts. As for the other appellants, the main reasons they were unable to obtain a bank loan were:

(i) They did not have a regular income or their income did not meet the banks' requirement;

(ii) They were unable to substantiate their income;

(iii) They had poor credit records; or

(iv) They had legal suits filed against them.

Following HDB's assessment of their cases, 280 appeals (or 16%) were successful.

Those whose appeals for a third or subsequent HDB concessionary loan were rejected can consider other forms of accommodation such as renting a room or a flat, or staying with their relatives. Households in severe financial hardship may also apply to HDB for subsidised rental housing.

Finally, Mdm Halimah asked whether there is cause for concern that many will not be able to service their bank loans. There are some who have not been able to do so. But these numbers are not significant at the moment. However, we are monitoring the situation. Meanwhile, I emphasise again that a HDB flat is a long-term financial commitment. All flat-buyers need to exercise financial prudence in their flat purchase. They should consider buying a flat only if it is within their means, after taking into account possible changes in their household income and the mortgage loan interest rate.

Mdm Halimah Yacob: Sir, I would like to ask the Minister, for those who are facing difficulties, what kind of assistance will be rendered by the HDB in servicing their bank loans.

Secondly, there is a concern that the banks are using hard-sell tactics in order to get HDB buyers to take loans from them. What can be done in order to prevent HDB buyers from succumbing to such hard-sell tactics?

Thirdly, the Minister mentioned that about 19% of downgraders who are not eligible for HDB loans are getting bank loans. I think there is a concern with the increasing bank loan rates. HDB flat owners who are on bank loans will face difficulties, particularly for downgraders who are actually already facing difficulties. They are downgrading because of financial reasons and so on. Will the HDB review its policies in not granting HDB flat downgraders from getting a concessionary loan from the HDB?

Mr Mah Bow Tan: Mr Speaker, Sir, first of all, on the question of helping those who have difficulties servicing their bank loans. I stress that these are financial transactions between two private parties. In other words, when buyers go to the banks to take a loan, they have to face the consequences if they subsequently default on their loan repayments. So, I always emphasise and stress this repeatedly that when they go to the bank to take a loan, they must be aware of the commitment that they are undertaking and they should exercise extreme prudence and not go into something that they are unable to afford later on. Having said that, as usual, if there are people who come to us, who appeal to the HDB, and they are in severe financial difficulties, we will look at their cases and where they are justified, we will try to help them on a case-by-case basis, either with a subsidised rental flat or through some other means.

As for hard-sell tactics by the banks, I think this is really something that buyers have to be aware of. We are not able to prevent somebody from making decisions which are not wise ones. What we can do is to educate and to caution. But having done so, it is finally really up to the individuals to make that decision. Sir, the whole idea of allowing the banks to give bank loans is to give more choices to people. In this respect, those who have gone to the banks for loans, the overwhelming majority do not have any difficulty servicing their loans. As a result of this move, they have been able to enjoy different loan packages from the banks and they have also been able to enjoy the relaxation of some of the rules which allow them to sublet or resell their flats, eg, a reduction of their minimum occupation period. Given this additional responsibility, I think it is important for people to exercise it responsibly. Once they have made their decision, it is difficult for us to go in and help them if things go wrong. So, the message must always be to exercise this responsibility carefully.

Finally, on whether we will review the policy of downgraders, most of the people whose loans have been rejected - those who came to appeal - have been those whom we have found to be not really in serious difficulty. The 19% of successful cases that I mentioned earlier are those who have been identified to have some genuine difficulties, and HDB has been very flexible with them. For the other cases, including those who have sold their flats or had their flats repossessed, some have been able to look for alternative arrangements. Others, we will help on a case-by-case basis. I do not think it is necessary for us to make a change in the policy.

Mr Low Thia Khiang: Sir, I find that the approval process of appeal for providing HDB loans seems not to be transparent. As it is based on a case-by-case basis, I think many a time people wonder on what basis it is granted approval. For instance, the Minister mentioned about serious financial difficulties. So, is there any guideline to say how "serious" is serious which will warrant the HDB to look at the application seriously? My question, Sir, is whether or not the HDB can make the whole approval process of appeal for giving HDB loans more transparent, especially for those who are bankrupt or those who are in financial difficulty or those who have less income, which the bank will not give them a loan because of their income. Then, where should they go? What are the alternatives?

I would also like to ask the Minister whether he is aware that under the current policy, people who face difficulty financially, if they sell the flat in the open market, they are not allowed to rent an HDB flat. The Minister said just now that the alternative is to rent a flat. How do they rent a flat - from the public, from the private or what other alternatives?

Mr Mah Bow Tan: Mr Speaker, Sir, the policy is clear that those who are no longer eligible for a concessionary loan would have to go to the bank for a loan. Who are these people? These people come from various categories. Some are from high income households, so they would not be eligible for a HDB concessionary loan in the first place. Are these people in financial difficulty? The answer is no. So, they would go to a bank for a loan. Having gone to the bank for a loan, they run into difficulty. What do we do? Surely, we cannot be helping them. Then there are the Permanent Residents. They also are not eligible for concessionary loans. They go to the bank for a loan; they have difficulties. They come to HDB for help. Should we help them? Again, the answer is no. Then there are those who have already received two loans, and they are now going for a third loan. And here we do help such cases. As I explained in my answer to Mr Ahmad Khalis, even those who come to us for a third loan and a subsequent loan (a fourth loan), we look at each case carefully, and where such cases are deserving, we help them. It is not possible for us to have all these rules fully transparent. In fact, HDB takes a lot of trouble and effort to go through each case - then put up its views to a Committee, who looks at the merits of the case and then makes a decision. There are no hard-and-fast rules but where there is genuine difficulty, then certainly these cases will be looked at very flexibly.

There are many cases of appeals who come to us and many a time, we find that they are not really having serious financial difficulties. They may have sold the flat and received a large sum of money from their flat. For such people, there are alternatives. They can either buy a smaller flat, they can rent a flat from the market or they can rent a flat from people who are eligible to sub-let their flat. There may be others who are able to take a bank loan but prefer not to, and we have such cases. Such appeals are not acceded to. Last but not least, there are other avenues such as staying with friends or relatives. We have often emphasised that where there are alternatives, like staying with your friends or relatives, or your family, look at those alternatives first before you come to HDB.

So each case is processed very thoroughly. It is not a frivolous decision. Each case is looked at very closely, submitted to a committee to look at again before it is finally approved. But the record shows that and this is what I would like to inform the House, where there is severe financial difficulty, HDB has been very, very flexible.