STI: HDB home owners caught in sale trap

Apr 26, 2004

HDB home owners caught in sale trap
by Leong Chan Teik

IF YOU don't know how sluggish the property market has become these days, try moving house - it could deal an unexpectedly painful blow to your finances.

You buy your dream home and try to sell your existing one, but you soon find yourself saddled with two mortgages to service for many months.

If the two homes are Housing Board (HDB) flats, you face an HDB requirement to sell the existing one within six months of taking possession of the next.

This requirement has tripped up many home owners.

'We are not talking about one or two cases but many, many such cases,' says Mr Mohamed Ismail, the chief executive officer of PropNex, the largest realtor in Singapore.

When contacted, the HDB told The Sunday Times that in the past six months, 298 home owners had bought a second HDB flat but had not been able to dispose of their existing one within the six-month grace period.

Such people can obtain an extension if they can provide proof that they have made an effort to sell their flat, say real estate agents.

Many more people are edging closer to the six-month deadline.

Says Mr Eric Cheng, group director of PropNex: 'Some clients have become desperate. They call us every single day to inquire if there are any buyers.'

On why people tend to buy their next home first, Mr James Lee, a senior associate sales director of ERA Realty, says: 'The most common question people ask themselves is: 'If I sell first, then where do I live if I can't find a house I like?'

Chances are they would change their approach if they knew that the property market is swamped with sellers with relatively few buyers in sight.

Statistics reflecting the sluggishness of the market include the following:

HDB resale applications totalled 33,586 last year - about half the 65,000 received in 1998; and

Slightly fewer than 4,500 uncompleted private homes were sold by developers last year - the lowest in a decade since detailed data was made available.

Compounding their problem, many sellers unrealistically expect that their homes can fetch prices way above market levels.

In their minds, it was not so long ago that their properties were worth sky-high prices.

Says Mr Lee: 'There are a lot of such cases. If they sell too low, they feel heartbroken.'

When they finally get around to cutting their selling price, they may still not get a buyer.

Mr Cheng says: 'Some owners of executive flats in areas like Tampines and Sengkang are ready to go $50,000 below valuation but there are no buyers.'

Don't be surprised if it takes six or more months to find a buyer, say agents.

If you are selling a semi-detached house or bungalow, you may have to wait for more than a year.

Given the harsh reality, buying your next home first and then trying to sell your existing one can create cashflow problems, aside from you having to service two mortgages.

Mr Sazali Sarwan, a senior associate director of PropNex, tells of a client who has bought a four-room flat and will soon move into that home.

But he has yet to find a buyer for his three-roomer in West Coast.

'He is anxious as he needs the money from the sale to renovate his new home. He keeps calling me, asking if there are any viewers,' says Mr Sazali.

The more desperate cases are those whose existing homes are on the verge of tipping into negative equity - a common condition recently.

A home is in negative equity when its market price is less than its outstanding loan. The owner has to fork out cash to make up for the difference if he sells it.

Mr Lee of ERA says he knows someone who needs to sell his five-room flat at no less than a certain price.

'He has to have the money to pay personal debts as well as the real estate agent's commission. So he is holding on and on until he finds a buyer at his price.'

The home owner is using his Central Provident Fund savings to service the mortgage on both flats.

He cannot back out of his purchase without suffering a financial loss.

The seller will forfeit the deposit and may even sue him, especially if he cannot find a buyer for his flat at the same or higher price.

The seller can sue to recover his loss.

Such risks and troubles can be avoided if home owners sell their present home before committing to the next property.

It is a bit like marriage. You are asking for serious trouble if you fall for a member of the opposite sex and commit to him or her while you are still married to someone else.

 

They're stuck with two mortgages

'We thought it could sell fast...We have now lowered our expectations a lot. We are prepared to sell below valuation, which means we won't get back what we put into the renovation.'

HER rueful comments above reflect the harsh reality discovered by housewife Patricia Chia, 39, who was all joy late last year when she and her husband Victor, 46, fell for a private apartment in East Coast.

They put money down on it, and then tried to sell their Housing Board (HDB) executive maisonette in Sengkang.

'We thought it could sell fast,' she says.

'Our house is very nice, as we had renovated it for almost $80,000.'

Weeks and months passed. A few people came and viewed their flat, which is only six years old.

The best offer was $428,000, well below the $440,000 the Chias had expected. Until their agent, Mr Eric Cheng of PropNex, finds a suitable buyer for them, the Chias will have to stretch their finances to service the mortgages on two properties.

The only bright spot in this difficult situation is that their new home is not an HDB flat.

Otherwise, they would have faced an HDB requirement to sell the current home within six months of taking possession of the next one.

How to avoid the double whammy

IF YOU are planning to move to another home, sell it first, then go shopping for your next home, advise real estate agents.

'When you want to buy, we can show you 10 houses every weekend, if you want,' says Mr Mohamed Ismail, chief executive officer of PropNex, the largest realtor in Singapore.

'But I can't force buyers to see your house.

'I can advertise and advertise but if there are no buyers, there are no buyers,' he adds.

But what if you cannot find a house that you like before you have to move out? Then just rent, say property agents.

A slight variation of their advice: Put your current home on the market while you shop around for your next home, says Mr Eric Cheng, a group director of PropNex.

Shortlist a few units that you like. Return to these units to check if they have been sold after you have found a buyer for your current home.

Alternatively, when you sell your home, you can ask the buyer to agree to stretch the time in which the legal paperwork is completed by, say, an extra month.

This gives you time to search for your next home.

Or, you can agree to the paperwork being completed in the usual three months or so, but you ask the buyer to let you rent your former home for a month or more.

If you cannot find your dream home soon enough, just ship out and rent a home elsewhere, and resume your search.

It is a buyers' market today.