THE number of repossessed flats put up for sale by banks is dropping as the economy improves.

Another reason: the crackdown on inflating the purchase price of flats to get bigger loans has put a stop to the illegal practice.

The Housing Board told The Straits Times that recently there have been about 60 mortgagee sales of flats every month, but 'the number is on the decline in tandem with the improving economic condition and employment situation'.

HDB, however, did not reveal the previous rate of mortgagee sales, only saying that banks carried out 895 mortgagee sales of HDB flats between March this year and January 2003, when banks were first allowed to provide loans to HDB flat buyers. The bulk of these mortgagee sales took place in 2005 and last year.

Property firms hired by banks to sell repossessed HDB flats painted a similar picture.

PropNex, for example, was assigned by its partner banks to sell just 12 flats in March, compared with about 20 to 25 a month from October to December last year. ERA Singapore is now being assigned 20 to 30 flats a month this year, down from 40 to 50 last year.

Banks approached by The Straits Times would not reveal their foreclosure rate. A spokesman for UOB, however, said the number of HDB flats repossessed is very small compared with the number of housing loans it offers. OCBC Bank's head of consumer secured lending, Mr Gregory Chan, said loans are foreclosed only after all reasonable options are exhausted.

Property firms said a key reason for the drop in repossessions was that existing flats purchased through illegal cashback schemes have been mostly repossessed and sold.

ERA's assistant vice-president Eugene Lim said: '(The repossessions) mostly resulted from all these shady cases. There should be no more of them in the market now.'

Under a cashback arrangement, the flat buyer and seller collude with a valuer to over-declare the price of the flat, so that the buyer can get a bigger bank loan than is allowed. Before the Government clamped down on such deals in April 2005, many people bought flats under cashback deals solely for the extra cash that they stood to gain.

But they were then saddled with much bigger loan repayments than they could afford and many eventually had to give up their flats.

Recent regulations to encourage homebuyers to be prudent about their finances have also slowed the repossession rate. In January, for example, the HDB required buyers who needed loans to get a letter from a bank or the HDB stating the maximum amount they could borrow before they committed to a flat.

The HDB stopped giving out market rate home loans in 2003, choosing to focus solely on subsidised loans for eligible Singapore households. Between 2003 and March last year, 70,000 flat buyers had taken bank loans.

The HDB said that 360 households taking the board's loans returned the flats to the board from 2002 to last year after defaulting on their mortgage loan payments. None of these flats was forcibly repossessed.

Now, with the economy improving, the number of repossessed flats is likely to shrink further.

PropNex chief executive Mohamed Ismail said: 'If the economy gets better and people can find a job, the bank has no reason to repossess the flats.'

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