Public housing policy: The gradual privatization of the HDB (Housing and Development Board) mortgage loan

Abstract

Purpose - The purpose of this paper is to investigate the merits of a full privatization policy of the HDB concessionary rate mortgage loans. It is believed that price competition among domestic banks will be infused and sustained, resulting in improved efficiency for the banking sector and the economy. Design/methodology/approach - This paper first compares the loan interest rates of the domestic banks for HDB flat buyers to the HDB concessionary interest-rates. Then it investigates the performance of the HDB, by assessing whether its mortgage yields are able to meet the requirements set forth by means of HDB's hurdle rates. Findings - The findings suggest that HDB's mortgage yields are insufficient in meeting the performance standards set by the HDB, reflected by the hurdle rate. In conclusion, it is recommended that the HDB should further delegate this part of business to the private sector, where better financial performances are expected among domestic banks under competitions. Research limitations/implications - This paper is confined to mortgages subject to constant interest rates over time, despite, firstly, the availability of floating-rate mortgages on the market, and, secondly, the quarterly revised fixed rate mortgages offered by the HDB. Originality/value - While sharing some structural similarities with the USA on mortgage finance, disparities in the degree of government involvement in the mortgage market of Singapore makes it worth studying. Also, it sheds light on further studies on other nations with similar features, such as the presence of strong government support in the mortgage finance sector.