As the economic crisis worsens, here’s a note of caution to those who have taken a non-HDB property loan, or intend to take up one:
Your friendly bank may invoke a margin call on your property loan. If your property is worth less than what you still owe the bank, you may be asked to “top up” the difference.
Suppose you bought a condo last year for $1 million and took a $800k mortgage loan. After servicing your loan for about a year, you still owe the bank $780k. Given the current market conditions, if the bank values your condo at a lower value of $700k, it could invoke the security margin clause it is entitled to, and take action against you e.g. ask you to top up or even to redeem the entire loan.
The following is extracted from the mortgage terms of a local bank:
“We may from time to time conduct valuation or revaluation at your cost and expense… If the market value of the Property falls below what we, in our sole opinion, consider to be an adequate security margin we shall be entitled, without prejudice to any other right which we have, to reduce the Facility, withhold the release or further release of the Facility, and/or to require repayment of such amount of the Facility as we may specify and/or require additional security acceptable to us to be provided to us.”
It would be worse if you had taken a 90% loan. That is, you borrowed $900k in the above example.
Read about how some expats are affected by margin calls on their home loans.
If such margin calls become increasingly widespread, we may see property prices accelerate downhill. This will be a very painful experience for some, but at the same time, it may also be an opportunity for others.