ST : A peek into the business of quick cash

May 9, 2010

special report: moneylending outfits

A peek into the business of quick cash

Spike in number of moneylenders in the last two years; the criteria are straightforward but the job has its risks

By Irene Tham , Shuli Sudderuddin , Sumita Sreedharan

Mr G. Chua became a moneylender last year because he felt it 'complemented' his job as a real estate agent.

But he will end his lending business soon because of new rules that prohibit licensed moneylenders from working as property agents and vice versa.

The rules, announced last week and to be introduced in the second half of this year, aim to curb errant estate agents and protect home buyers and sellers.

'I have to give one up,' said Mr Chua, 43, last Friday.

'My focus now is to collect the money owed to me, then I'll 'close shop',' he said, adding that he has stopped accepting new clients.

He said he started the business 'as a value-added service' to home sellers as many needed money urgently.

He entered the industry with about $100,000 capital which he borrowed from a bank, friends and from his own savings.

He operates his moneylending business from a desk in a pleasantly decorated office in a HDB rental office in Toa Payoh Central.

He declined to name the property agency he is affiliated to.

He shares the 35 sq m space with four others. Like him, they are one-man moneylending 'companies' which basically comprise the lender working from a table with a computer and a phone.

One of them is also a property agent cum moneylender. Mr E. Chua, 42, said he resigned from his property agent job last Friday to focus on moneylending.

Moneylenders like them have been under the spotlight following reports of how cash-strapped HDB flat sellers may be exploited.

For instance, an agent who is giving a loan to a home seller may delay closing the property transaction to make the seller pay more in loan interests. The agent may also close the transaction at a lower price so that the seller takes larger loans to raise the money he needs.

To rein in such rogue behaviour, National Development Minister Mah Bow Tan announced in Parliament that new rules were being drafted.

They include a new statutory board - the Council for Estate Agencies - to regulate the industry and impose disciplinary measures like fines and debarment of errant agents.

Industry players say that the number of moneylenders who double as estate agents is small.

Mr Steven Tan, executive director of OrangeTee's residential division, said: 'I do not know anyone who does double duty. Real estate firms do not encourage this. Moneylenders do not usually take up an estate agent job once we make our stand clear.'

What is clear, though, is that the number of licensed moneylenders has shot up in the last two years, with many specialising in 'housing loans'.

There are currently 260 licensed moneylenders, up from 173 in 2008 and 169 in 2007.

In 2008, the Moneylending Act was amended to remove the cap on maximum interest rates that lenders can charge.

Previously, licensed moneylenders could only impose a maximum interest rate of 18 per cent for unsecured loans, and 12 per cent for secured loans.

Restrictions on advertising, methods of loan disbursements and collection of payments were also eased.

Moneylenders have been taking up advertisements in the media. Their ads promise quick cash for personal loans and for those selling their flats. A typical ad reads: 'Collect cash now!!! 100% approval'.

The Sunday Times visited 30 moneylenders last week and found that 20 were one-man outfits.

Some lenders were tough-looking men in their 40s decked in gold chains and gold bracelets.

Others are like Mr Chua, who look like fashionable office workers in their patterned long-sleeved shirts and tailored pants.

Some run their operations out of bare offices equipped with only tables, chairs, telephones and laptops, like those in the shabby Jalan Besar Plaza and old HDB retail shops in French Road near Lavender MRT.

Others are in central locations like Peninsula Plaza, Hill Street Centre and Toa Payoh Central, equipped with fax machines and manned by receptionists.

More often than not, several moneylenders share one office space.

In a unit in French Road, for example, four men wore similar black polo shirts and pants and sat behind desks answering phones. But they were all from different companies.

Some lenders specialise in personal loans while others provide housing loans. Some provide both.

Those targeting the housing market say their clients are HDB flat sellers who need cash ahead of their unit being sold.

Typically, flat sellers apply for loans ranging from $5,000 to $100,000. The loan amount is usually less than the amount they will get for their property.

Lenders charge interest rates ranging from 4 per cent to 20 per cent, depending on the loan amount, repayment period and the borrower's income.

They check to ensure that the borrower's house is indeed on the market and ask questions like: 'Do you have a housing agent?' or 'Have you made your first appointment with the HDB?'

If the answer is no, the lender will ask the borrower to get his house marketed first before trying to get a loan.

The borrower can get the money as quickly as 30 minutes in the form of cash or a cash cheque.

Typically, moneylenders file a caveat on the flat, which ensures they get a first bite of the sale proceeds.

The criteria for becoming a moneylender are fairly straightforward.

For example, the applicant and his employees must be above the age of 21, reside in Singapore and be 'of good character and fit and proper persons to carry on the moneylending business'.

He must be familiar with the provisions of the Moneylenders Act and operate from a place that is 'suitable for the conduct of the moneylending business'.

He must also place a security deposit of $20,000 with the Accountant-General.

Moneylenders said the job carries risks and they have been cheated many times by customers who default on payment.

Sometimes, borrowers pretend to be interested in selling their home but the sale never goes through, they said.

Mr G. Chua said that despite being careful, he has chalked up about $100,000 in unpaid loans and there is nothing he can do about it.

'Our hard-earned money is just lost like that, and apart from turning to the police, there is nothing we can do,' he said.

'After all, we're legal lenders, so we can't go around splashing paint on their doors.'

itham@sph.com.sg

shulis@sph.com.sg

sumitas@sph.com.sg


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Loan amount and interest rates

Besides licensed moneylenders, borrowers turn to banks, trade unions and illegal loan sharks. Here is how much they generally charge.

BANKS

· Effective interest rates for personal loan: 12 per cent to 25 per cent per annum depending on income and loan tenure

· Interest rates for housing loan: from 1.6 per cent per annum depending on loan tenure and type of loan

· Minimum income: $20,000 per annum

· Maximum amount that can be borrowed: up to four times the borrower's monthly income

UNIONS

· Interest rates for personal loans: 4.25 per cent to 6 per cent per annum

Minimum income: no minimum income but must be member of union

· Maximum amount that can be borrowed: two to eight times borrower's monthly salary or up to the value of the pledged collateral

LEGAL MONEYLENDERS

· Interest rates for personal loans: 3.33 per cent per week to 20 per cent per month

· Interest rate for housing loans: 4 per cent to 20 per cent per month, depending on the loan amount, repayment period and borrower's income

· Minimum income: $1,000 a month

· Maximum amount that can be borrowed: up to four times the borrower's monthly income

ILLEGAL MONEYLENDERS or LOAN SHARKS

· Interest rates: Usually a flat 20 per cent per month, regardless of the type of loan

· Minimum income: None. You need a guarantor who will pay up if you default.

Maximum amount that can be borrowed: Depends on how much you are trusted. Amounts start as small as $500 and can go up to thousands of dollars.