Loophole exploited by moneylenders closed

Proceeds from sale of HDB flats no longer allowed as collateral for loans

(SINGAPORE) Homeowners will no longer be allowed to use their HDB flat or its sale proceeds as collateral for taking loans or paying off debts.

Parliament yesterday fast-tracked the passing of a bill to prevent creditors from laying first claim to the flat, following a spike in the number of people using their flats as security to borrow money from licensed moneylenders.

They enter into agreements to assign the sales proceeds from their HDB flats as repayment of monies owed. The moneylenders then lodge caveats against the borrower's flat to claim an interest in the sales proceeds. This allows the moneylenders to demand repayment before they agree to withdraw the caveat for the sale transaction to go through.

Two years ago, there were only 12 registered resale applications with caveats lodged by moneylenders. Last year, there were cases. From January to June this year alone, there have been 556 cases.

Revealing these numbers in Parliament, National Development Minister Mah Bow Tan said that the government was 'concerned' about this trend because it 'undermines the intention of the home ownership policy' that is meant to provide a home for everyone.

It was back in 2008 when the House first approved the Moneylenders Bill to revamp the regulatory regime for moneylenders. The aim was to introduce more flexibility in regulating the industry to keep up with the modern credit economy and resulted in a sharp increase in the number of moneylender licences issued.

What the moneylenders are doing is fully legal as they exploited a loophole under the current framework, which states that flat-owners are not allowed to use their flat as security or collateral for any debt, obligation or claim.

Now that the bill has been amended, this restriction will be expanded to include the sales proceeds from the flat as well. Financial institutions, however, can continue to grant mortgage loans on the security of flats.

The changes also include a new rule that voids any contract or agreement to use flats, including the sales proceeds, as security or collateral. Caveats against flats to repay debt can also no longer be lodged once the bill is in force.

'The problem is that once a person has sold his flat and repaid the moneylender, he cannot afford to purchase his next flat,' Mr Mah said. 'The flat-seller and the other occupiers become homeless and pose a burden to their family and friends for their housing needs. Some also join HDB's queue for rental flats when they, in fact, do not qualify for rental housing.'

The message that the minister wanted to drive home was that HDB flats are for home ownership and should be regarded as a 'long-term asset for retirement'.

Meanwhile, Mr Mah said that the Council of Estate Agencies, a new statutory board, would be operational by the end of this year. It will take over the licensing of the 30,000 agents to raise the industry's professionalism and better safeguard consumer interest.

Source: Business Times, 20 Jul 2010