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Scare tactics to lure property investors come under fire

Scare tactics to lure property investors come under fire

Source: Straits Times
Article Date: 08 Nov 2020
Author: Tan Ooi Boon

One such scheme entails using shell companies to apply for bigger loans to buy commercial properties.

The Singapore authorities have criticised the "irresponsible" actions of some property investment educators and real estate agents who use scare tactics to attract customers to their investment courses.

In particular, these people have been flagged for actively pushing the message that "HDB flats will become worthless after 99 years" on social media, so that worried owners will pay thousands of dollars to sign up for their investment courses or sell their Housing Board flats to invest in private or commercial properties.

For instance, in a recent marketing video that has been uploaded on YouTube, one such "education company" interviewed Singaporeans, asking whether they knew that the value of their HDB flats would depreciate over the years .

In another video, after interviewing several workers who said they had to work long hours, the presenter asked whether Singaporeans really "had to work till they drop" just to make ends meet.

These advertisers then exhort viewers to sign up for their "free webinars", which promote their property investment strategies as the solution to viewers' woes.

One such scheme entails using shell companies to apply for bigger loans to buy commercial properties - a scheme that is prescribed to those who may not be able to invest otherwise.

In a joint statement to The Sunday Times, spokesmen for the Ministry of National Development and the Monetary Authority of Singapore (MAS) said: "It is inappropriate for any company to play up fears and uncertainties to attract people to sign up for its property investment courses.

"This is an irresponsible marketing tactic. Buying of properties should not be seen as a quick or easy way to get rich."

While no regulatory action is being taken now, the MAS has reminded banks to step up their due diligence on commercial property loan applications.

Separately, the Council for Estate Agencies (CEA) has issued a warning to real estate agents that they must not use "inaccurate, false and misleading claims" to pressure owners to sell their HDB flats, just so they can earn more commission.

This caution came after a recent spike in HDB resale transactions, which rose by 127.3 per cent in the third quarter of this year.

The CEA urged the public to report such rogue agents so that it can take action against those who do not act professionally.

The authorities' response came about a month after The Sunday Times' Invest flagged the worrying trend of some companies holding paid courses that purportedly teach people how to invest in properties to enjoy good rental incomes while they wait for "massive capital appreciation".

These companies also claim to have investment strategies for those who have little or even no cash. To prove such claims, some past participants were shown to be able to buy properties within days of attending such "property mastery" courses.

Other success stories touted included people who were able to own multiple properties jointly in a short time.

The participants are apparently taught how to set up private limited companies to buy commercial properties, so that they can get large loans from banks.

On co-ownership of properties, the MAS spokesman said investors need to be aware of the financial risks.

"Although they may only be part-owners, if a property loan is taken out, they can be liable for the full property loan amount in the event that other investors default or if there is insufficient rental income generated to repay the property loan," the spokesman noted.

The MAS added that while investors can set up companies to buy commercial properties, it reminded banks to perform due diligence to determine if a company is engaging in substantive commercial activities or is merely a shell entity set up for the purchase of properties.

In the latter case, MAS rules require banks to apply the total debt servicing ratio rules, which will usually result in lower loan amounts.

The MAS also reminded banks to calibrate the loan-to-value limits for commercial property loans based on property usage.

Loan amounts should be lower if the commercial property is to be leased out for rental income, compared with the case where a company buys it for its own use.

Companies with genuine operations normally can get loans of up to 90 per cent of a commercial property's purchase price.

A veteran financial adviser, who routinely handles such deals and declined to be named, said most experienced property investors know that banks are usually reluctant to lend more to those who intend to buy commercial properties with the sole purpose of collecting rents.

"As a rule, I always advise them to have cash to pay 30 per cent of the property price.

"But after this reminder from MAS, I would not be surprised if banks now ask for more down payment, especially if the purchase is made through newly set-up companies," he added.


IRRESPONSIBLE TACTIC

It is inappropriate for any company to play up fears and uncertainties to attract people to sign up for its property investment courses. This is an irresponsible marketing tactic. Buying of properties should not be seen as a quick or easy way to get rich.

JOINT STATEMENT BY THE MINISTRY OF NATIONAL DEVELOPMENT AND THE MONETARY AUTHORITY OF SINGAPORE

Source: Straits Times © Singapore Press Holdings Ltd. Permission required for reproduction.

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