News: Banks allowed to use HDB loan as security interest for liquidity

Oct 7, 2020

The new Bill aims at strengthening the resilience of Singapore banks amid the COVID-19 crisis. This change would not affect the rights of HDB flat owners to their units, nor change their housing loans’ terms and conditions. 

In a bid to improve financial institutions’ access to funding from the Monetary Authority of Singapore (MAS) amid the COVID-19 pandemic, banks will be allowed to use their security interest in Housing Board (HDB) flats as collateral for liquidity from the central bank, reported Channel News Asia (CNA).

This new rule forms part of the amendments to the Housing and Development Bill passed on Tuesday (6 October).

During the Bill’s second reading, National Development Minister Desmond Lee noted that while Singapore banks have healthy liquidity buffers, providing them with greater access to credit will help strengthen their resilience considering the economic headwinds. He also described the move as 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 as quoted by CNA.

He revealed that the practice of using residential property loans as security for liquidity is an established practice of major central banks across 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,” said Lee.

He added that the change would not affect the rights of HDB flat owners to their units, nor change their housing loans’ terms and conditions. The owners of the flat will continue to service their residential property loans with the approved banks during the period when the collateral is pledged to MAS.

Suggested read: Home Loans in Singapore: HDB Housing Loan vs Bank Loans

“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.

In another update to the Bill, HDB’s power has been extended to allow it to make compulsory acquisition of flats once owners intentionally make false or misleading statements when transferring flat ownership.

At present, the agency is allowed to seize a flat only when the owners commit major infringements like unauthorised subletting or they have been dishonest during the acquisition of the property.

The new rule is aimed at strengthening the position of HDB in seizing the unit as a last resort when 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,” said Lee.

He assured that the new rule would not be used against owners who were unaware that they misrepresented facts or made false statements.

Recommended article: 3 Ways to Prevent Illegal Subletting, Landlords Take Note!

Lee made the statements in response to MPs concerns that the compulsory acquisition may be too harsh, particularly if the false information was provided accidentally by the owner.

“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,” he said.

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