31-Aug-2009
Act now to prevent a housing bubble. Banks should tighten lending terms to head off possible mortgage defaults. In January, as the global financial storm lashed Singapore shores, fears took hold that large numbers of cash-strapped home owners might default on their monthly mortgage instalments, as businesses went belly-up and jobs were lost. DBS Bank went out of its way to calm the jitters by offering to resurrect the interest-only payment scheme to allow borrowers to make only interest payments on their home loans, to give them breathing space to sort out their finances. Only months later, in a surprise to many, the tide turned and there was a huge revival in the residential market. The gloom lifted as confidence grew and buyers rushed back to snap up properties - despite the stress that continued to be felt in the corporate sector. The statistics are impressive. In the second quarter, 10,184 HDB resale flats changed hands - up from 6,446 units in the first quarter and 7,763 units in the same quarter last year. This, in turn, triggered a boom in lower-priced condos, as HDB sellers upgraded to private developments. For many, buying an HDB resale flat has turned out to be a sure-win investment. Despite the onset of the global financial crisis two years ago, HDB prices have scarcely fallen. In fact, they are up 35 per cent since 2007. Some observers have been quick to attribute the hike in housing prices to the growing number of foreigners becoming permanent residents, which makes them eligible to buy HDB resale flats. For many new permanent residents coming from countries such as China, where payment for a house must be made in full by cash, Singapore is a paradise. It is impossible for them to get an appointment to see the bank manager in their home country, let alone get a loan if they do not have the necessary 'guanxi' or connections. In Singapore, as long as they are gainfully employed and have some savings, they have a bevy of banks competing for their attention and offering them loans on attractive terms to help them buy their homes.