Some owners of HDB resale flats are resorting to illegal pacts when inking a sale, saying the recent cooling measures for the property market have left them in a quandary.
The agreements – either verbal or written contracts – are for an HDB flat seller to overstay in the sold flat, past the legal date that he or she has to vacate it.
Property agents told The Sunday Times the trend emerged shortly after the Government tightened financing rules for new property purchases on Aug 28. They claim it is affecting more than half of resale transactions today.
Under the new rules, any buyer who takes a home loan from a bank for a second home can be granted only 50 per cent financing for that new property, down from 70 per cent. So his downpayment will be 50 per cent – up from 30 per cent previously.
The rule also applies to HDB flat owners. If they hope to get the higher 80 per cent loan for a new flat they are upgrading or moving to, they have to prove they have sold their previous flat. Otherwise, they qualify for only 70 per cent financing and have to stump up 10 per cent more in downpayment.
The Monetary Authority of Singapore stipulates the proof of sale is the official letter from the HDB to the seller approving the deal.
The trouble is that this letter is typically issued only about six weeks before the legal completion of the sale (see box).
Only with this letter can the seller exercise an option to buy his next flat. The six weeks left is too short a timeframe for the seller to find another home, renovate it and move in. Thus, such sellers are requesting extended stays of at least a month or two beyond the completion date as a condition of sale.
Such deals are informal ‘gentlemen’s agreements’ that are either verbal or written. They are illegal under HDB rules and do not accord any legal protection to flat sellers.
Agents told The Sunday Times that flat sellers are still inking them because they have no choice.
If it were a private property transaction, a seller could still rent the unit from the buyer for a couple of months until he is ready to move into his new home.
But HDB rules require that the buyer live in his flat for a minimum period of five years, during which he may not lease it out. So the rental option is out of the question.
Agents say the group of HDB flat owners most affected are upgraders who are not cash-rich and cannot afford to pay 10 per cent more in downpayment.
PropNex agent G. Rajan, 50, an HDB specialist for the past 10 years, said the rules have proved disruptive to these sellers. ‘These sellers are caught by the new policy, they either illegally make a deal with the buyer to overstay for a few months, or look for short-term rental and have to move twice.’
Even if sellers decide to move twice, they face problems securing rentals for short periods of one to three months. Rental contracts are usually for at least six months.
C&H Realty senior associate director Lee Han Sing, 36, said: ‘Agents now need a second stage of negotiations even after the price is agreed, because buyers and sellers cannot agree on the overstay.’
One seller in this situation, who declined to be named, said the entire process was ‘very troublesome’ as he had to negotiate an unofficial agreement with his buyer to overstay in the flat for four months.
The seller, in his 30s, is moving from a four-room flat to a five- roomer in Jurong West, and had to pay a monthly rental of $2,000 to the buyer – which is technically illegal – before he agreed.
Mr Lee said there are worse situations. He knows of a buyer and seller who had already submitted the sale papers to HDB, but now cannot agree on the length of overstay.
The HDB could not respond by press time to queries that The Sunday Times posed during the week.
PropNex chief executive Mohamed Ismail said one solution would be for the Government to allow 80 per cent bank financing for all HDB home buyers, on condition that they sell their existing HDB homes within three to six months.
‘No household is allowed to own more than one HDB flat anyway, so I don’t understand why these new rules have to apply to HDB owners,’ he said.
West Coast GRC MP Cedric Foo, chairman of the Government Parliamentary Committee for National Development and Environment, agreed it was logical to say that HDB owners who move to other HDB flats are not likely to be property speculators.
‘It’s worth raising (the issue) to HDB to see if there are some alternatives,’ he said.
Source: Straits Times (subscribers only)