January 4, 2009 Sunday

HDB home loan defaults on the rise

Number of cases has jumped by 8,000 since year-end 2003, making up 8% of all such loans

By Jessica Cheam

The number of home buyers defaulting on their home loans for three months or more has risen significantly over the last five years.

Figures obtained by The Sunday Times from the Housing Board show that the number of these defaulters has jumped by about 8,000 since the end of 2003.

Also, such defaults have climbed from 5per cent to 8per cent of all HDB home loans.

The figures underscore what seems to be a growing problem. From one in 20 borrowers being in arrears, the proportion is now one in 12.

Parliament was told recently that 33,000 out of 420,000 HDB home loan borrowers were in arrears for more than three months.

When asked for historical data, HDB said that at the end of 2003, 25,000 flat owners out of the 517,300 households with HDB loans were in similar arrears.

At the end of 2002, the number was even lower - at 4per cent, or about 21,800 of the 540,000 households.

On the decreasing number of total HDB loans, market analysts say this is likely due to new rules that took effect on Jan1, 2003, which stated that those upgrading their flats for a second time, as well as all downgraders, must borrow from banks instead of the Housing Board.

HDB loans - which offer a concessionary rate - are available only for first-time buyers or first-time upgraders.

Analysts told The Sunday Times that the increase in defaulters was likely due to the fact that HDB flat prices were 'very much lower in 2003' than they were last year.

HDB flat prices have risen steadily over the last four years during Singapore's property boom to a 'new peak', said ERA Asia-Pacific associate director Eugene Lim.

'Incomes were also on the rise. During good times, it is possible that some home buyers overstretched in a rising market and may now be in a fix as the economy sinks into recession,' he said.

HDB flat prices enjoyed a spectacular bull run with a 17.4per cent gain in 2007, the strongest growth in a decade.

Latest estimates last Friday showed that while private property prices fell 4.3per cent last year, HDB flat prices rose a further 13.9per cent.

Property agency PropNex's chief executive officer, Mr Mohamed Ismail, said an increase in affluence and higher costs of living over the last five years could have contributed to the higher incidence of people being in arrears.

Finally, HDB rarely repossesses defaulters' flats, leaving their numbers to accumulate in the system. Some home owners in arrears can take up to a few years to pay off debts.

Still, the number of HDB home owners in trouble is clearly on the rise.

Members of Parliament interviewed confirmed the trend, noting a rise in residents seeking help for home loan problems at their Meet-the- People sessions.

Dr Teo Ho Pin, Mayor of the North West District, MP for Pasir Ris-Punggol GRC Teo Ser Luck and Aljunied GRC MP Cynthia Phua are among those who have noticed the trend.

In many cases, said Dr Teo, home owners were retrenched or had to switch to lower-paying jobs and could not maintain their loan payments.

'A lot of them are coming to me for help to find them jobs,' added Mr Teo.

The MPs pointed out HDB's various assistance measures, such as allowing for the restructuring of loans, postponing payments, and even helping borrowers to downgrade to smaller flats.

The HDB also said it has several comprehensive measures to help such cases.

Banks which give market-rate loans for HDB flat purchases say they have not yet seen a significant increase in the number of defaulters.

Maybank said there had been a slight increase 'but nothing at an alarming rate'.

OCBC and DBS said there had been no significant increase in arrears.

Mortgage consultant Dennis Ng from portal said banks generally charge defaulting home owners higher interest, but will, on a case by case basis, help those facing difficulties to restructure their home loans.

Repossession of their flats is a last resort.

Looking ahead as the recession deepens, MPs said more HDB borrowers will probably have problems paying off their mortgages.

Madam Phua said the limited supply of smaller flat types could become a problem that needs fixing quickly as families start to downgrade.

The HDB is addressing this by beefing up the supply of two- to three-room flats to around 4,000 over the next two years for lower-income families and those home owners who need to downgrade.

These, however, will be ready only in two to three years. 'We'll have to explore other options in helping such default cases in the coming year,' said Madam Phua.

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Helping Home Owners

Two years ago, renovation contractor Ting Kah Ping was up to his neck in debt, owing the Housing Board more than $80,000 for his home loan. He was unable to meet the instalments.

Today, the father of four owns a flat without an outstanding loan - and he said it is thanks to the HDB.

Mr Ting, 54, and his wife bought a four-room flat in Tampines in 1998 for $112,800 but started having problems paying the instalments about five years ago.

Work as a renovation contractor was inconsistent and he was unable to service his loans regularly. He approached the HDB for help and it agreed to let him make smaller payments and, for a time, postpone his payments for half a year.

Still, despite his wife taking on part-time jobs while looking after their four children, now aged 11 to 21, they had difficulty paying their debts.

The HDB advised the couple to downgrade their flat and, earlier this year, they sold their home for $303,000. With the money, he bought a three-room home nearby and fully paid up his debt to the HDB.

'I'm just glad the HDB did not force me to give up my flat or take it back. I think banks wouldn't have had as much patience,' Mr Ting said in Mandarin.

He is one of many home owners whom the HDB hopes to help with its various initiatives.

The board will consider allowing them to pay reduced loan instalments on a temporary basis and work out a solution to their financial situation.

Owners can also sublet a room to generate income, or include working family members as joint owners to help pay for the flat.

The board may also consider providing an additional HDB loan to help owners downgrade to a smaller, more affordable unit.