Sunday, January 25, 2009

Calling off home deals not so easy

In every downturn, there will be some investors or speculators - made desperate by the change in market direction - who want to get out of their private home deals.

Property consultants said they have of late received calls from such buyers seeking ways to get out of their purchases. A litigator, who declined to be named, said inquiries on this matter started flowing in late last year.

The Real Estate Developers’ Association of Singapore has indeed reminded buyers that they cannot just walk away from their sales contracts and return their units.

Its honorary legal adviser Kwa Kim Li reminded buyers of that point again when she spoke at a construction and property prospects seminar earlier this month.

Try as these buyers might, if they have inked a sale and purchase agreement, they have little chance of getting out of a binding contract, property consultants and lawyers said.

Buyers who had bought on deferred payment in 2006 and 2007 in particular are having cold feet as the completion date of their developments approaches and the bulk of the payment is due.

The Government revealed late last year that there were 10,450 uncompleted private homes bought under the deferred payment scheme, which allows buyers to pay just 10 to 20 per cent up front for an uncompleted home and the rest upon completion.

Market watchers had cautioned that the already weak property market would be hit hard by potential defaults, should many buyers fail to follow through with their deals.

Whether they can or cannot do so, there are apparently a sizeable number of buyers out there who are willing to forfeit their 20 per cent deposit to get out of a long-term commitment they never planned for, particularly in Singapore’s sharpest and deepest recession, industry sources said.

‘If you are at the option stage, you can walk away.

‘But once you exercise it, you can’t walk away unless you declare yourself a bankrupt,’ said Jones Lang LaSalle head of residential Jacqueline Wong.

A purchase starts with the seller making an irrevocable offer - an Option to Purchase - to the buyer, so that he will not sell the same property within a period of usually 14 days to another buyer.
The buyer can walk away at this stage.

But after he exercises the Option to Purchase, he cannot do so as a binding contract has been created.

How the rules work…
Under Singapore’s Housing Developers Rules, a buyer who wants to walk away from or repudiate his sale and purchase agreement has to get the developer to agree to it.

‘If the purchaser fails to pay an instalment, the vendor (developer or seller) has a right to choose to annul the sale and purchase agreement or to claim against the purchaser for the unpaid instalment as a debt,’ said Ms Foo Soon Yien, director of Bernard & Rada Law Corp.

If it is the former, the vendor has the right to keep 20 per cent of the purchase price as well as the interest from all unpaid instalments, and resell the unit, she said.

If he chooses the second option, he can take legal action, obtain judgment and enforce it against the buyer to compel him to pay.

That’s not all. The buyer also has further liability to meet any price shortfall if the property is sold at a lower price, said Mr Lim Ker Sheon, a director at law firm Characterist.

Pandora’s box
While they can allow it, developers have no wish to let buyers walk away in a weak market as they would have problems selling the units they take back, experts said.

‘If a developer agrees, it will be like opening a Pandora’s box. Nobody will agree to it,’ said Ms Wong.

‘On the flip side, in a bull run, the seller or developer can’t turn around and tell the buyer to offload it back to them just because they can sell it at a higher price.’

A more likely scenario would see the developer taking the buyer to court and declaring him a bankrupt, she said.

Marco Polo Developments, now known as Wheelock Properties (Singapore), did sue those who defaulted on the progress payments for its posh Ardmore Park project due to the 1997 Asian financial crisis and win some suits.

‘Usually, the threat of a legal suit is enough to wake the buyer up,’ said Ms Wong.

Still, a number of Indonesians walked away from their purchases during the Asian financial crisis and disappeared, said an industry veteran who declined to be named.

What next for buyers?
Buyers who have difficulty paying for their purchases will have to sell the properties at a lower price.
Under genuine circumstances where the buyer wants to pay but has problems doing so, the developers may, on a case-by-case basis, offer alternative payment modes such as staggered payments or instalments, consultants said.

‘They may choose to allow the buyers a longer period to repay, with or without interest,’ said the industry veteran, adding that the critical stage where potential defaults are concerned has yet to come.

‘In every downturn, there will be people who want to walk away but can’t.’

Source: Sunday Times - 25 Jan 2009

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