Half of gains must go towards next flat but they have spent money
A SMALL number of HDB buyers now face a cash shortfall and cannot buy replacement homes of their choice, due to changes to the HDB loan policy in March.
These buyers sold their flats before a new rule stated that buyers must use 50 per cent of their cash proceeds to finance their next flat. They are now stuck because they have spent the cash.
A Straits Times check with 16 MPs found that a small number of such buyers have showed up at their Meet-the-People sessions.
Aljunied GRC MP Cynthia Phua has five constituents caught out by the policy change; Dr Lim Wee Kiak, an MP for Sembawang GRC, has seven; Mr Yeo Guat Kwang, also of Aljunied GRC, has two and Madam Ho Geok Choo of West Coast GRC has 10.
These buyers are divided into two groups: downgraders who sold their flats and used the cash proceeds to settle debts, or genuine upgraders who need a bigger flat for their families.
Among those who sought Madam Phua's help were a couple who sold their flat in 2006. When they tried to buy a flat this year, they were surprised that the loan amount granted by HDB was reduced by half the cash proceeds from the first sale.
HDB changed its loan policy in March to make second concessionary loans available to downgraders. Such loans were previously given only to upgraders. HDB also laid down a new rule - loan applicants must use the full CPF proceeds and half the cash proceeds from the sale of the previous flat or $25,000, whichever is less, to finance their next home. The change was to encourage financial prudence.
While Madam Phua supports the move to prevent home owners from cashing out on their flats, she does not think it is fair for those who sold their flats before the policy change in March to be subject to the new requirement.
'HDB will now give a loan only less half of the cash proceeds amount, but that's not enough money to buy a new home and most of them have already spent their cash proceeds,' she said.
During Monday's Parliament sitting, Madam Phua appealed to National Development Minister Mah Bow Tan on behalf of her constituent who sold his flat in 2006.
Mr Mah said in reply that the HDB gave home buyers a second subsidised loan so they could buy something they really needed. 'If you have already made a lot of money, then I think it is only fair that the HDB takes that into account, irrespective of when you have sold a flat,' he said.
He also felt that home buyers like the one Madam Phua cited were 'rare', as most bought a second flat soon after they sold their first. Still, he promised to review appeals on a case-by-case basis.
The HDB also provided figures to show that the policy change benefited large numbers of downgraders.
Between March and May 31 this year, HDB approved 2,439 applications for a second concessionary loan. Of these, more than half were downsizing or moving to a flat of the same size. These buyers would not have qualified for a second subsidised loan if the policy had not been changed.
On Monday, Mr Mah stressed that the size of the second loan could not be independent of the proceeds from the sale of the previous flat. If it were, that would create a 'perverse incentive' for people to upgrade and downgrade 'to automatically get a larger HDB loan'.
PropNex chief executive Mohamed Ismail said the policy change has helped many flat owners who faced financial hardship and needed to downgrade to a smaller flat. Before the change, they could not apply for a second HDB loan. Many were also unable to secure a bank loan because of their bad credit history, he said.
The new rule has made some more cautious. Mr Jerry Lee, 31, a property agent with HSR Property, has had five clients change their minds about selling since March. 'Many of them wanted to cash in on their property, but the policy change has made them think twice before selling.'
Source: Straits Times, 22 Jul 2010