Singapore property firms halt lending activities

Their activities came under the spotlight last Tuesday when Minister of National Development Mah Bow Tan said in Parliament that his ministry is drafting measures to stop moneylenders from exploiting cash-strapped flat sellers.

Property agency owners and moneylenders told The Straits Times there are about 10 realty firms that hold moneylending licenses and operate credit arms along with their property businesses.

Moneylenders' Association of Singapore president David Poh estimates that there are at least another 30 individual property agents who are also licensed moneylenders.

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

The draw? Licensed moneylenders are currently free to set interest rates for loans above SG$3,000 (US$2,185).

Poh said: “Some of these black sheep charge interest up to 40 percent and have hidden costs so the sellers don't get back much in their sales proceeds.”

Typically, flat sellers in urgent need of cash could apply for loans ranging from SG$5,000 to SG$100,000. The lenders in turn charge interest ranging from 1 to 10 percent, depending on the loan amount, repayment period and their income.

A legal loophole allows moneylenders to lodge a caveat on the property to ensure they get the first bite of the profits when the flat is sold. This practice is not illegal, and neither is that of agents referring flat sellers to moneylenders for a fee.

However, industry players told The Straits Times that there is a conflict of interest. A property agent who is giving a loan to the home seller may no longer be objective. He may delay closing the property transaction to make the seller pay more in loan interest, or close it at a lower price so that the seller takes larger loans to raise the money needed.

PropNex chief executive Mohamed Ismail said business has proven so profitable that moneylenders are texting agents urging them to bring in flat sellers.

James Lee, chief of James Lee Realty, which also has a credit service, said he sees at least 20 HDB flat sellers asking for loans each month.

Most borrow between SG$5,000 and SG$20,000: “If we don't lend them the money, they will go to illegal moneylenders. While there are some unscrupulous lenders, you can't lump us all together.”

However, with the Ministry of National Development (MND) announcing a review of measures to curb such practices, the realty firms are now taking a step back and adopting a wait-and-see attitude.

Lee has stopped giving loans to sellers: “The rules are messy now, so we just want to wait till things are clearer.”

The chief executive of MindLink Realty, Merson Chow, who also has stakes in two moneylending firms, has stopped lodging caveats.

“This means we don't extend large loans between SG$50,000 and SG$100,000 because it's risky without a caveat,” he said, adding that 20 percent of borrowers default on payments.

His loan business started five years ago when he realized that two in every 20 sellers would ask his agents to recommend a moneylender they could trust.

Mohamed Ismail wants it made illegal for agents to hold moneylending licenses. He fired one such agent last month. “I've made it a policy that any agent with a moneylending license can't be a Propnex agent. We need tougher rules to weed them out from the industry,” he said.

When contacted, MND said it is working with the relevant authorities on legislative amendments to prevent flats from being used as a security for debt.

Advising owners against selling their flats to raise money, a spokesman said: “While they may realize some cash from the sale, they will face a more serious problem of finding another roof over their heads.”

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