No, you cannot take up a fresh mortgage for your paid-up HDB

In Summary:

“A Home to Call your Own”
– Fully paid HDB flats cannot be mortgaged for a loan
– HDB: Prevent flat owners from losing their flat in the event of a loan default
– Why the different treatment between HDB and other 99 leasehold property?
– Some HDB cost as much as private property
– People these days are more sophisticated
– Is it any different from taking a normal bank loan?
– Time to eases restrictions on flats as loan collateral and let owners decide

“Too Many Risks”
– Most HDB dwellers are low-middle income earners.
– HDB wants to ensure ownership through paid off flats.
– Not much cash equity in flats as most flats are paid with CPF
– What will people do with money unlocked from their flats?
– HDB does have other safer suggestions for flat monetization.

My Views:

I think renting out part of your flat is a much better way to ‘unlock’ your flat’s value then taking out a fresh mortgage. Somehow, “Lehman Brothers” pops to mind. There have been private home owners who have tried to make a killing in the stock market by using their homes as collateral, and end up losing their homes in the end when the market went the other direction.

The other thing that pops to mind is ‘Subprime crisis’. In the US, many home owners took opportunity of their rising home equity and taking out fresh loans based on how much their homes were worth then. Thus instead of having, say, a $200k mortgage, they now have a $250k mortgage, and $50k cash in their pockets. When the property market crashed, many home owners owed more than what their houses were worth, and that $50k cash was long gone.

Yet on the other hand, I’m also for HDB owners being allowed to make their own decisions, and to live by their decisions.

By the way, our HDB flat valuation has risen 15% since we bought it 1.5 years ago. At this rate, our flat price will double in 7 years. Now if only we could unlock that money with a fresh mortgage … $44k in our pockets …. NOT!

A HOME TO CALL YOUR OWN

THE Housing and Development Board (HDB) has received numerous awards and kudos over the nearly 50 years of its existence, including the 2008 United Nations Public Service Award for providing affordable homes to the vast majority of Singaporeans.

For the most part, the commendations are deserved. More than 85 per cent of Singaporeans now live in an HDB flat with 95 per cent of them considered home-owners, according to HDB chairman James Koh Cher Siang. This must be the highest ratio of home-owners of any country in the world.

But while you can rent out your flat under certain conditions, and even do a lease buyback to unlock value if you are an elderly, you cannot mortgage your apartment for a loan even if the property is fully paid up for.

Why not? I could not get a proper answer from a phone call to the HDB.

So I went to its website where it said: “HDB flats can only be mortgaged to banks or financial institutions to finance the purchase of the flat itself. You are not allowed to use your HDB flat, which has been fully paid for, as collateral to banks to raise credit facilities for private reasons. This is to avoid exposing flat owners like yourself to the risk of losing your flat should you be unable to repay the bank loan.”

This begs the question: Why this difference between an HDB flat, which in effect comes with a 99-year lease, and any other leasehold property?

Perhaps HDB’s reasoning was valid and even necessary during those days, now long past, when most buyers were less sophisticated and less knowledgeable in the ways of modern finance. But people these days are more sophisticated.

And in any case, some HDB flat-owners already make themselves vulnerable to banking foreclosure rules when they take out a home loan from a financial institution. In other words, they are already exposed to the risk of losing their flat – allowing them to take out a mortgage loan does not add to that risk.

So why not let the flat owner have a shot at putting his asset to better use? Furthermore, shouldn’t the financial institution be the best judge as to whether one’s flat is good enough collateral for a loan?

Then there are those residents eligible for lease buyback – applicable to the elderly in three-room and smaller flats, who under the scheme would have the tail-end of their lease bought up by the HDB and given a monthly payment through an annuity for life. Why not offer them the alternative of using the flat to get a loan?

Over the last few years, the HDB has been easing its rules, especially on selling and tenanting out its flats. For instance, since 2003, anyone wishing to sell his flat bought with bank loans and without a Central Provident Fund housing grant, has been able to do so after living in it for a year, compared with two-and-a-half years previously.

The same time-lock applies to those who bought resale flats without housing grants, and who choose to refinance their mortgages with a bank loan.

You can also sublet your entire flat after living in it for five years in the case of a subsidised unit, and only three years if you did not use an HDB subsidy.

Yet, one cannot use the flat to get a private loan. And we are not talking small beer here. These days some HDB flats – especially those near a Mass Rapid Transit line – can cost almost as much as a private apartment.

Singaporeans these days are financially more sophisticated, and the HDB’s rules ought to change with them. It’s time the board eases its restrictions on using housing board flats as loan collateral, and let HDB dwellers really feel that they own their homes.

(Via Todayonline, 9 Nov 2009)

TOO MANY RISKS

I REFER to “Let owners mortgage their HDB flats for private loans” by Conrad Raj(Nov 9).

I read with alarm how the writer encouraged people to take up more personal debt.

The statement that “Singaporeans are financially more sophisticated …” is a casual generalisation. Let us not forget that a large number of Housing and Development Board (HDB) dwellers are families with household incomes of less than $8,000 a month. The restriction on an owner taking up a second mortgage is exactly the reason to ensure continued ownership of his HDB flat so that, by the time the owner finishes paying off his housing loan, he has a roof over his head.

However, by allowing a cash loan secured with their HDB flats, the owners risk losing their flats in the event of loan default. In the event of a foreclosure, the flats are repossessed and sold at the best price achievable. HDB flat owners can, at best, preserve the CPF they have used to pay for their flat or, at worst, lose part of their CPF that is meant for their retirement.

Moreover, the majority of HDB flats are valued at less than $400,000. Most people service their monthly instalment with their CPF, stretching their loan for the maximum tenure. The HDB flat is more or less paid fully with CPF and, if we minus the outstanding loan, the CPF used and the accrued interest, there is not much equity to unlock from it.

I would like to ask the writer what he thinks people will do with the money unlocked from their HDB flats? Pay off their credit card debt, loan sharks? Invest in risky financial products? Place it in fixed deposits that earn pathetic interest?

You must pay off what you borrow. Owners are better off considering the monetisation options recommended on the HDB website.

(Via Todayonline, 12 Nov 2009)