We learn from the article below that banks do not like to grant housing loans for residential properties located in red-light districts.
The banks are concerned about the market value of the property in the future, in the event that the borrower fails to pay his monthly instalments on time and the bank seeks to enforce the mortgage. Residential properties in red-light properties will command a lower market price and the bank may not be able, by selling the property, to fully recover the monies owed.
Sunday Times, July 30, 2006
Red blight district
Family forfeits $22,000 in booking fees for condos in Geylang red-light area after banks reject loan application
By Sarah Ng
PROPERTY experts will tell you that one of the most important considerations when buying a piece of property is - location, location, location.
If that property you are eyeing happens to be in a red-light area, this cannot be more true.
And for good reason: You may well be unable to get a bank loan for it
Mr Lim, 30, his younger brother and their widowed father had intended to buy one unit each at the Atrium Residences condominium in Geylang Lorong 28 earlier this month.
To secure the three freehold units, they put down $91,000 collectively - or 5 per cent of the units' total selling price - as booking fees.
But Mr Lim started hitting brick walls when he approached banks for financing. He needed a 30-year loan of $400,000 on his unit but was turned down by no fewer than seven banks, including DBS Bank and Standard Chartered.
Only finance companies Hong Leong Finance and Sing Investments and Finance said yes.
This, despite Mr Lim earning more than $50,000 a year as a product manager with a publishing company and having a clean credit history, he said.
'I had no problem getting a car loan previously, so I didn't think that it would be a problem getting a housing loan from the banks. It never occurred to me that the location was the problem.'
He added that the condominium was located in the residential zone of Geylang, under the Urban Redevelopment Authority's Master Plan 2003.
Banks contacted stopped short of admitting that they discriminate against any one location, saying only that the location of the property is among several factors they consider when reviewing mortgage loan applications.
The Monetary Authority of Singapore said it does not intervene in banks' commercial decisions on lending, which are based on their own range of internal credit evaluation criteria.
But industry experts note that banks may also have concerns about selling off such properties in the event of customers defaulting on the loan, resulting in repossession by the bank.
Said DBS Bank: 'We do not offer financing for properties that are of potentially higher credit risks to us as the current and future value of the properties are subject to several other factors like the condition, type of business and location of the property and its surroundings.'
Generally, banks do not finance properties located in the even-numbered lorongs between Geylang Lorong 2 and 28, which is known as the red-light district, said lawyer Lie Chin Chin of Lie Kee Pong Partnership and Ms Angeline Lim, senior marketing director of realtor ERA.