HDB RESALE FLATS (Cashback deals)

HDB RESALE FLATS:

("Cashback" deals): 1.

Dr Amy Khor Lean Suan asked the Minister for National Development (a) if HDB is aware of "cashback" deals for its resale flat transactions that are reportedly rampant; if so, (b) how many cases has the HDB come across so far; (c) whether this has artificially inflated resale prices and raised financing risk for the buyers; and (d) what HDB has done or is considering to do to prevent such illegal

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deals and protect gullible and cash-strapped buyers.

The Minister for National Development (Mr Mah Bow Tan): Mr Speaker, Sir, HDB is aware that there are so-called "cash-back" arrangements in the market. In such an arrangement, the buyer, seller and housing agent agree to over-declare the resale price. As the price is usually supported by a valuation that is on the high side, the buyer would be able to obtain a higher housing loan from the bank and withdraw more CPF savings than is actually needed for the flat purchase. The buyer pockets the extra cash, and some of it may also be given to the other parties involved in the deal, such as the housing agent and seller.

"Cashback" arrangements are illegal and my Ministry takes a serious view of them. HDB will not hesitate to take action and report the matter to the police, if anyone is found practising or abetting cashback practices. The penalties for buyers and sellers who give false information to HDB are stated in the standard HDB resale contract. The penalty is up to 6 months' imprisonment and/or a fine. HDB may also cancel the transaction and debar them from buying another HDB flat in future. The penalty for housing agents who make a false statement in their Statutory Declarations, which are required to affirm the transacted resale price, is up to 3 years' imprisonment and/or a fine. If the housing agent is from an agency under HDB's Listed Housing Agents Scheme (LHAS), HDB may also delist the agency.

As a further measure to curb cash-back practices, the CPF Board will be implementing a new ruling for HDB resale flat purchases from 1st April 2005. HDB resale flat buyers who wish to take bank loans and use their CPF savings in the flat purchase and servicing of the loan, will have to furnish a valuation from an HDB-assigned private valuer. This ruling

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currently applies to HDB resale flat buyers who take HDB loans. The CPF Board and HDB will release more details of the new ruling soon.

I would like to advise buyers and sellers that it is not in their interest to enter into a cashback arrangement. Not only is the arrangement illegal, it also exposes buyers to greater financing risks through higher loans and erodes their retirement savings. Moreover, buyers incur higher stamp fees and legal fees. Sellers may also be liable for a higher resale levy if they buy a second subsidised flat from HDB.

Dr Amy Khor Lean Suan (Hong Kah): Sir, I would like to ask the Minister, besides the case that was prosecuted in court, whether HDB has actually come across any other cases because it has been reported that such cashback deals are rampant and, if it was so, how HDB can ensure that the valuations that have been made are not inflated because of such cashback deals.

Another question I would like to ask the Minister is: in the same way that HDB will be requiring valuations to be done only by the panel of valuers, would the Ministry also consider only allowing real estate agents from firms which are on HDB's panel of real estate agents to undertake resale flat transactions? I understand that it is not required that only real estate agency firms which are on the LHAS can actually undertake resale flat transactions?

Mr Mah Bow Tan: Sir, in so far as the number of cases is concerned, yes, there are media reports that indicate that the practice is rampant but there is no hard evidence that this is in fact so. As far as HDB's complaints are concerned, apart from the case that was cited by the Member just now, there have been two other cases that have been brought to the attention of HDB. In fact, complaints

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have already been made and these cases are currently under investigation. In total, there are three cases that have been brought to HDB's official notice. Having said that, of course, one must recognise that it is very, very difficult to detect instances of cashback arrangements if all the parties involved collude and do not blow the whistle as it were.

As to whether the valuations are inflated, yes, this is part and parcel of the cashback arrangement that the valuations are higher than what they should be. We do not know how rampant these practices are and therefore we also do not know how much the prices have been inflated. It is extremely difficult unless somebody spills the beans and actually makes a report, for HDB to now step in and change the valuation.

As for the last question whether we will only restrict the transaction of HDB flats to LHAS' real estate agents, I must point out that the LHAS is not a compulsory scheme. Some real estate agents are licensed by IRAS and there are others who are not on the scheme. Having said that, most of the real estate agents would be involved in this scheme. I do not think it is necessary for us to restrict it at this point in time. I would also like to point out that there are some transactions that are carried out without having a real estate agent involved. They are able to do so on a "willing buyer, willing seller" basis, using the facilities that HDB provides them through the Internet and, of course, personally at HDB. So I do not think at this point in time, it is necessary for us to make this condition that it is only to be carried out through LHAS' agents. I believe that the changes that are going to be made by CPF Board and HDB will curb this cashback practice to a large extent. I would like to inform the House that HDB and the other authorities will be monitoring the situation

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closely to make sure that, if there is a need, we will refine the scheme further.

Dr Amy Khor Lean Suan: Sir, as I strongly support the requirement for valuations to be undertaken only by valuers on HDB's panel of valuers, I would like to ask the Minister to seriously consider only allowing agents on HDB's panel to undertake resale flat transactions simply because the real estate agency firms actually take a part of the agent's commission and they purport to train and guide the real estate agents and therefore, there should be some onus and responsibility on these real estate agency firms to ensure that their agents do not get into illegal and unethical schemes such as the cashback deals from time to time, and thereby protect gullible and cash-strapped buyers.

I would also like to ask the Minister if he would forward the names of the real estate agents as well as the real estate agency firms to IRAS who is currently the licensing authority of the real estate agency firms and if HDB would also be working with IRAS, the licensing authority, to look into how to further regulate individual real estate agents because, currently, only the firms are licensed by IRAS. It would probably be more administratively efficient to penalise errant real estate agents through the licensing scheme than via the courts.

Mr Mah Bow Tan: Cashback arrangements involve necessarily a few parties and I think the real estate agent is one of the parties involved. I will take the Member's suggestion into consideration when we review the scheme further, if necessary, as I mentioned earlier. But I would like to assure the Member that, yes, we will be forwarding the names of the recalcitrant agents to IRAS for further action and one of the measures that we are going to take would be to deregister them, both from IRAS as well as the LHAS, in addition to all the other penalties

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involved if they are found guilty of such an illegal transaction.