HDB concession loans used for downsizing

(SINGAPORE) More than 1,200 public flat owners have made use of a recent rule relaxation to obtain a second concessionary loan from the Housing & Development Board, hoping to move to a smaller or similar-size flat.

But although more have turned to the government to borrow, some private financial institutions say that this has had little effect on their HDB loan business.

Before the policy change, only households moving to larger flats could apply for a second concessionary loan. But HDB found that this may have inadvertently led some to upgrade at the risk of straining their finances.

To encourage greater financial prudence, HDB revised its policy on March 5 and made the second concessionary loan available to all eligible households, regardless of whether they upgrade, down-size or move to a flat of the same size.

HDB told The Business Times that up to May 31, it had received 5,494 applications for second concessionary loans, and approved 2,439 of them.

More than half of the 2,439 successful applicants indicated that they were moving to a smaller or same-sized flat. They would not have been eligible for such loans under the previous policy. HDB did not give an exact number for these applicants.

Had the rule not been changed, would these 1,200-plus applicants have had to turn to banks to borrow?

Not necessarily so, says HDB. 'We should not assume this is the number of bank loans reduced for HDB flats,' it said, suggesting that some applicants might not have considered moving to smaller or similar-sized flats at all if they did not qualify for a second concessionary loan.

Financial institutions that BT contacted said that they have noticed little change to their HDB business. 'We have not seen a significant impact on the number of applications for HDB home loans,' said OCBC Bank's head of consumer secured lending, Phang Lah Hwa.

And a Hong Leong Finance spokesman said: 'There is still strong demand for HDB home loans, as a good number of home owners are either new purchasers or seeking refinancing.

'We offer very competitive HDB loan packages, which we believe is one of the primary factors customers take into consideration when selecting a package.'

ERA Asia-Pacific associate director Eugene Lim said that HDB's concessionary loans are attractive to many people because they charge an interest rate that is almost fixed, pegged at 0.1 percentage point above the CPF Ordinary Account interest rate of 2.5 per cent.

But some flat owners might still go for bank finance to avoid restrictions that come with HDB's second concessionary loan, he said.

For instance, as part of the policy change in March, those who sell their flats and apply for a second concessionary loan can keep only the greater of $25,000 or half the cash proceeds from the sale. They have to use the remaining cash and CPF balance to finance the purchase of their next flat.

Source: Business Times, 23 Jun 2010