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‘Magic dollars’ scam lets HDB flat sellers pocket cash

They declare a lower price, thus keeping the difference instead of returning funds to CPF

A NEW scam involving HDB flats has surfaced, this time allowing flat sellers to pocket extra cash by craftily getting around the rules.

The so-called ‘magic dollars’ scam involves reporting a falsely low sale price to the HDB – an offence which is punishable by a jail term and/or a fine.

Agents say they are seeing these cases pop up on a more regular basis, but it is not rampant yet.

This is how it works.

The seller is typically a flat owner who bought his HDB flat at the peak of the last property boom, so he has made significant paper losses despite the recent run-up in prices.

If he sells the flat, the proceeds may be barely enough to cover the balance of his mortgage and any leftover will probably have to go back into his CPF account. So he ends up not getting his hands on any ready cash at all.

To pocket some cash or what is sometimes known as ‘magic dollars’, he strikes a deal with the buyer of his flat.

He gets the buyer to agree to declare to the HDB that the flat was sold for a much lower price. The buyer then pays the difference between the actual and declared price to the seller in cash.

To sweeten the deal, the seller usually gives the buyer a discount on the market value of the flat.

The scam is crafty because, on paper, these transactions can look flawless and are hard to detect.

Privately, the agent drafts a ‘letter of undertaking’, binding the buyer to pay the seller cash – sometimes under the pretext of paying for furniture and fixtures.

When the buyer pays up and the deal is done, the agent destroys the document and any paper trail. Neither the HDB, property agencies or lawyers will ever see it.

Everyone is a winner. The buyer gets a good deal and the seller gets some cash. But the catch is: The scam carries a jail term and/or a fine.

The deal is illegal because the seller is indirectly siphoning off money in advance from his CPF.

The HDB told The Straits Times that it was a ‘serious offence’ to declare false resale prices, adding that if there was sufficient evidence, the case would be referred to the police.

Conviction could bring fines of up to $5,000 or jail of up to three years.

Such scams are not new to the market and HDB flat owners sometimes resort to them when they want to unlock cash.

In 2001, a ‘cash-back’ scheme was exposed, which involved over-declaring the agreed selling price.

It allowed the buyer to get a higher loan either from a bank or the HDB, with the ‘extra’ cash divided out among those involved.

Agency bosses told The Straits Times that they strictly discourage agents from handling these sales.

But despite the risk of getting caught, agents say such deals are popular in estates such as Simei, Pasir Ris and Bishan, which commanded high prices in the previous boom.

Some say the deals started surfacing as early as last April, when the HDB market started to pick up.

Resale prices rose 17.5 per cent last year after years in the doldrums, prompting more flat owners to think about selling their flats.

An agency boss, who declined to be named, has heard of up to 30 such cases.

PropNex chief executive Mohamed Ismail said it was hard to determine exactly how many such deals are being done, but he estimated that about 80,000 – or 10 per cent – of HDB homes are still in negative equity.

Negative equity means a flat owner’s mortgage is worth more than the home’s value now. Owners of these flats are more likely to take part in such deals.

Another agent said he is approached at least once a month to take part in such deals but he turns them down. ‘This is my rice bowl.

Why would I want to risk going to jail for just a sale?’ he said.

Source: The Straits Times 5 Mar 08

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