Govt to take fundamental re-look at real estate industry

SINGAPORE: The government is taking a "fundamental re-look" at the entire real estate industry. 

Speaking in Parliament, National Development Minister Mah Bow Tan said this includes strengthening measures to curb unscrupulous practices and abuses. 

Among the measures, the government plans to plug a loop hole on using public housing flats as collateral for loans. 

Public housing flats are not meant to be used as security for any loans other than the mortgage to finance the unit's purchase. 

Yet, Parliament was told that some owners have fallen prey to such abuses. 

"One current practice that is very common is that of credit companies filing caveats against HDB flat owners who had borrowed money from them at very high interest rates, so that when these HDB owners sell their flats, the credit card companies will get the first bite," said Halimah Yacob, Member of Parliament (MP) for Jurong GRC. 

In response, the National Development Minister said the government is working to plug the loophole. 

"Unfortunately there has been a loop hole that has allowed legal money lenders to lodge such caveats, that is the reason why my ministry is now looking at how we can prevent this from happening," said Mr Mah. 

"This is going to be done even before the regulations for the real estate agents are finalised. I am treating it as a matter of urgency because it is obvious there have been cases of abuses, people have been exploited, and in this regard the role of some rogue estate agents should also be examined. 

"We have received feedback that some moneylenders provide loans on the condition that the borrowers repay the loans from the sales proceeds of their HDB flats. We are currently working with the relevant authorities on appropriate measures to curb such abuses. 

Complaints against real estate agents have risen in the past few years, according to figures from the Consumers Association of Singapore. 

There were 1,079 cases last year, higher than 1,100 complaints in 2008 and 1,055 in 2007. 

Meanwhile, the Inland Revenue Authority of Singapore, which is the licensing body for real estate agencies, received 154 complaints against agents in the past three years. 

Mr Mah said existing rules are not enough to deal with potential abuses by errant property agents. He added that the industry needs to be better regulated, especially in the current climate where there are temptations for some agents to take short-cuts. 

He said: "We are looking into whether we should have a more formal form of registration for real estate agents, what are the mediation avenues available, if not what are the dispute resolutions mechanisms available and if not what are the punishments that can be meted out to those who flout the rules." 

A new regulatory framework is expected to be announced shortly. 

- CNA/yb

Singapore government to regulate real estate industry

The Ministry of National Development (MND) has proposed ways to regulate the local real estate industry and is seeking public feedback on it.

According to MND, there are about 1,700 real estate agencies licensed by the Inland Revenue Authority of Singapore (IRAS) and an estimated 25,000 to 30,000 real estate agents in the market. Recent rising number of complaints against real estate agents was deemed as ‘not tenable’ and that the whole system was not ‘satisfactory’ by minister of National Development, Mr Mah Bow Tan.

In 2008 alone, there were more than 1,400 complaints.

The proposed regulatory framework aims to enable consumers to safeguard their interests through public education and tough regulations, and also to increase professionalism of the real estate industry. To start off, residential property transactions will be focused upon.

There are three major components to the proposed regulations and they are:

i.                    Government enhanced regulatory powers

The regulatory authority will work with a recognised accreditation body for agents that will be formed. A public central registry will be maintained by the accreditation body to allow agencies and consumers to ascertain the background and profile of agents they wish to engage.

MND has also proposed to disallow real estate agents from working as freelancers by only allowing them to represent one accredited agency. There will be a standard associate agreement between agents contracted to an accredited agency for them to practice. Furthermore, agents must pass an industry examination and be accredited by the accreditation body before they can practice. Agents will also be disallowed from representing both buyer and seller in the same transaction to prevent conflict of interest.

The regulatory authority will also be given enhanced regulatory powers to increase levels of monitoring and enforcement. Agents and/or agencies that are caught for non-compliance with legislative requirements or infringement of accreditation requirements will face disciplinary actions through a tiered penalty system that may include warnings, fines, suspension and expulsion. Agencies with errant agents may also be subject to restriction on recruiting agents.

ii.                  Industry-led accreditation

A mandatory industry-led accreditation scheme for both agencies and agents is expected to encourage greater professionalism among them.

Agencies will have to adopt minimum service standards that will be made known to clients upfront, and provide compulsory continuous professional training and upgrading of their agents. Meanwhile, agents will have to be qualified through an industry entrance examination covering both ethics and practical knowledge before they can practice as well as adhere to a code of conduct.

To protect consumer interests, the accreditation body will maintain a public central registry listing all accredited agents so that consumers can see if the agent they engage is qualified. Agencies will also benefit from this as they could possibly find the background and profile of agents they wish to hire. A standard contract between agents and agencies spelling the rights and obligations of agents before any service is rendered will also be adopted. This move is aimed to reduce common disputes like commission rates, and co-broking agreements.

MND has also proposed that agencies put in place complaints-handling processes including a mediation platform at the agency level in the event of a dispute. Additionally agents could be made to have professional indemnity insurance to cover any negligent acts or omissions or breaches of professional duty.

iii.                Improved Dispute Resolution Mechanism

One of the key drive to this regulatory proposal is due to the high number of complaints received in recent years. It is expected that agencies should take on greater responsibility for resolving disputes with clients and to facilitate this, proper complaints handling processes within the firm should be set up.

The government is also exploring on the possibility on working with industry players to set up an independent tribunal to specialise in real estate disputes.

MND’s proposed framework for the real estate industry is currently under the public consultation process and members of the public can share their views on www.mnd.gov.sg. Key elements of the new framework are expected to be announced in the December 2009 to January 2010 timeframe while legislative enactments are expected by the second half of 2010.

Singapore HDB Buying Guide

Buying Guide

• financing the property
• necessary documents
• final inspection
• fees and commission

Once you have found a property you want to buy, this document explains the steps to actually complete the purchase. Note that at this point you may want to appoint a solicitor to act for you – but please consult your agent about this first. You will need a solicitor in these phases of the purchase process: to act in purchase, to act in mortgage (if you are taking a loan from the bank), and to act in withdrawal of funds from the CPF Board (if you are using CPF Funds). Typically, one solicitor can do all of this, so there is no need to appoint multiple solicitors.

Before you sign any contracts, make sure you can actually get the money to purchase the property. Any deposits paid for reserving the property will be forfeited if you cannot go through with the transaction – unless the cancellation is due to conditions stated in the contract.

Financing The Property

Most people will finance their property using a bank loan (mortgage). The amount you can borrow will depend on your own personal financial circumstances plus the bank’s valuation of the property or the actual transaction price (whichever is lower). Singaporeans can usually borrow up to 90% of the value and foreigners usually up to 80%. The bank will take into account your capacity to pay the monthly instalments – for this they will evaluate your income, assets, employment history and your age, and they will also check your credit history for any previous payment problems.

For the deposit you can use your Central Provident Fund (CPF) savings, if you have an account, and the rest has to be in cash. A Singaporean with good CPF savings might not need much cash to pay for a property, but foreigners should expect to have at least 20% in cash (+ fees) at hand to purchase a property.

If you are buying a HDB apartment, you should check the eligibility to get a concession loan from HDB. If you are not entitled to get the loan from HDB, you need to finance it with a normal commercial mortgage.

You should meet with your banker or mortgage broker before you sign any contracts to see whether you can actually secure the financing when you need it. Agents can also refer you to a bank or mortgage broker if you do not already know one.

Necessary Documents

The contractual part is typically a simple two step process. First you will sign an ‘Option to Purchase’ agreement with a good faith deposit. Following this, you have 14 days to decide whether to go ahead or not with the purchase. Alternatively, you can just give the seller the full deposit on ‘Offer to Purchase’ and bypass the ‘Option to Purchase’. After this, you will sign the ‘Sales and Purchase Agreement’ with the seller to complete the sale.

Option to Purchase

Once you have decided to purchase the property and agreed the price with the seller, you should ask for an ‘Option to Purchase’ agreement. The ‘Option to Purchase’ agreement is typically prepared by the seller’s agent or solicitor, and you should therefore go through it with your agent or solicitor before signing. However, any amendments need to be agreed by the seller. Typically 1% of the purchase price is given to the seller in exchange for the option as a good faith deposit.

‘Option to Purchase’ usually gives you a 14-day exclusivity period to decide whether to purchase the property or not. The seller is not allowed to offer the property to another buyer during this period. If you decide to exercise the option by signing it, you will send it back to the seller (or his/her solicitor) with another 4% or 9% of the purchase price (whichever was agreed in the option).

If you do not exercise the Option within the stated period, the Option will expire and the seller is entitled to keep the 1% option money and sell the property to any other buyer.

Offer to Purchase

If you do not wish to have the grace period given by the option, you can always make a binding offer directly – ‘Offer to Purchase’. This should be prepared by your solicitor or agent, and would state the price, completion date and other conditions that you may have.

If the seller accepts the offer by signing the ‘Offer to Purchase’, you can directly proceed to the Sales and Purchase Agreement. At this point a deposit of 5% or 10% of the purchase price is typically given to the seller.

Sales and Purchase Agreement

After the ‘Option to Purchase’ or ‘Offer to Purchase’ has been signed, your solicitor will do the necessary steps to complete the sale – lodge a caveat on the property, coordinate with the bank/CPF board for the mortgage, and prepare the contracts. This process will typically take up to 10 weeks to complete.

Inspection Before Taking Over Property

The ‘Option to Purchase’ should clearly state a permission to inspect the property before completion of the sale. The buyer should check everything that the seller has agreed to sell with the property – especially all the fixtures and fittings, e.g. air conditioning, kitchen appliances, etc. If there are any problems, you can ask the seller to fix them before you sign the Sales and Purchase Agreement.

If you are buying an HDB apartment, the Housing Development Boad will do the inspection on your behalf. They will check for any unauthorised renovation. The seller will need to reinstate the flat into the condition allowed by the HDB before it will approve the sale.

Fees And Commission

There are various fees that come on top of the purchase price when the sale is completed, and you should therefore reserve money to pay for them. Fortunately, some of them are borne by the seller. These are summarised below:

Agent's Commission - For private property, the agent’s commission is paid by the seller - unless you have specifically appointed an agent as a representative. The seller typically pays 1-2% commission on the sale. For HDB apartment, the buyer pays typically 1% commission.

Solicitor's Fee - For the buyer, the solicitor’s fees are typically 0.3-0.6% of the transaction value. In addition, there are extra legal fees if CPF is used to pay for the apartment. The seller pays typically 0.15% of the transaction value to his/her solicitor.

Mortgage Fee - The banks typically charge an administration fee and valuation fee for the mortgage. These together are somewhere between S$200-300. In addition, you need to take out on insurance on the property for the bank to give out the mortgage.

Stamp Fee - The stamp fee will be payable to Inland Revenue Authority of Singapore within 14 days upon exercising the Option to Purchase (or signing the Sales and Purchase Agreement when you buy from a property developer). For properties above S$300,000, stamp fee payable will be 3% of the purchase price minus S$5,400. The mortgage stamp fee is up to S$500, which is the amount payable for most mortgages.

High-end market has room for growth

Singapore has long been regarded as a safe investment haven, which is why foreigners are snapping up property throughout the island.

Foreigners have bought around 23,000 non-landed private homes since 2007, 35 percent of which are high-end homes in Districts 1, 2, 4, 9, 10 and 11, according to the URA’s record of caveats lodged.

However, the high-end apartments sector still has chances for growth if trends in other cities are anything to go by.

According to data from Savills, the average price of high-end apartments stood at $2,154 psf in Q2 and $3,055 psf for super luxury private homes – a subset of high-end homes that reached an average of $2,500 psf in Q4 2006.





Prices for high-end residences in Hong Kong in Q2 were 20 percent higher than those in Singapore, reaching HK$14,520 (S$2,570) psf. The actual price disparity could even be bigger as common spaces such as corridors are considered in computing unit prices in Hong Kong.

Apartment prices in Sydney are approximately 28 percent higher compared to Singapore’s, while prices in London are 41 percent higher.

While prices in two of China's major cities are lower, there is still a 15 percent increase in Beijing and a 32 percent rise in Shanghai last year, which are both at record levels, marginalising any possible short-term capital gains.

Singapore’s high-end market is the only sector where prices remain below earlier peaks. High-end apartment prices are 11 percent below record levels achieved in Q4 2007, while prices of super luxury units are 17 percent cheaper.

Prices of mass market homes in May were 15 percent higher over the earlier peaks, while mid-tier apartments were five percent up. As positive economic prospects for Singapore are expected to continue into H2 2010, high-end apartment prices are likely to reach earlier peak levels by early 2011.

Many East Asian investors may also shift their funds to Singapore due to the increasing anxiety over bubble risks and fears of additional tightening measures that threaten to derail prices.

China’s central government implemented 11 cooling measures earlier this year, which helped new homes sales to drop 60 percent to 70 percent in Shenzhen, Shanghai and Beijing in May.

Consequently, more foreign buyers, particularly mainland Chinese, have flocked to Singapore, sometimes buying in full cash, with the Chinese replacing Malaysians as the No. 2 buyers of super luxury homes priced from $5 million and above.

The increasing number of millionaire Singaporeans and high net worth individuals could also see a growing demand for luxury homes.