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A HOME TO CALL YOUR OWN

Let owners mortgage their HDB flats for private loans

05:55 AM Nov 09, 2009

by Conrad Raj editor-at-large conrad@mediacorp.com.sg

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.