Prepayment risk and holding period for residential mortgages in Singapore ‐ Evidence from condominium transactions data

Abstract

Prepayment risk is a key concern in securitized real estate. Using repeat sales in transaction data to proxy for holding period and prepayment, this paper provides the first rigorous analysis of residential mortgage prepayment in Singapore. The prepayment rate for new condominiums is increasing in the holding period and exhibits spikes in the fourth and sixth years. The likelihood of observing a subsequent sale and the prepayment rate increases in floor level, sentiment and other investment return, but decreases in floor area and mortgage rate hikes. Appreciation in the property price also tends to increase the probability and rate of prepayment. In contrast, owners of larger property units and HDB upgraders are less likely to resell their properties. The evidence also suggests that the likelihood of prepayment is lowered after the anti‐speculation measures were introduced in May 1996.

Citation

Eng Ong, S. (2000), "Prepayment risk and holding period for residential mortgages in Singapore ‐ Evidence from condominium transactions data", Journal of Property Investment & Finance, Vol. 18 No. 6, pp. 586-602. https://doi.org/10.1108/14635780010357550