RESIDENTIAL MORTGAGE FORECLOSURE RISK IN SINGAPORE

Abstract

In Singapore, the number of private residential foreclosure sales has been surging since 1997. Given the magnitude of the foreclosure risk and the move to develop real estate securitization, the need to understand the foreclosure risk is evident. This study provides an analysis of residential foreclosure risk in three areas. First the foreclosure risk profile is examined and the result shows a peaked non-linear relationship during the mortgage term where foreclosure risk peaks in the second to fifth year from the mortgage origination date. Secondly, the price deviation between foreclosed and nonforeclosed properties is analyzed and it was found that foreclosed properties did sell at a discount of between 0.59% and 5.28%. Interestingly it was found that a higher priced property have a greater discount where foreclosure on detached properties, properties located in the central region and those sold in the rising market will experience a higher discount. Using mean analysis, it was found that the owners of foreclosed properties have overpaid for the properties during their purchases, a purchase price that is above the market value. Lastly, the determinants of foreclosure are tested using the probit model and equity, mortgage rate volatility, size of property, purchase price, owneroccupiers, firms and number of purchasers are found to be statistically significant variables affecting foreclosure.