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Published September 21, 2006

HDB flat sellers bend rules with 'cash-down' schemes
Deals seem driven more by hardship than greed: industry watchers


(SINGAPORE) First, there was the cashback scheme. Now, there's another - the cash-down scheme. According to sources, it is the latest 'under the table' scheme to hit the resale market for Housing and Development Board flats.

The scheme is said to involve mostly sellers suffering from negative equity on their property because they had bought their flats at high prices during the boom years. What they do is under-declare their sale price so as to prevent all of the sale proceeds from being returned to their Central Provident Fund (CPF) accounts.

This happens because many owners would have used up a lot of their CPF savings to pay for their flats and the interest cost involved in servicing their mortgages.

To circumvent the rules and to try and get some cash in their hands after selling their flats, some of these owners are resorting to under-declaring their sale price.

Here is how it works. Someone may have bought his flat for, say, $400,000 during the market peak in 1996. With the drop in price, he may be able to sell it today for $300,000 - but the price declared in the official sales documents is lower at, say, $280,000.

The declared sale proceeds ($280,000) will go straight into the seller's CPF account, but he retains the undeclared $20,000 cash that he receives separately from the buyer.

The buyer may be enticed to agree to such an arrangement if he gets to buy the flat at slightly below the market price. In this case, the flat could have fetched a higher price at, say, $310,000, but the seller agrees to sell it for $300,000, so the buyer enjoys a $10,000 saving if he goes along with the seller's scheme.

However, some market observers say the extent of the buyer's participation in such deals is limited because if the declared price is lower, the loan quantum he can get from the HDB or a bank to help pay for his flat will also be lower.

So such an arrangement would only appeal to a buyer who does not need much borrowings.

BT also understands that the buyer does not pay the difference between the actual price and the lower declared price directly to the seller.

'Otherwise, there's the danger of the buyer backing out of the arrangement and there'd be no way the seller can hold him to it,' says a seasoned property market watcher.

'So a safer way is to hold the buyer to commit to pay the cash to the agent under the guise of a 'commission'. The agent then refunds this to the seller, possibly taking a cut as well. Even the buyer may get to enjoy a cut,' says the property market watcher.

Industry observers say while the cash-down scheme is not new, it has become more rampant after the authorities clamped down last year on the earlier practice of cashback deals.

Such transactions involved the flat buyer, seller and housing agent colluding to inflate the declared resale price to enable the buyer to get a bigger housing loan. The authorities have reined in cashback deals since April 1 last year, requiring those using their CPF savings to pay for their flats to have the property assessed by HDB-assigned valuers.

Says an HDB resale market observer: 'Whereas the cashback deals were triggered more by greed or profiteering, cash-down deals seem to be driven by hardship and a need for those suffering from negative equity on their HDB flats to get out of the rut - so they can downgrade to a smaller flat, or move on.'

In a joint response to BT queries, the HDB and the Central Provident Fund Board say: 'It is not in the interest of the buyers or sellers to under-declare the resale price. Basically, this arrangement has the effect of siphoning out the sellers' CPF money which does not serve their interests in the longer term.

'Where a transaction is not conducted at fair market value, CPF Board would require the refund of the full principal sum withdrawn plus accrued interest to the seller's CPF account to prevent any leakage of CPF monies.'

The HDB says that it has not received feedback on any specific cases involving cash-down arrangements.

Those caught giving false information in resale applications, including the transacted price and cash deposit, are liable to be fined and/or jailed, among other penalties.