By: Siew Kum Hong
First published: 8 January 04, TODAY

What good is it to have affordable public housing if one cannot get a loan for it in the first place?

That is the quandary facing a small group of Singaporeans, thanks to a change in the Housing & Development Board's loan policy that took effect on Jan 1, 2003.

The HDB's mission statement is: "We provide affordable homes of high quality."

On the face of it, public housing seems affordable.

Most, if not all, working couples should be able to afford the downpayment for a flat after working for a few years.

But the truth is that nobody - bar a handful of very rich people - can afford to buy property without a loan.

The affordability of property depends on its price, as well as the buyer's ability to obtain financing.

A small but possibly growing group of Singaporeans seem to be having problems buying HDB flats.

It's not that prices have gone up. They are having difficulty getting housing loans.

Before 2003, the HDB provided two types of loans: A concessionary rate loan (presently pegged at 2.6 per cent per annum) and a market rate loan (at 3.75 per cent).

It stopped giving market rate housing loans to HDB flat purchasers from Jan 1, 2003 onwards.

The HDB gives out concessionary rate loans, which most flat purchasers should qualify for.

But the eligibility requirements mean some will not qualify for such loans from the HDB.

This group will have no choice but to borrow from the banks.

When the policy was announced, the question was whether the banks would be more ready than the HDB was to repossess HDB flats in case of defaults.

It seems that although there have been defaults in the one year since the policy change, no bank has yet foreclosed.

But a disturbing trend has emerged: Some people have had their applications for housing loans rejected by the banks.

The reasons centred on poor credit histories - whether it was because they had guaranteed loans that had been defaulted on, or credit card debt issues - to monthly incomes below the minimal level set by the banks.

When the HDB was giving out market rate loans, credit history was not an issue and there was no requirement for a minimum income level.

But the banks, as commercial entities, have sought to limit their credit risks by imposing the requirements.

People who spend recklessly and end up with problematic credit histories reap what they sow.

But I think public housing must be available to all who need it.

There is no point in the Government providing subsidies to make HDB flat affordable if people cannot obtain the loans to buy them.

And some people are blameless, yet cannot afford them.

Take a hypothetical Mr X, the sole breadwinner, who is married with two school-going kids.

He bought a three-room flat in 1978, but upgraded to a five-room flat in 1992.

He was recently retrenched and has to downgrade to a smaller flat because of financial difficulties.

Because Mr X is buying his third flat from the HDB, he does not qualify for a concessionary rate loan and will have to go to the banks.

But he is unemployed and, at the age of 50, find it hard to find a new job that pays what he qualifies for and needs.

He needs a miracle to get a bank loan.

This family is caught in a Catch-22. They did not live beyond their means.

They are the victims of economic forces beyond their control. It seems heartless to deny them public housing.

My proposal is simple: The Government should, as preconditions for banks being allowed to give loans for HDB flats, prohibit banks from obtaining credit reports on applicants from the Consumer Credit Bureau and from imposing strict minimum income requirements.

Because of the public interest in ensuring that public housing stays accessible to all who need it, factors such as a poor credit history should not prevent people from getting the loans to buy housing.

A low income should not be a strict bar to obtaining financing - it should be relevant to the loan amount.

After all, low-income groups need public housing the most.

I am not asking banks to do "national service". If they find it unprofitable to continue offering HDB loans, they can exit the market.

Moreover, HDB's decision to stop granting fresh market rate loans has opened a new market to banks - estimated at 20,000 loans per year.

Since it is for public housing, it would be reasonable for the Government to impose conditions of access to this market.

Don't forget: the banks can repossess the HDB flat in the event of a default. So the risk for banks is not excessive.

Banks have to make profits. However, we are talking about public housing and rules must be put in place to preserve access to housing for those who need it the most.

The writer is a lawyer. The views expressed are his own.