Clamp down on cash rebates
TO FURTHER enhance the effectiveness of the latest property cooling measures ("Tough action to cool property market"; last Saturday), the authorities should clamp down on the increasingly prevalent developer practice of offering cash rebates.
Here is how it works: Buyers first pay the Additional Buyer's Stamp Duty (ABSD) in cash upfront. Upon receiving the down payment for the property purchase, the developer then refunds the buyer the previously paid ABSD in the form of a cash rebate.
The property buyer is led to believe that he is getting a good deal since he makes no extra cash outlay.
The same concept is used by developers to jack up property listing prices, and then offset the buyer's net payment via cash rebates.
However, the real economic impact is that the developer gets to preserve the selling price of the property.
The selling prices, and not prices net of rebates, are used to calculate various property benchmarks.
For some industrial properties, developers wildly jack up selling prices, but then offer a bewildering slew of cash rebates.
Such indirect manipulation of property benchmarks only feeds public perception that property is a very stable investment and prices can only rise in the long run.
We only need to look back to 2001 to see a similar practice, when HDB valuations were falling in a flat market. Property agents devised a "cash-back" scheme in which the buyer and the seller over-declared the agreed selling price of a property. The buyer thus could get a higher loan, and the extra cash was distributed among the seller, buyer and agent.
We must ensure that property bank loans should be based on actual valuations, net of any rebates and discounts.
Property indices must also reflect net selling prices for full transparency.