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Banks allowed to pledge HDB property loans to MAS to boost access to credit amid COVID-19 economic fallout

Banks allowed to pledge HDB property loans to MAS to boost access to credit amid COVID-19 economic fallout

A view of HDB blocks against the Singapore skyline. (File photo: Jeremy Long)

SINGAPORE: Financial institutions will be allowed to use their security interests in Housing and Development Board (HDB) flats as collateral for liquidity from the Monetary Authority of Singapore (MAS), as part of the Government’s plan to improve their access to funding from the central bank amid the COVID-19 crisis.

The new rule is part of the amendments to the Housing and Development Bill passed on Tuesday (Oct 6).

During the second reading of the Bill, Minister for National Development Desmond Lee said that although banks in Singapore have healthy liquidity buffers, greater access to credit will strengthen their resilience given current economic headwinds and is a "pre-emptive measure”. 

“Strong and stable banks are in a better position to support the financing needs of both individuals and businesses in Singapore,” he said, adding that the practice of accepting residential property loans as security interests for liquidity is an established practice among major central banks around the world. 

“Timely and ample liquidity provision by MAS can pre-empt and mitigate liquidity strains in banks, reducing the likelihood of spill-overs to the broader economy,” he added. 

This change will not affect HDB flat owners’ rights to their flats, nor change the terms and conditions of their housing loans, Mr Lee said. Flat owners will continue to service their housing loans with the approved financial institution over the period when the collateral is being pledged to MAS.

“In the highly unlikely scenario when an approved financial institution defaults on its loan from MAS, MAS will take over the residential property loans and HDB flat owners will be asked to re-direct their loan repayments to another approved financial institution appointed by MAS,” he said. 

The current housing non-performing loan ratio remains low and stable at around 0.5 per cent despite the weak economy, he said, in response to Member of Parliament (MP) Louis Ng’s question on the housing loan default rate.

MP Nadia Samdin asked if the use of HDB loans as security would increase pressure on banks to foreclose loans with outstanding arrears. Mr Lee said the new liquidity facility does not affect how banks manage their residential property loan portfolio.   

READ: Borrowers to get more time to repay loans as MAS extends financial relief measures

“As banks now have access to an added layer of liquidity insurance provided by MAS, their ability to deal with liquidity stress should in fact be enhanced,” he said. 


Another update to the Bill is to extend HDB’s power and allow it to make compulsory acquisitions of flats when owners intentionally make misleading or false statements, or misrepresent facts in the transfer of flat ownership. 

Currently, the agency is allowed to take over a flat if owners commit major infringements, such as unauthorised subletting, or if they were dishonest when they purchased the property. 

Mr Lee said the amendment is meant to strengthen HDB’s position to seize the unit as a last resort if owners “prove uncooperative and refuse to regularise the ownership of the property”.

“Such powers are necessary to allow HDB the ability to take commensurate action against the very small minority of flat owners who flout HDB’s rules, and to safeguard limited public housing supply for those who need it,” he said. 

It will not be used against owners were unaware that they made false statements or misrepresented facts, Mr Lee assured, in response to concerns from MPs about whether compulsory acquisition action is too harsh, especially if the owner had accidentally given false information in their HDB applications.

READ: Individuals can apply to defer property loan, insurance premium payments amid COVID-19: MAS

“HDB will not exercise its powers to compulsorily acquire flats lightly, and will generally only contemplate such action as a last resort for egregious or severe cases, and where the flat owners refuse to regularise the ownership of the flat,” Mr Lee said.

When asked by the MPs if revisions to the law were due to an increasing number of false statements or misrepresentations, Mr Lee said that was not the case.

Instead, the redraft is a pre-emptive move to deter potential infringements in relation to the transfer of flat ownership, he said. 

The third main change to the Bill is to increase the number of seats on HDB’s board from 12 to 15. 

Mr Lee said this will let the agency bring in more diverse views and expertise to provide better homes and living environment. 

“These efforts will benefit from fresh insights, for example, in the areas of new technology that can help us develop greener, smarter, and more sustainable towns, and in the area of healthcare and ageing issues to guide our efforts to provide a quality living environment for an ageing population,” he said. 

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Source: CNA/rp(ac)


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