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Published February 29, 2012

Still open to funding shoebox units: CIMB

Bank denies report that it has stopped approving loans for tiny residential units

By CONRAD TAN


(SINGAPORE) CIMB Bank has denied cutting off financing for buyers of small homes here, after a report suggested that it had stopped approving new mortgages for so-called shoebox apartments because they were too risky.

CIMB and various other banks BT spoke to said that they focus on buyers' ability to repay their mortgage, not the size of the home, in deciding whether to approve a home loan.

'We are still approving and financing new home loans for buyers of apartments that are less than 510 square feet in size' - the measure the bank uses for shoebox apartments, a CIMB Singapore spokesman said. 'The report that financing for shoebox units is no longer being offered by CIMB is incorrect.'

A report posted on an online news portal had claimed that CIMB was no longer approving loans for shoebox units.

Other banks, too, said that they continue to offer loans to buyers of very small homes.

'United Overseas Bank is still financing small apartment units, as the key consideration with any home loan application is the credit-worthiness of the potential customer,' said Chia Siew Cheng, head of secured loans at UOB's personal financial services division. 'In addition to the current property valuation, credit-worthiness is measured through income stability and credit records.'

OCBC Bank, too, is still financing purchases of shoebox apartments. 'This is subject to borrowers meeting our home loan criteria, which includes the individual's financial commitments, income, credit history and repayment ability, among others,' a bank spokesman said.

A DBS Group spokesman told BT that there had been no change to the bank's policy for financing purchases of shoebox units. 'The primary consideration when assessing such loans is the customer's commitment and ability to manage the repayments,' a spokesman said.

A source at a foreign bank said that it wasn't worried that the resale value of the shoebox apartments that have been launched so far would fall sharply.

Another source, at a Singapore-listed bank, said that its financing of apartments smaller than 500 square feet has held steady since the start of the year. 'The trend we are seeing, through the developers we work with, is that these smaller units remain popular and are usually the first to be snapped up in most newly launched projects,' the source said.

'We do not assess credit based on the size of the apartments but on affordability and the repayment ability of the borrower,' said Alan Lau, head of consumer banking at Maybank Singapore.

'The risk associated with property financing is not simply a function of the size of the apartment, it's also about the purpose of the purchase and the repayment ability of the borrower.'

CIMB uses a broad range of criteria to assess credit risk before deciding whether to grant a home loan, said Coreen Kwan, head of retail banking at CIMB Singapore.

'We primarily look at his Credit Bureau report, perform litigation checks and also look at his loan statements with other banks if applicable and available, and internal records if he is an existing customer.'

'We also look at his ability to repay and afford the loan. We ascertain his exposure to credit facilities and his income to cover such exposures,' she added.

'Even if a person can afford a loan, there is always a chance that he may go into default when something affecting his ability to pay happens. That is why we also ensure the loan to valuation ratio is healthy and the quality of collateral is good - that, we can determine through the valuation reports of the property.'