Home Mortgage Loans – Throwing caution to the wind?

The number of Singaporeans taking 2 or more home loans stands at 41,078 in March 2007, nearly the double the number when compared with the same month 2 years ago. (Source: The Straits Times, 17 May 2007). Of these, 2,925 took home loans exceeding S$1 million. (Source: Credit Bureau Singapore). In total, 4,291 (inclusive of 2,925) took more than S$1 million home loans, which is 85% more than March 2005.

The property boom which started last year 2006 is still running its course upward this year. The stock markets of most countries are at all times high. Employment market is good with good bonuses. The Singapore economy is in positive territory albeit some slowing down in the non-oil domestic exports (nodex). Nodex fell 7.2% in April from March 2007. There is too much liquidity in the market and these funds are searching for returns.

Casting our memory back to 1997 and 1998, the property slump caught some home buyers off-guard. They were caught in the squeeze that had arisen as homes become worth less than their mortgages in a downturn which had seen the official price index for private homes tumbling 24.2 per cent up to the first quarter of 1998 since the market peaked in the middle of 1996. (Housing loans – Finance firms get tough. By Tan Li Eng. 9 July 1998. The Straits Times). For ten years from then till now, the property bought before 1996 has not recovered fully to the level as seen in 1996 before the collapse.

In a sign of the worsening property slump, 143 homes were repossessed by banks and put up for auction in the third quarter in 1998 – far more than the 91 in the whole of 1997. (Banks repossess over 140 homes. 2 October 1998. The Straits Times)

It was grim back then.

This year, the over-confidence by some home buyers may be misplaced and perhaps they may have forgotten the property slump in 1996 – 1998. There are risks in overstretching their credit limits. Taking huge home loans will mean that they are “working” for the banks in order to pay interests and loan repayments. Job security is not assured for the long haul as the home loan stretches over a number of years. It can be miserable if they hated their jobs but the jobs pay decent salaries which are required to service the loans.

Written on 5/18/2007 10:12 AM

Copyright © 2007, the author known as LKT in Singapore.

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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