Wednesday, November 22, 2006
[RealEdge] TodayOnline : Cash down, but under the table
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| Cash down, but under the table Sellers under- declare value of property, keep the difference for themselves Tuesday ?November 21, 2006 Lee U-Wen u-wen@mediacorp. FIRST the property market was rattled by the controversy of "cashback" deals. Now, industry experts are issuing warnings to brace for a problem of a different kind: The "cash-down" scheme. In such "under-the-table" sales, a seller deliberately under-declares the price of his flat in order to pocket some of the money ?usually between $10,000 and $20,000 ?instead of seeing it all go back to his Central Provident Fund (CPF) account. While the problem is still a "largely muted" one at present, the latest Knight Frank real estate report for the third quarter of 2006 says the number of cases "may rise" as more flat-dwellers become eager to upgrade to condominiums before private home prices increase. In selling their flats, they may be tempted to pocket the cash for use as the required cash downpayment on a new condominium. For now, however, Mr James Lee, who owns his own realty firm, estimates that "fewer than 5 per cent" of all deals are conducted in this manner ?usually as a result of a seller needing money right away. "Most of the cases I'm aware of are downgraders, rather than upgraders," he said. "People tend not to mind having less in their CPF account because they can't withdraw the money immediately anyway." Knight Frank's research director Nicholas Mak also noted that "most people who under-declare are usually those suffering from negative equity". How the "cash-down" method works is simple. Take a three-room flat valued at $170,000. The seller would agree to let it go to a buyer for about $150,000. The seller, however, would declare the sale price as $130,000, and pocket the $20,000 balance that the buyer would pay him in cash. Conversely, under the "cashback" scheme ?widespread in the HDB resale market until legislation was introduced in 2004 to curb the practice ?sellers would over-declare their home prices to secure bigger loans for the buyer. The cash difference between the real and declared price was kept by the buyer, or split between buyer and seller. Experts say that "cash-down" is more difficult for the authorities to detect, so long as all parties ?buyer, seller and agent ?are in agreement over the transaction and what each party is entitled to. Mr Mak, however, feels the "cash-down" method is not a serious one at the moment as the scheme stands to the seller's disadvantage in the long run. "It may not always work, as the seller has to firstly do his sums very carefully so that he does not end up making too big a loss. I also believe the HDB and CPF are aware of the problem and they are watching very closely," he said. And Mr Lee has further advice for would-be sellers tempted to take the underhand route: "Don't rush into it, because when you do under-the-table deals, you will be the one losing out as you forego your CPF money." | |
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// posted by Shajahan @ 5:13 PM 