ST : Refer a home buyer

Dec 04,2010

DEVELOPERS DANGLE GOODIES TO DRUM UP SALES
Refer a home buyer...

...he gets a discount on his purchase


... and you get a cash reward


By Cheryl Lim & Esther Teo
SOME developers are trying to lift sales by offering cash handouts and generous discounts if existing owners refer other people who then buy a flat in one of the company's condominiums.

The owner making the referral can get a cash reward - it could be as much as $7,500 if a $1 million flat is sold - while the referred buyer gets a discount on his new purchase.

Other developers are using inducements such as free air tickets and other gifts to entice buyers to sign up.

But there is a catch: incentives like discounts, rebates and gifts must be declared when a mortgage application is filed with the bank.

A spokesman for the Monetary Authority of Singapore (MAS) said that financial institutions are required to deduct benefits offered by the developer from the property's purchase price, and apply the loan-to-value (LTV) limit on this lower amount.

This housing loan rule applies to any benefit that reduces the purchase price of the property.

Several financial institutions, including OCBC and United Overseas Bank, require that clients declare any incentives received in cash or in kind.

One bank told The Straits Times that making a false application could even spell legal trouble.

But the tight rules have not stopped developers dangling carrots in front of buyers.

The Straits Times understands that Far East Organization's scheme rewards an existing Far East home owner making the referral and a buyer who signs up.

The kitty is 1.5 per cent of the initial purchase price of the new unit: the person making the referral gets 0.75 per cent, while the new buyer enjoys a 0.75 per cent cut in the price.

Assume the person you referred to Far East buys a $1 million home. You can get a cheque for $7,500 and he gets a $7,500 cut on the price.

Property developer EL Development also gives out similar 'goodwill discounts'. Managing director Lim Yew Soon said the initiative, which started in 2008, rewards buyers referred by friends or relatives with discounts of 0.5 per cent to 1 per cent of the purchase price.

But the scheme applies only to certain developments, including Rosewood Suites in Rosewood Drive and Steven Suites in Stevens Close.

Discounts are assessed on a case by case basis and only six clients have been approved, he added.

Last month, Wing Tai Holdings gave air tickets for a Hokkaido ski trip to buyers who bought units at its Ascentia Sky project in Alexandra View.

Industry experts said such schemes are not new and usually apply only to selected developments, such as those with units that need to be sold quickly.

ERA Asia Pacific associate director Eugene Lim said these strategies are also often used as a long-term game plan to buff up their customer loyalty and brand name.

Ms Wendy Tang, Knight Frank's director of residential services, added: 'Previous buyers make the best ambassadors because they will say, 'I've purchased it and I'm recommending it because I believe it's good'.'

Situations where buyers refer family and friends are also now a common occurrence - especially with the bigger developers, experts added.

'They might have sold (previous projects) to buyers and now they're selling to their children. Friends who like the idea of living together might also band together to purchase units near each other,' DTZ executive director Ong Choon Fah said.

But depending on such tactics could backfire on developers and ultimately affect their profit margins, said analysts. Still, they are seen as preferable to cutting prices, which can become a slippery slope.

'If you launch at this price from the onset and then reduce, buyers might expect prices to be slashed even further. Buyers might even expect (developers) to move their prices before they launch,' said OrangeTee research head Tan Kok Keong.

But Ms Tang pointed out that factors like price and location ultimately outrank incentives when it comes to making the final purchasing decisions.

cherlim@sph.com.sg

esthert@sph.com.sg