The Singapore government together with the housing finance consider the public housing as one of the various achievements they have accomplished. Public housing accommodates more than 80% of the residents in Singapore. A majority of the residents, close to 90%, is designed as Housing Development flats (HDB). In an effort to improve the current housing state in Singapore, the housing finance and the government has introduced various schemes and substitute schemes alike. The schemes have encouraged the resident into becoming homeowners in addition to ensuring that they did not default their mortgage payment. The Housing and Development Board (HDB) is responsible for the dealings and management of the public housing program in Singapore. The local town council oversees the daily management activities. They also ensure planning and development of the public housing in addition to selling and resale of the houses as well as offering financial mortgage.
Singapore Public Housing finance loan borrowing has dropped four folds in the recent year. Owing to a myriad of factors, the number of loan applicants for the public housing allocation has significantly reduced as compared to the numbers associated with the previous application. The government estimates that the number may rise in next coming years if market curbs are softened, such as loan repayment schemes on interest rates and application. A future projection of the public housing finance loan interest indicates a downward trend in the near future owing to the stiff competition put in place by private property owners (Ong, 2010). It is imperative, therefore, to reduce the public housing loan rate in order to attract new property owners while increasing the resale of the previously owned property.
Currently, the resale price of previously owned units on the public housing has dropped by 1.3%. The government has not taken any measures to ensure that this market situation is controlled, but is examining the matter in order to employ proper strategy to enable Singapore citizens to own homes. In case the current prices of property remain stagnant at 57%, it is estimated that the public housing loan rate will rise. The number of public housing owners is estimated to gradually increase in case the current rate does not drop in the near future (Ong, 2010). The Housing and Development Board (HDB) is responsible for the dealings and management of the public housing program in Singapore. The local town council oversees the daily management activities. They also ensure planning and development of the public housing in addition to selling and resale of the houses as well as offering financial mortgage. The paper discusses an examination of the privatization of HDB and reasons behind it, with projection to loan in the coming years and how one can become a public house owner in Singapore.
Privatization of HDB Loan to Consumer Bank
The main aim of the privatisation of Housing and Development Board mortgage loan to consumer banks in Singapore was to curb the price competition through inculcation thereby increasing the performance of the banking sector within the economy. The mortgage yield was not sufficient to meet the standards set by HDB, thus the privatisation of the HDB mortgage became imperative (Adams, 2014). Moreover, the private sector’s better performance and management of the economy was an added reason for the privatization as compared to the public sector’s ability in managing and performance. With the privation of the HDB loans to consumer banks, the annual interest rate returns have since increased and projections show that they will continue to increase in the coming year. This therefore eliminates the high rate hurdle previously presented by HDB through the elimination and minimization of the government regulation on the HDB housing projects. (Li, 2014).
Financier of Mortgage loan: Interest rates
Homebuyer with potential can choose to buy a home with either a HBO loan or Bank loan. The payment scheme chosen will determine the selection of the mortgage partner from which the mortgage loan will be received. Homeowners are able to apply for mortgage loans through HBO and Consumer banks. The above options for loan financier are in place in order to enable potential buyers to decide which best fits their financial capability.
In addition, HDB plays the role of a financier to flat owners by giving mortgage loans. This has enabled Singapore residents to acquire public houses easily and faster with the help of HDB mortgage loan. From a financier’s point of view, a homebuyer applying for a mortgage loan is required to have met their credit assessment and this is assessed with their current system of standard mortgage application. For an eligible flat buyer to have access to a concessionary loan, they must have an HDB Eligibility Letter (HLE) confirming that they are capable of making repayments. This is important because it accesses one’s potential ability to pay back his loan with constraining their personal budget. Before anyone can purchase a flat, they must have a letter of eligibility of HDB. HBO concessionary loan interest is 2.6% which is only 0.1% higher than the Central Provident Fund (CPF). It seems important tor e-examine the interest rate of HBO quarterly in comparison to CPF interest rate to ensure that it stays roughly the same level. This type of system design helps to provide an easier scheme for the mortgagor to service their loan payment, and ensure they constantly pay without defaults. This interest rate of the HBO loan has been in existence for over 15 years (Ong, 2010).
Contrary to this, banks interest rate is currently 1%. The interest is dynamic and not constant because it is determined by a number of other factors which affects the operation of the bank such as its business strategy, the prevailing market situation and commercial decisions. It is determined jointly by all the financial institution in Singapore. This system make it unreliable because it is not constant, it keeps fluctuating based on the above mentioned factors. Even though HBO mortgage offer low amount of loans, HBO mortgage scheme remain the most suitable financier to mortgage loan. Unfortunately, and since the privatisation of HBO, all those who wish to finance their resale and acquisition of HBO public housing will have to apply loans to various banks licensed by the monetary fund to give mortgage loans to public housing acquisition and resale.
There are benefits to being a citizen in Singapore. Singapore is one of the major cities in Asia in terms of wealth and culture. To buy and rent an HBD flat, one has to be 21 years or older and a citizen to Singapore. Another benefit that the citizens of Singapore are entitled to is obtain loans at concessionary interest rate with HBO to help them in obtaining the flats. In addition to this, they are also offers for citizens who obtain public houses for the first time such as subsidies, for instance grants offered by the government as a cushion to aid those buying public houses. Citizens also enjoy lower rates for houses repairs (Adams, 2014).
In conclusion, the number of public house owners in Singapore is bound to increase in the near future with increase in mortgage. The performance of HDB’s hurdle interest is expected to increase on an annual basis with the privatisation to consumer banks to aid in the mortgage loan financing. This has facilitated the process of solving the housing problem in Singapore owing to the fact that the government has provided a more reliable and efficient option to help people buy property. Although the current market is not promising, the government is working hard to curb the situation and enable more Singapore in the coming year to own public house. This will enable them to deal with the housing problems and concentrate in development of other sectors of the economy thereby increase their national income and dominate in the leading economy (Li, 2014).
Adams, J. (2014, October 10). Bleeding the banks. Retrieved October 31, 2014.
Li Sen, S. (2014, October 3). Spike in bad home loans swells Singapore banks’ NPLs. Retrieved October 31, 2014.
Ong, S. (2010). Housing affordability and upward mobility from public to private housing in Singapore. Singapore: S.E. Ong].