Singapore’s worrying trend of homeowners defaulting on mortgages

  • Not all is rosy in the housing market. The number of homeowners in the Lion City defaulting on their mortgages is on the rise.
  • Data from the Credit Bureau Singapore – which gets information from banks on real-estate loan defaults by individuals – shows 79 such cases in 2019 as of Jul 19. In 2018, there were 156 mortgage defaults in total, compared with 112 in 2017 – more than double the 65 cases seen in 2015.
  • The Credit Bureau’s data parallels the figures compiled by real-estate firm Colliers International Singapore of mortgagee sales seen by major auction houses in the city state.
  • In 1H19, there were 213 cases, compared with a total of 258 throughout in 2018. The numbers are more than double what they were in 2014, when there were 123 mortgagee sales.
  • However, Colliers’ data includes relistings of homes – banks which have foreclosed on the houses but fail to sell them at one auction may take the listings off the auctioneer, then relist them with the same or another auction house.
  • “Bankruptcies are also rising, in line with the mortgagee sales, as the economy grinds to a standstill,” says Maybank economist Chua Hak Bin.
  • Defaulting on mortgages is a “slow death” process that indicates homeowners have lost grip of their finances, said Colin Tan, director of research and consultancy at Suntec Real Estate Consultants.
  • Foreclosure was usually a last resort for banks, which would prefer to restructure loans or allow clients to pay off just the interest for three to six months, Tan said.
  • “If you can pay the interest, you’re not in default. But these people can’t even service the interest,” he said. “It’s a reflection that the economy is not so good that you’re seeing more and more defaults.”
  • Analysts say the trend is fuelled by a confluence of factors: a slowing economy, rising unemployment, fewer buyers on the resale market, and a lack of tenants to fill properties purchased by property investors.
  • Mortgagee listings are a lagging indicator of a cooling market, said Nicholas Mak, head of research and consultancy at ERA Realty. “It takes a few months for homeowners to be affected, so mortgagee sales tend to happen after the crisis has struck.”
  • In a report about auction sales, Knight Frank noted that the growth in mortgagee listings from 4Q17 to 2Q19 was “highly correlated” to the rise in interest rates.
  • “With residential rents largely staying the same, the higher interest rates further exerted pressure on distressed owners,” said report author Sharon Lee, head of auction and sales at Knight Frank.
  • Tricia Song, director and head of research at Colliers, said the 3M SIBOR interest rates, which affect mortgage amounts, “have risen steadily since 0.457% in Jan 15, to the latest 1.886% in Aug 19”.
  • Song said the increase in auction listings could also be due to the cooling measures imposed by the government in Jul 18, when stamp duty rates were raised and loan-to-value limits were tightened on residential property purchases – making it hard for distressed owners to find buyers quickly enough.
  • Mak, from ERA Realty, said these troubled homeowners could have over-leveraged themselves when the market was at its peak.
  • That the cooling measures did work, reducing such investor speculation, is not a bad thing as it brings safety to the financial market, others say.

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