Mortgage defaults increase as economic uncertainty from Covid-19 looms

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In what is perhaps another sign of a slowing economy, the number of mortgage defaults increase in Singapore has seen a significant uptick, according to a report by the South China Morning Post (SCMP)According to the Credit Bureau Singapore, there have been 79 cases of mortgage defaults from January to July of this year.

mortgage defaults increase
Mortgage defaults increase (Image credit: Wikimedia Commons)

In 2015 mortgage defaults were lower in that there were only 65 cases for the whole year. In 2017, mortgage defaults increase was at 112, and last year, 156.

Moreover, according to Colliers International Singapore, mortgagee sales were up to 213 for the first six months of 2019. In all of 2018, there were only 258 such cases in total, while five years ago, the number of mortgagee sales was only at 123 cases, although data from Colliers includes homes that have been re-listed.

More mortgagee sales signs of mortgage defaults increase

Experts are saying that the number of mortgagee sales could be a sign that the economy is stagnant. The SCMP quotes Chua Hak Bin, an economist with Maybank, as saying, “Bankruptcies are also rising, in line with the mortgagee sales, as the economy grinds to a standstill.”

This year there have been 1,847 applications for bankruptcy in the first six months alone. In 2017 there were 2,932, and in 2018, 3,079. Two months ago, the GDP growth forecast for 2019 was downgraded to 0.0-1.0 percent.

Additionally, houses offered in auctions are not moving quickly, with numbers of houses sold declining from 6.4 percent in the first quarter of 2018, to 1.4 percent in the same time frame this year, according to Knight Frank, a real-estate consultancy.

Director of research and consultancy at Suntec Real Estate Consultants Colin Tan calls the mortgage defaults are “a slow death,” and points our that foreclosure on properties is usually a bank’s last resort, as most financial institutions choose to restructure loans or give clients leeway in paying only interest for a short time period.

Mr Tan said,“If you can pay the interest, you’re not in default. But these people can’t even service the interest. It’s a reflection that the economy is not so good that you’re seeing more and more defaults.”

According to industry experts, the rise in number of mortgage defaulters can be attributed to higher unemployment, a slower economy, a smaller number of buyers, as well as a shortage of tenants for properties bought by investors.

For this year, the sector that saw the highest number of retrenchments are the professionals, managers, executives and technicians (PMETs), who make up over three quarters of those retrenched in the second quarter of the year.

However, in spite of signs of a declining economy, there seems to be continued growth in the number of private homes being constructed, with 24,000 vacant units and another 44,000 planned to be built.

A report in early June said that there are 24,000 private housing units that are empty. Additionally there are 44,000 private housing units in the pipeline, made up of 39,000 unsold units from GLS plus another 5,000 units from sites pending planning approval.

The Ministry of National Development (MND) made an announcement on June 6, Thursday, that five confirmed list sites and eight reserve list sites yielding around 6,430 private homes, 92,000 sq m gross floor area (GFA) of commercial space and 1,100 hotel rooms had been released.

While the first half of the year’s GLS programme had 2,025 units of private homes from confirmed list sites, for the second half there were only 1,715 units, which is a reduction of 15 percent. To address the problem of mortgage defaults, the Credit Bureau urged would-be homeowners to plan their finances well.

Mortgage defaults increase shows importance of financial planning

A spokesperson from the Bureau said, “Singapore is a country that is constantly growing, and so is her population. Therefore, housing is constantly in demand and on the rise, which means that more and more people will take real-estate loans.

We strongly advise all consumers to plan their finances in advance, in order to prevent defaulting on their repayments to lenders later on.”

CBS said earlier in January that seven months after the Monetary Authority of Singapore (MAS) announced the latest housing curbs on property purchases, buyers are taking up lesser mortgage loans. The CBS study follows the recent guidelines by MAS in July last year, with the raise in Additional Buyer’s Stamp Duty (ABSD) rates and tightening of Loan-To-Value (LTV) limits on residential property purchases.

The ABSD rates for Singapore Citizens and Singapore Permanent Residents (SPR) purchasing their second and subsequent residential property were raised by 5 per cent for all individuals and 10 per cent for entities. LTV limits were tightened by 5 per cent for all housing loans granted by financial institutions.

Statistics based on new mortgage loan applications show that in December 2018, there were 4,423 new applications. This represents a 64.9 per cent decline from 12,619 applications in July 2018 and a 54.0 per cent decline from 9,611 applications in December 2017.

CBS is Singapore’s consumer credit bureau which provides objective and accurate information to credit providers in the financial services industry to strengthen their risk assessment capabilities. By enabling clients such as banks, credit card companies and institutions to make better lending decisions, CBS aims to enhance Singapore’s risk management capability.

As the leader in managing consumer credit information, CBS also seeks to enlighten, empower and engage consumers to manage and protect their financial health. CBS maintains data accuracy and integrity by using advanced technology to update millions of consumer information.

Throughout its operations, CBS observes a strict Code of Conduct that its members comply with. This ensures the highest moral and ethical standards in data handling in all business activities. Established in 2002, it is a joint venture between The Association of Banks in Singapore (ABS) and Infocredit Holdings Pte Ltd.

Written by Ravi Chandran

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