PRACTICE GUIDELINES FOR THE SALE & MARKETING PROCESS OF FOREIGN PROPERTIES

PRACTICE GUIDELINES FOR THE SALE & MARKETING PROCESS OF FOREIGN PROPERTIES
The purchase of foreign properties carries additional risks not associated with local property transactions.
Property agencies and agents therefore play an important role in carrying out due diligence and advising consumers on the risks involved in purchasing foreign properties located outside Singapore, regardless of whether they are developed by foreign developers or Singapore developers, or whether they are owned by foreigners or Singaporeans. .
If you are marketing or facilitating the sale of foreign properties in Singapore, remember to abide by the Council for Estate Agencies’ Practice Guidelines regarding the conduct of such estate agency work.
The guidelines seek to instill professional practices that property agencies and agents must adopt in the sale and marketing process of properties located outside Singapore, as well as to better protect consumers’ interests.The sale and purchase of a foreign property is subject to the laws of the country where the property is located, with differing legal processes and financing practices.

This set of guidelines on the marketing of foreign properties took effect on 1 December 2018, superseding those issued in 2014 (PG01-14).

Let’s take a look at some of the key changes to the guidelines:

• In the pre-marketing phase, property agencies must now confirm that guarantees made in advertisements, e.g. return on investments (ROI) are binding on the vendor (such as the developer or underwriter who owns and sells the property purchased from the developer).

• Due diligence checks must be conducted by Estate agents. Due diligence must be conducted on the vendor and his claims.Due diligence must also be conducted on the foreign property, to verify the specifications and other material information relating to the foreign property, such as property title, tenure, location, size, features, amenities, etc.

• Property agencies must check whether there is information that is adverse or potentially adverse about the vendor or the property. This can be done by screening for news in the mainstream or social media.

• If property agencies assess that there are adverse or potentially adverse findings, they must inform consumers in writing.

• The agencies must also see the contractual documents providing these guarantees. If the figures indicated in the advertisement are not current, the date and time of the data must be stated in the advertisement e.g. ROI from previous years.

• Engagement of a Third Party to Conduct Due Diligence - Where an estate agent engages or depends on a third party (e.g. a company that provides compliance/accounting services, a foreign estate agent or a local representative in the country where the foreign property is located) to perform due diligence checks, the estate agent shall verify and ensure that the third party is qualified and appropriate to perform the due diligence. Estate agents shall determine the scope of due diligence to be performed by the third party and shall assess the results delivered accordingly.

• If a salesperson intends to represent a vendor or purchaser in a foreign property transaction, he shall seek approval from his estate agent to do so. 

• Estate agents shall ensure that they possess the necessary and adequate professional indemnity insurance for the conduct of estate agency work to market foreign properties.

• The agent must also be able to advise on the due diligence, risks, payment and financing for the property. Consumers are advised to also conduct their own due diligence and proceed at their own risk. 

• Estate agents and salespersons shall explain to consumers the arrangements for the signing of transaction documents (e.g. Sale and Purchase Agreements) and advise them to seek independent legal advice to explain the terms and conditions of the documents before they sign them. 

• If the documents are not provided in English, property agencies must obtain an English translation from reasonably qualified translators and provide the documents to consumers before these are signed.

• Salespersons who are marketing on behalf of the vendor cannot represent consumers in the same transaction.

• Estate agents and salespersons shall explain to consumers the dispute resolution mechanism that will apply in the event of a dispute relating to the purchase.They shall also inform consumers about the applicable jurisdiction where a dispute will be resolved, as well as the governing law of the Sale and Purchase Agreement (or equivalent contract).

• Must keep all records and documents.

The purchase of foreign properties is not without risk. However, if estate agents and salespersons do their work with due diligence and conduct themselves professionally throughout the entire transaction when they market foreign properties, the potential risks to all parties involved (estate agents, salespersons and consumers) will be reduced. In the event of any dispute, estate agents and salespersons will also know their rights and liabilities clearly.


Do refer to the Practice Guidelines (click on the link) for the full set of guidelines on the sale and marketing process of foreign properties in Singapore.


(Information accurate as at 29 March 2019.)







Info courtesy  - The Council for Estate Agencies.

PART PURCHASE & DECOUPLING TO DO OR NOT TO DO.......

PART PURCHASE & DECOUPLING
One of the cooling measures introduced to cool down the property prices is by far considered the most effective measure much to the chagrin of buyers and investors and that is the ABSD.  The imposition of ABSD kind of completely axed the spirit of the buyers/investors.

But, as always, even in this case, people are coming up with some loopholes to evade these taxes and yet speculate in the property market. Some even take drastic measures.

Home owners are resorting to these measures because the savings can be substantial.  A Singaporean buying a second home will have to pay a 7 per cent ABSD, while permanent residents (PRs) pay 10 per cent.

A Law firm had told The Straits Times that they are seeing a few cases where couples "decouple" their property.  The firm has fielded quite a number of queries, and is already acting in a few decoupling cases. The law firm spokesperson highlighted that the people who approached them want to transfer everything to one party so that the other party can buy without the burden of the ABSD, dissolving the co-ownership / part ownership.

Although the Government said that it’s a temporary measure still people are taking pre-emptive action," he added.

Let’s try to understand this and analyze the pros and cons of taking this step.

PART PURCHASE

When there are multiple owners of a property, and one of the owners buys over the share of the other owners. It’s called Part Purchase

DECOUPLING

When the property is co-owned by a couple who are husband and wife, and if they de-couple, they no longer remain co-owners /part- owners, instead they transfer everything to one party so that the other party can buy without the burden of the ABSD.

Decoupling is essentially a specific form of part purchase. It’s important to note that the transferring of a half share to one of the co-owners is still subject to the standard stamp duty rate of 3 per cent, as it is considered a transaction.

STAMP DUTY IN CASE OF A PART PURCHASE / DECOUPLING

Stamp duty is payable in a part purchase;  As per the current market governing rules.
The stamp duty (including Buyer’s Stamp Duty, Additional Buyer’s Stamp Duty and Seller’s Stamp Duty) is determined by:-

• The valuation price; and

• The share in the property transferred

 

Please note: Stamp duty is payable even for transfers by way of a gift

IMPORTANT THINGS THAT ONE SHOULD LOOK INTO

CPF monies
• If CPF monies were used in the purchase, it needs to be refunded to the CPF account of the seller/transferor

Existing mortgage

• As banks usually require notice of 3 months for redemption, interest in lieu of notice usually needs to be paid

• To decide completion date carefully as there may be pre-payment penalties involved

TIME TAKEN

The drafting of the Sale and Purchase Agreement takes around 3 days.

DOCUMENTS REQUIRED

• NRICs/ Passports of all parties;

• Address of the property; and

• Valuation report

 

TOTAL TIME TAKEN FOR THE COMPLETION OF THE TRANSACTION

• If bank loan and/or CPF funds are required to buy over the share: 8 to 12 weeks

• If no bank loan and no CPF funds are required to buy over the share: 2 weeks (the purchaser must have the funds to pay for 95% of the share)

 

THINGS TO NOTE

How much deposit needs to be paid?

• Usually 5% of the purchase price

• May be paid directly to the seller without going through the lawyers

When can the seller purchase another property (for the purposes of ABSD)?

• The date of the Sale & Purchase Agreement (S&P) is the date that the seller is deemed to have sold 
   the property. Thus, upon signing the S&P, he can go ahead and purchase another property.

• However, if the seller is using CPF funds to finance the new purchase, then completion of the part

  purchase (i.e. transferring of the property to one owner’s name), must take place at least 3 weeks

  before the payment of CPF for the seller’s new purchase.

DISADVANTAGES OF GOING FOR PART PURCHASE

Bankruptcy Issue
Under the Bankruptcy Act, if:-

• An individual enters into a transaction at an undervalue, or if he makes a gift (section 98)

·   for a 5 year period (section 100)

• The transaction is declared null and void (for undervalue transactions), or the gift vests in

   the Official Assignee (for gifts) (section 102)

• should the individual subsequently become a bankrupt

Therefore, such transactions should always be done at actual value based on a valuation

report done by an established valuer (i.e. cannot pay a valuer to value the property at a

lower figure).

If transfer is by way of a gift, it would be difficult to find potential buyers within the first 5

years.

 

DISADVANTAGES OF GOING FOR DECOUPLING

Divorce
Many married couples make use of decoupling as a way to avoid paying ABSD

For Example:

If Husband and wife own one property and the wife transfers her share of the property to her husband. After which, the wife purchases a new property, the wife does not have to pay ABSD (as the new property would be her first property)

In the unfortunate event that; this couple go for a divorce, it is possible that there may be a dispute relating to property as

Wife can argue that both properties are her matrimonial assets

And

Husband can argue that he paid his wife fully, and the first property belongs to him fully.

Real estate lawyers say there are also non-monetary considerations.

In the event of divorce, for example, the couple may need to have a trust deed in place to protect the exiting party’s share in the property.

Secondly, not everyone who goes through the decoupling process will be able to enjoy substantial savings because when the remaining owner takes over the exiting owner’s share, the remaining owner will be subject to a stamp duty of 3 per cent.

The process of striking off the exiting owner’s name from the title deed will also incur legal costs.

So all in, the transfer of ownership could cost S$30,000 for a one million dollar property.

That’s why some lawyers say that beyond the flurry of enquiries, the actual number of such transactions has not spiked significantly.

Thirdly, The sole co-owner, the one that stays behind, will then have to relook at the loan, look at the viability of continuing the loan in his own name And obviously, what he can get in terms of his loan, the tenure of the loan, the loan to value ratios - will all be based on current levels, rules that are more stringent than before (compared to) when they first bought the property.

These owners may think that it is a smart move to take advantage of the loophole, without knowing that they are doing so at their own risk.

For one thing, the law will see them giving up their share of the property on their own free will. It implies that, in the event of any dispute in the future, they have no right to claim their share of any rental return or any profit from the sale of the property, regardless of the amount they have contributed to the initial deposit and mortgage installments of the property.

Thus, before you go through the process of Part Purchase / De coupling, it’s wise to weigh the pros and cons. Always consult a lawyer who would be able to guide you’ll in these matters in an efficient manner.

COMMISSION / STAMP DUTY

COMMISSION / STAMP DUTY

**Important - All Clients Must Read**

Agents registered with Agencies charge their customers for the services provided,  the following professional fees / commission rates (plus the prevailing rate of Goods & Services Tax).

All fees are strictly payable directly to the Agent's company.

Note that to avoid a conflict of interest, dual representation is strictly not allowed, and we only serve either the Vendor or Buyer or either the Landlord or the Tenant.

RENTALS (no dual representation allowed)

Landlord -

When the rental price is above S$3,500 pm :
1 month commission for 2 year lease; 1.5 month commission for 3 year lease;
0.5 month commission per year of lease extension if option to renew is exercised.

** Payment is due on the day of signing of the Tenancy Agreement by the Landlord and the Tenant

Tenant -

None due when the rental price is above S$3,500 pm*

*Unless the Landlord isn't paying the fee / commission, in which case the ** fees above are applicable

EXCLUSIVE HOME SEARCH

To ensure an effective and customized Home Search service, the agent only represents clients who are not using other agents. This avoids duplicating efforts and creating confusion, while increasing focus, time efficiency and motivation

FORFEITED DEPOSIT  

In the case of an aborted Tenancy, the commission shall be one half (1/2) of the amount of the deposit forfeited by the party plus GST subject to a maximum sum equivalent to the agreed commission plus GST

STAMP DUTY FEE

The Tenant pays the Stamp Duty fee. The Tenant's can issue a cheque for the amount payable to Agent's company which in turn is then paid to the Inland Revenue Authority of Singapore.
Stamp Fee is calculated based on Annual Rent using the following rules:-

If the lease term does not exceed 1 year - S$1 for every S$250 or part thereof of annual rent

If the lease term exceeds 1 year, but does not exceed 3 years - S$2 for every S$250 or part thereof of annual rent

If the lease term exceeds 3 years, or has any indefinite term - S$4 for every S$250 or part thereof of annual rent.

For more information on Stamp Duty and the calculation formula go to: http://www.iras.gov.sg/irasHome/page04_ektid1832.aspx

SALES (no dual representation allowed)

PRIVATE PROPERTY

Vendor

2-3% of contracted sales price as commission. Payment is due on the day of sales completion and paid through the property conveyancing lawyer

Buyer  

0%*

*Unless the Vendor isn't paying the fee / commission, in which case the Buyer pays the 1-3% of contracted sales price as commission

FORFEITED DEPOSIT

In the case of an aborted Sale, the commission shall be one half (1/2) of the amount of the deposit forfeited by the party plus GST subject to a maximum sum equivalent to the agreed commission plus GST

STAMP DUTY FEE & OTHER FEES

Please be advised by your property conveyancing lawyer for the current rates

HANDLING OF CLIENTS FUNDS

The Agent's company is a licensed real estate agency and will issue the invoice to you directly. Do not pay cash directly to your assigned property agent / realtor, instead, issue payment via cheque to his/her company.

GOODS & SERVICES TAX (GST)

Agencies shall charge their clients and co-brokers the prevailing GST even if the other party / Agency are not GST-registered. GST is a tax payable to the Government and it cannot be evaded. It is an offence to evade it.
Non-payment of GST will result in our legal representative seeking recovery.

Other Services

Agencies clients are offered a personalised service to ensure that their experience with them is a very pleasant one. We always strive for client satisfaction and is an established company that consumers can trust. Professional Indemnity Insurance is mandatory for all our agents to protect the clients. Our agents are certified with a recognized real estate salesperson qualification and must also fulfill Continuous Professional Development (CPD) every year  

Why Engage a Real Estate Agent?

Why Engage a Real Estate Agent?

To avoid unpleasant situations like:

1. Unfamiliarity of real estate transactions rules and regulations could delay the process
2. Lack of proper financial advice to assist you in making sound buying/leasing or selling decisions.
3. Time consuming search
4. Tedious and numerous co-ordinations and follow-up with fellow marketing agents.

You can hire an agent to work on your behalf either as a potential buyer/tenant or seller/landlord.

How can a Real Estate Agent contribute?

For Buyers/Tenants
Search, qualify and short list available properties that match your criteria.
Provide you the update possible pricing
Co-ordinate with fellow marketing agents for viewing of properties.
Co-ordinate your moving in and out of the apartment with fellow marketing agent.
Takes care of assisting you in arranging for activation of water/electricity & gas supplies
Assist you in arranging of activation of internet or cable vision service
Takes care of necessary documentations to complete the deal.

For Sellers/Landlords
Provide you the latest possible market price of your property
Market your property through channels like online and Strait Times advertisement.
Qualify potential buyers
Organize viewings
Takes care of necessary documentations to complete the deal.
Arrange lawyer for the transaction if required.

AGENT’S SERVICE FEES
Agent’s service fees varies from agent to agent. However below is just a guidelines and sometimes the fees can be negotiable.

Buying & selling of private apartments and bungalow
Seller pays 2% of transaction value.
Buyer pays either 1% or nothing (free of charge depending on the transacted price).

Renting of private apartments or bungalow
Landlord pays one month’s rent for more than 12 months lease secured.
Tenant pays half month’s rent for every 12 months lease and one month’s rental for every 24 months lease secured.