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Modest Recovery in 2003
Financial Market Activity
Rise in Asian Dollar Market Lending . Box 12 – A Robust Financial System
Healthy Growth in Corporate Debt Market . Active Trading in Equities and Futures Market
Vibrant Treasury Market . Box 13 – The Singapore IPO Market
Mixed Performance for Insurance . Box 14 – Bank Loans to HDB Flat Buyers
Box 14
With the liberalisation of HDB mortgage market in January 2003, HDB has stopped providing marketrate loans to HDB flat buyers. Instead, flat buyers who are not eligible for HDB concessionary loans would have to obtain loans from the banks to finance their flat purchase at commercial rates and terms. Existing HDB mortgagors can continue their existing mortgages provided by HDB, or refinance their loans with banks if they choose to. Bank origination of HDB mortgage loans has grown steadily since the liberalisation, with many banks offering competitive mortgage packages. New HDB loans offered by banks reached S$2.9 billion by the end of 2003 while refinancing of the existing stock of HDB market-rate loans totalled S$1.6 billion1.
After an initial crest of refinancing activity from March to May, volume and value of refinancing declined from June onwards, down to less than S$50 million in December2 (See Chart 17). The total refinancing amount of S$1.6 billion represented 11.7% of HDB’s stock of market-rate loans as at end-2002. The modest amount of refinancing with banks of the existing stock of HDB loans could be because of borrowers’ perceptions that banks might be less forbearing with late payments; or a required minimum refinancing threshold with banks.

Nevertheless, the S$4.5 billion of total bank-originated loans has been an important part of the banks’ overall loan growth, accounting for 65.5% of the net increase of S$6.9 billion in the total stock of housing loans in 2003. Excluding the bank-originated HDB loan component, mortgage loan growth at end-2003 would have been 5.1%, instead of 14.9%.

Normalising the distribution of refinanced market-rate loans by room type and by year of purchase over the distribution in HDB’s stock of market-rate loans, refinanced HDB loans were mostly for larger flats, particularly the four-room and five-room (See Chart 18). Larger flats were more likely to be refinanced in view of the higher loan quantum. In terms of the year of purchase, HDB properties purchased in recent years, and those purchased during the peak of the property price cycle in 1996 and 1997 were more likely to be refinanced (see Chart 19). The underlying factor could simply be the larger loan quantum and hence larger savings in interest payment due to the lower initial interest rates offered by the banks.
Following the liberalisation of the HDB mortgage loan market in 2003, HDB’s stock of market-rate loans fell from S$13.8 billion at end-2002 to S$11.7 billion at end-20033. Concessionary-rate loans also witnessed a decline from S$50.4 billion to S$49 billion.
1 In this write-up, housing loans data include small amounts originating from finance companies.
2 The refinanced loans include negligible amounts refinanced from HDB concessionary-rate loans.
3 Although HDB has officially stopped providing new market-rate loans, some S$551.5 million was extended due to new or resale transactions booked before 1 January 2003 but completed only after 1 January 2003.