Sept 26, 2005
Help stallholders stuck with loans at high interest rates
The Stall Ownership Scheme was launched by Ministry of Environment in April 1994 to enable stallholders to own their stalls.
In October 1996, my aunt took a loan from NTUC Income Insurance Cooperative to purchase her stall.
The interest rate was fixed at 5.25 per cent for the first two years. In February 1999, it rose to 7 per cent. In May 2001, the rate was adjusted to 6.5 per cent. In April 2004, it was adjusted again to 6 per cent. This is still the prevailing board rate.
In comparison, Central Provident Fund's interest rate for HDB mortgage loan is currently 2.60 per cent per annum.
When I called to ask how NTUC Income sets its interest rate, the manager in charge of the Loan Department explained that it is 'set by the Cooperative's senior management'.
There is no set formula, unlike CPF rates, which are pegged at 0.1 percentage point above the major local banks' interest rates for the preceding three-month period.
There is also no regular period of review, unlike CPF rates that are reviewed every three months.
Even though hawker stalls are commercial properties with lower resale value than say, HDB flats, the interest rate charged seems to be high.
You may say this is the result of market forces at work. But is there really sufficient market competition to determine a fair interest rate on hawker stall loans?
In the past, only Hong Leong Finance and NTUC Income gave such loans. Now there is no competition as both financial institutions have ceased to give new loans for hawker stalls.
NTUC Income can set whatever rate it chooses because borrowers have no avenues for refinancing and they are usually not financially-savvy enough to explore alternative sources of funding.
Given that NTUC Income was established in 1970 as the 'poor man's insurer', it is only reasonable for us to expect NTUC Income to be run for the benefit of its members, especially those in the low and middle income groups.
Hence it should be more transparent in determining the prevailing board rates on loans and have regular reviews of these rates to ensure that borrowers are not over-charged.
The monthly instalment of my aunt's loan is about $1,000 and it is a strain on her finances. I would imagine this is a significant burden for most hawkers who are facing increasing competition from air-conditioned food courts in neighbourhood malls.
According to ENV's Annual Report 2000, no stalls were offered for sale in 1999 and 2000 due to the economic downturn affecting the region.
This means that hawkers who had taken loans before 1999-2000 were hit with a double whammy.
They had to service the loan at 7 per cent (NTUC Income's board rate at the time) even as earnings and the resale value of their stall dropped.
Some hawkers may even be faced with negative equity, whereby their mortgages exceed the real value of their stalls.
I urge the government to look into the situation faced by those stall holders who had participated in the Stall Ownership Scheme and are now locked in loans with high interest rates.
This is a vicious cycle. The higher the interest rate, the greater the strain on borrowers. High default rates in turn lead to even higher interest rates for the existing pool of borrowers.
Teo Sin Ee (Ms)
old.. you just found out?
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