Photo of HDB flats from Straits Times Business Times

Singapore’s relentless rise in property prices came to a halt in 2013, and while the decline thus far have been subdued, homeowners – or more essentially referred as mortgage debtors in this article – are likely to be burned by any margin call by the banks.

A margin call is a right exercised by the bank to demand that you pay up the shortfall to fulfill a new loan-to-value (LTV) ratio resulted from the fall in housing prices. For example, I borrowed S$400K from the bank to buy a S$500K 4-room HDB flat at Queenstown in 2012 – fulfilling the 80% LTV requirement. Over the course of 5 years to today in 2017, I repaid about S$100K already, leaving me with an outstanding mortgage debt of S$300K. Unfortunately in 2017, the market value of my 4-room HDB flat declined to S$350K. The bank now have the right to exercise a margin call, demanding that I fulfill the new 80% LTV. The new 80% LTV allows me to loan only S$280K, and I will need to pay S$20K in cash within a week. If I do not pay up, the bank can repossess my flat and make my family homeless. My personal financial crisis would worsen further if I lost my job and the bank do not allow me to loan S$280K.

Despite the property boom in Singapore, the topic of margin call is hardly discussed because everyone is compromised into the fall premise that housing prices will appreciate forever. Most Singaporeans are also wrongly impressed that they are a “home owner” when they are actually debtors and the real ownership of public housing is the bank (or the HDB even when it is fully paid up). No thanks to propaganda in schools teaching Singaporeans that Singapore has the “highest home ownership rate in the world”, the people believe that their housing prices can only go in one direction – up.

The Minister for National Development Lawrence Wong popped the bubble earlier in March this year – thanks to States Times Review picking up this important detail in his senseless ramblings about affordable housing prices – saying that when the HDB lease is up, the house belongs to the government and there will be no compensation. Many uninformed Singaporeans received a rude awakening from their indoctrination believing that the government is their savior when the HDB lease is up. Following the Minister’s comment a month later in April, prices of HDB resale flats dipped 0.5% and transaction volume dropped 9.6%. Nobody is now interested in paying half a million for a depreciating asset, and like all property bubbles, with no buyers, prices today can only go in one direction again – down.

The change in resale pricing is a result of information. Margin call or HDB lease is not new information, but a responsible news media picking up important fine print and highlighting the dangers made all the difference. Suddenly HDB flats are no long “asset enhancements” or appreciating assets, they are now known as a depreciating asset class and a CPF retirement wrecker. This article is nothing new either, Yahoo Singapore first reported it, but no one issued the harbinger warning. Singaporeans have more to lose if they are not informed or reminded from time to time, that following the piper’s call means falling over the cliff.