May 28, 2009
Consider top-up rule when selling below valuation
Sliding flat prices may force some to refund with cash
By Tan Hui Yee
OWNERS of Housing Board flats, already hit by a softening market, may now have to stump up cash if they are selling their properties below valuation.
This is the result of a longstanding rule by the Central Provident Fund Board which property agents say was enforced loosely until recently.
Under this rule, a property owner who had used his CPF funds to pay for his property is required to refund the principal withdrawn and interest accrued into his CPF account after settling any outstanding debt. If there is a shortfall, he needs to make good on that amount if he is 'unable to provide good reasons for selling his flat at a price below the fair market value'.
This clause was not an issue when the market was booming as recently as a year ago, but could hurt transactions now that property prices are sliding and more flats are being sold below valuation.
Overall resale prices dropped 0.8 per cent from January to March this year, after climbing 14.5 per cent over the whole of last year. Meanwhile, the median cash over valuation amount - an indication of how coveted a particular property is - was just $4,000 from January to March, less than a third of the $15,000 registered in the previous quarter.
Property owners selling their flats below valuation say they are being advised by Housing Board staff that they may have to top up any shortfall in their CPF refunds - or get the CPF Board to accept their reasons for pricing the flat below valuation - before the transaction can go through.
The situation is making people such as civil servant S. Salim fret. The 44-year-old father of one signed an agreement early this year to sell his Jurong West maisonette for $10,000 below its valuation of $358,000.
'I don't have the money (for the top-up). But if I don't go through with the sale, who knows, the buyer may sue me for breach of contract.'
He has written in to the CPF Board listing the reasons for his flat's price - like the fact that it is on the second storey and his kitchen does not get much sunlight - and is still waiting for a reply.
The CPF Board, when asked how many people have been asked to make a top-up over the years, would only say: 'Of those who sold their property over the last 12 months, fewer than 10 members had to top up the difference in cash to make up the full required CPF refund.'
This figure, however, does not include home owners who may have altered the selling price of their flat to match valuations in order to avoid hassle.
The CPF Board said: 'These members understood the Board's rationale for this requirement, which is to preserve their retirement savings. They have since made the necessary arrangements to put back the amounts into their own CPF accounts for their retirement needs.'
Last year, 28,419 flats changed hands, with the majority paying for them with CPF savings.
Mr Eric Cheng, executive director of HSR Property Group, reckoned that the CPF Board was tightening up on policing transactions after having learned their lessons from before.
'Perhaps they see the trend of cashback coming back, and they could be trying to pre-empt it,' he said.
'Cashback' practices were rampant about five years ago. Under this illegal arrangement, buyers and sellers collude to inflate the price of a flat so that the buyer can get a bigger home loan than is allowed.
As home loans are usually paid through CPF savings, this allows a buyer to prematurely 'withdraw' money from his retirement savings account before reaching age 55.
Mr Cheng said cashback practices in this climate would differ slightly: A buyer and seller could collude to understate the price of a flat - with the difference paid to the seller in cash - so that the seller need not refund the full amount to his CPF account.
Despite the concerns over fraud, the chief executive of property agency PropNex, Mr Mohamed Ismail, feels that the CPF Board should waive the rule altogether for flats which are sold not less than 10 per cent below valuation.
He reasoned: 'There is always a lag time for valuation to catch up with the actual price of flats. Having the buffer would mean that people need not be so anxious waiting for approval.'
Meanwhile, the director of Dennis Wee Properties, Mr Chris Koh, advised sellers who are selling their flat below valuation to write to the CPF Board before signing on the dotted line. Or else, 'they may be caught in a situation whereby not only are they not making from the sale of their flat, but they have to further cough up cash', he warned.
A PROPERTY owner who had used his CPF to pay for his property is required to refund the principal withdrawn and interest accrued into his CPF account after settling any outstanding debt.
If there is a shortfall, he needs to make good on the amount if he is unable to provide good reasons for selling his flat at a price below the fair market value.