ST : Moneylenders target HDB sellers

Jan 11, 2010

Moneylenders target HDB sellers

By Melissa Sim

LICENSED moneylenders are changing tack, targeting HDB sellers in need of immediate cash.

Rather than advertise the availability of personal loans to all and sundry, some specify that only those intending to sell their homes need apply.

The reason: HDB owners will have cash after the sale of their flats, so repayment is almost guaranteed.

Mr David Poh, president of the Moneylenders' Association of Singapore, explained: 'If they take a personal loan which is based on their income, they may lose their job at any time, so it's not so secure for us.'

There were 187 licensed money lenders in Singapore as of July last year.

The moneylenders who spoke to The Straits Times said these HDB sellers are usually in need of quick cash, to pay credit card bills, medical bills, gambling debts, or renovation bills.

And even though they can liquidate their homes for cash, a sale can take up to five months.

Within this time, a seller will collect only up to $5,000 from the buyer, according to HDB rules, so some turn to money lenders referred through housing agents, or who advertise in the newspapers.

Some recent advertisements have been targeted at 'HDB Sellers Only', and promise cash of up to $100,000 at monthly interest rates that start from 1.5 per cent.

Usually, agents are also involved in the process. They introduce desperate sellers to money lenders, and may get a fee for the referral, usually about $500 a customer.

Mr Mohamad Ismail, chief executive of Propnex, said he is aware that this has been happening since late last year, and has warned agents in his company against the practice.

'Agents should not bring sellers to licensed money lenders for a referral fee. This is not within the ambit of their job,' he said.

But with HDB prices rising by 3.8 per cent in the last quarter and hitting new highs, moneylenders say they are more willing to lend large amounts of up to 80 per cent of the profits of the sale of each flat.

Mr James Lee, founder of James Lee Credit said his company now has about 25 HDB sellers asking for loans each month. This is about a fifth more than this time last year.

Moneylenders are willing to lend as sellers are likely to have 'positive sales proceeds' even after repaying their CPF, he added.

This does not always mean the loan will be repaid, however. Out of 10 loans, Mr Lee said one or two will not be honoured.

Moneylenders, however, have found ways to ensure that loans are repaid with interest of up to 10 per cent a month, depending on the borrower's income, guarantor, and loan amount.

For high-risk cases, moneylenders will usually lodge a caveat on the HDB flat. The seller's lawyer will then have to contact them about releasing the caveat so that the sale can continue.

Moneylenders can then lay claim to what they are owed, and make sure lawyers direct the money to them when the sale is completed.

Mr Lee said: 'It's a legal process that's all in black and white.'

But lawyer Derrick Wong said this is possible only if there is no prior mortgagee or if the prior mortgagee does not object.

Ms Tan Huey Min, assistant director of Credit Counselling Singapore, a non-profit group that advises people on debt repayment, warned HDB sellers to do their sums before borrowing.

'If there is a valid reason like an operation, then it may be okay,' she said.

'But if it's not urgent, they should not do it because the interest rates are high, and there is a high chance they may be digging a bigger hole and get into bigger debt.'