MPs Seek Steps To Prevent ‘Magic Dollars’ Flat Scam

Source : The Straits Times, Mar 11, 2008

Greater flexibility in HDB loan rules for downgraders may help, say some.

THE emergence of a new scam by HDB flat sellers has prompted calls by some MPs for a review of loan rules for flat downgrading.

Housing agents say sellers who resort to the so-called ‘magic dollars’ scam often face financial difficulties and may be having a hard time in downgrading to cheaper flats.

Some MPs noted that greater flexibility in downgrading rules could help these people.

Property agents have recently seen an increase in deals where the seller and buyer collude to under-declare the sale price to the Housing Board.

The buyer pays the difference between this and the real price to the seller in cash, often in return for a discount.

These sellers are likely to have bought their homes at the previous market peak, leaving the flat in negative equity, where the mortgage is more than the property ’s value.

This means that any sales proceeds will go towards repaying the seller’s loan and the money taken from the Central Provident Fund (CPF).

This would leave him with no cash in hand.

The scam provides vital extra cash - indirectly from the seller’s CPF monies - in a buoyant HDB market with high resale prices.

Some families struggle to fork out the cash-over-valuation amount for a new flat.

Several MPs told The Straits Times that help could be given to such sellers so they do not flout the law.

Those caught in the scam could face jail and/or fines.

One agent said he has spoken to sellers seeking such deals. They are desperate for cash and stuck with a large flat they can no longer afford.

C&H Realty’s managing director Albert Lu added that sellers are unlikely to put themselves at risk of a jail term unless they have a strong motivation to do so, such as a need to avoid financial trouble.

A recent HDB market recovery - with prices up 17.5 per cent last year - has prompted sellers to offload properties .

But many who wish to downgrade are unable to get HDB loans which are less risky and have lower interest rates than bank loans. HDB does not give loans for downgrading.

Some MPs raised the issue in Parliament two weeks ago.

Mr Teo Ser Luck (Pasir-Ris Punggol GRC) said some families do not qualify for bank loans and are not eligible for rental flats.

‘If these families genuinely need help, could we then consider making the policy for downgrading more flexible?’ he asked.

Mr Charles Chong (Pasir Ris-Punggol GRC), chairman of the Government Parliamentary Committee for National Development, also supported a policy review.

Mr Masagos Zulkifli (Tampines GRC), however, said he felt the Government should not bail out those who had made mistakes. ‘That’s not the right thing to do,’ he said.

Ms Indranee Rajah (Tanjong Pagar GRC) said there is a need to distinguish between those who resort to the scam for extra cash and those driven to it by real need.

Ms Irene Ng (Tampines GRC) said one possible solution is to allow downgraders to take out HDB loans, especially if they have previously had only one housing subsidy.

The current policy is a ‘disincentive’ for families to downgrade, she said.

National Development Minister Mah Bow Tan had explained in Parliament that the HDB does not offer concessionary loans to downgraders as most would have benefited from selling their flats.

Mr Mah added, however, that ‘those who downgrade because of genuine financial difficulties do get special consideration from HDB. For such cases…HDB will continue to be flexible’.

Mr Teo said many families who approach him are in a dilemma. ‘Perhaps it’s desperation that makes them resort to such scams,’ he said.

‘The question is: Is it the strictness of our policy that has caused them to do that?’

Still, he noted that current policies are made for the majority’s benefit and ‘we have to work out the genuine cases and not let the exception become the rule’.

How the scam works

THE seller gets the buyer to agree to declare to the Housing Board that the flat was sold for a much lower price.

The buyer then pays the seller the difference between the actual price and the declared price in cash.

The seller gives the buyer a discount on the market value of the flat.