Thursday, January 24, 2013

Home sweet loan

The Straits Times
Thursday, Jan 24, 2013

SINGAPORE - Excuse me, dad - do you have $20,000 or more to spare? I need it to help pay for my flat.

That is a request that young couples are making these days, say property agents and conveyancing lawyers SundayLife! spoke to.

With property prices reaching record levels, young couples struggle to stump up upfront cash payments for their first home from their household kitty or Central Provident Fund accounts.

So dad and mum pitch in. Such parents are not just the uber rich who can afford to buy a plum property for each child, but also include those who live in HDB flats.

Property agents and lawyers interviewed say as many as up to four in 10 couples receive some form of financial help from parents in buying their first marital home.

Property players and couples SundayLife! spoke to say the trend of parents helping with home purchases applies mostly to those who have to fork out more cash upfront.

These are couples buying HDB resale, Design, Build and Sell Scheme (DBSS) or executive condominium (EC) units, or private apartments as they need a cash kick-start, says MrDerek Lim, 45, vice-president of DTZ Property Network.

This is because of the higher down payment, cash premiums or cash-over-valuations required.

Mr Lim adds that these couples are usually between 23 and 27 years old, have two to four years of working experience and a combined monthly income of $4,000 to $5,000.

Mr Lee Liat Yeang, 45, a partner at Rodyk & Davidson Real Estate Practice Group, says in some cases help from the older set is "obvious".

Sometimes, parents issue the cheque for the down payment or are involved in decisions such as choosing the apartment unit and the law firm, he notes.

"The parents are the ones who instruct the law firm and take care of the process the entire time," adds Mr Lee, who has 20 years of experience in conveyancing.

In other cases, the young couples tell the property agents and bank officers upfront that they are receiving financial help from their parents.

Sometimes, it is a simple case of doing the maths. As one loan officer who does not want to be named says: "We know how much these people earn, we know their CPF contributions, their financial commitments, we know how much they can save with this kind of income, we can tell if they will be able to come up with the down payment.
"Just calculate how much it takes to save $100,000. It's obvious that their parents are helping with the property payment because they would have taken a much longer time to save up for that 20 per cent.''

So how does receiving a generous sum from parents - even if it is a loan - impact the relationship? Is the younger set expected to invite their parents to live with them, for instance? Or does mum call the shots as to when she can visit?

Lawyers also caution that the gifts of love could prove contentious when relations sour, such as if a couple split and assets are divided up, or when parents expect obligations of care in return.

Mr Yao Weixiong, 32, a programme executive at a social service organisation, who with his wife borrowed $30,000 from his parents for their home, says he does "not feel indebted or obliged".

He adds: "If they need to live with me, it is fine." He and his 31-year-old wife, a housewife who does not want to be named, sought the sum for the cash-over-valuation on a three-room HDB resale flat in Toa Payoh. It was valued at $170,000.

This was five years ago, when he was 27, an army regular, and his wife was 26, a social worker. The 90 per cent HDB loan was $153,000, with their CPF covering the 10 per cent down payment of $17,000.

They wanted to live close to his parents - his father, 58, is a technician and his mother, 56, is a finance administrator. They were unable to select a Build-To-Order flat then, which requires almost no cash upfront, because their queue number was too high.

With property prices rising over the past few years, couples have to fork out higher cash-over-valuations. In September last year, the amount asked for was as high as $200,000 for an executive flat in Bishan that went for $980,000 in total.

In 2007 and 2008, a resale five-room Sengkang flat cost $300,000, including a cash-over-valuation of $10,000 to $15,000, says DTZ Property Network's Mr Lim.

Young couples also seek help from the Bank of Mum and Dad for other property types such as DBSS and EC units. The cash down payment required is 5 per cent of a flat's value if the borrower takes out a commercial loan of 80per cent.

For a four-bedroom, 86sqm DBSS unit, prices can range from $550,00 to $620,000, and the 5 per cent down payment is from $27,500 to $31,000 if the bank loan is 80per cent of the purchase price, says PropNex Realty's chief executive, Mr Mohamed Ismail, 49.

As for a 96 sq m three-bedroom EC unit, its price can range from $750,000 to $780,000, and the down payment would be from $37,500 to $39,000, he says.

These are hefty sums, so no wonder couples do not have enough savings to buy their first home without some help from their parents. However, couples must be "upfront and transparent" about the sums needed, says Mrs Rachel Lee, 44, assistant director of Fei Yue Family Service Centre.

"If they are thinking of buying, say, a four-room flat, they should know how much savings and CPF they have, what the shortfall is, and how much they would like to borrow from their parents," she adds.

Older folk entering into a family loan arrangement must still respect a young couple's privacy - loan not withstanding. Expecting a set of keys, so they can "pop over" as and when, is unreasonable, says Mrs Lee.

But couples and parents interviewed seem to want to keep the whole set-up loose and eschew contracts, insisting they are not needed among family members.

For Ms Kay Tan, 22, a $46,600 loan from her mother-in-law, a bank executive, will be repaid "as and when".

Her 23-year-old husband, who along with his mother does not wish to be interviewed, had just finished national service when they bought their home last year.

Ms Tan is a third-year communications studies student at the Nanyang Technological University.

"We had just $20,000 in savings between the two of us, and a few hundred dollars in our CPF from our holiday jobs," she says.

Her mother-in-law, whom they live with, gave Ms Tan and her husband the $46,600 cheque after the three of them viewed Pasir Ris One, a DBSS project, in September last year.

Both sets of parents live in Pasir Ris and told them to "go for a flat nearby", says Ms Tan. Their parents also worry that flat prices may rise further if they do not get a home soon.
Their three-room flat cost $433,000. They received a $40,000 CPF housing grant for living near their parents. The 20 per cent initial payment of $86,600 meant they were short of $46,600, hence her mother-in-law's helping hand.

For Mr Ben Koh, who runs a software firm, home is a three-room HDB flat near Chin Swee Road, close to his office in South Bridge Road. He bought it three years ago with $30,000 from his mum.

Says Mr Koh, who is married and the middle of three grown-up sons: "It was something to tide us over. I didn't want to deplete my savings." His parents are both retirees in their 60s.

His mum, who does not want to be named, says the loan was a straightforward arrangement. Her son instructed his bank to credit $1,000 to her savings account each month. The interest-free loan was paid off at the end of last year.

She and her husband do not expect their son to be more filial just because of the loan. She sees it as a smart money move.

She says: "If our parents were able to help us when we married 36 years ago, we could have bought something better."

Indeed, National University of Singapore sociologist Paulin Straughan says contracts "reduce family ties to a transaction".

"It would be hard to expect that loans translate to hands-on, everyday care of the parents in old age. You can't say, 'I lend you $70,000. You take care of me when I am old'."

Rather, care depends on how strong the parent-child relationship is.
Family lawyers caution against fuzzy terms in loans of endearment.

Two of them say things get ugly when couples split up and lawyers or the courts must decide how to divide the matrimonial assets.

They notice that about two out of five divorcing couples cite parents' contributions in the purchase of their homes.

"Make it clear whether it is a gift or a loan and to whom," says family lawyer Rajan Chettiar, 46.

"Otherwise, the parent may not get any money back," says Mr Rajan, "because there is no documentary proof and the other party will allege that the parent is siding with their child."

Mr Lee Terk Yang, 37, a director of Characterist law firm, says: "Family members may feel weird writing up a contract. But in the absence of formal documentation, at least have something in writing, perhaps saying, 'I have deposited X amount into your savings account as a loan for the purchase of your home'."

He cites a case in which a mother doled out $300,000 from her inheritance to her son to buy a $1 million condominium apartment five years ago.

This affects the calculation of each party's direct contribution to the matrimonial assets and the division of assets between the parties, says Mr Lee.

"The courts will take their direct financial contributions when dividing and awarding matrimonial assets to each party," says Mr Lee. If the $300,000 sum were a loan, the mother would be paid as would any creditor, he adds.
In the end, the disputing couple chose to settle the matter out of court, he says, with each party compromising on the amounts they were to be awarded.

Financial controller B.H. Chua, in his 50s, feels that parents who can afford to pitch in financially should readily do so.

"With housing so expensive, there's definitely a need for parents to give children a helping hand," he says.

He and his wife, Mrs L.B. Chua, have a son aged 28, who is single, and a daughter, 27, who is engaged.

The couple sold their second condominium unit in Queenstown about five years ago and now live in an apartment in Bukit Panjang. They have allocated about $100,000 to each child, likely for their housing needs, he says.

His daughter and her fiance, who bought a $640,000 DBSS home in Clementi, did not want to be interviewed.

So is Mr Chua concerned whether they will look after him after marriage?

He says: "We give to them unconditionally. We don't expect to be paid back, but we believe they will respect us and take care of our interests."

$144,000 from dad to buy flat

SINGAPORE - Copywriter Amos Yeo, 26, got a helping hand from his father when he and his girlfriend, scriptwriter Pamy Tan, 24, wanted to buy a five-room public housing flat under the Design, Build and Sell Scheme.

The couple had recently graduated and been working at their jobs for about six months when they saw the unit at Parkland Residences along Upper Serangoon Road, next to Punggol Park, and which had a price tag of $720,000. They had combined savings of less than $15,000 and, with hardly enough in their Central Provident Fund accounts, it was a far cry from the initial 20 per cent payment of $144,000 that was required.

But Mr Yeo's father, a civil servant, 56, who declined to be named, stepped in to give their plans a kick-start in February last year.

Knowing that they would be able to support paying the maximum loan of 80 per cent from a commercial bank, Mr Yeo's father loaned the couple the full $144,000 to secure their new home.

They did not need to touch their savings.

Mr Yeo said of his father's gesture: "I didn't really feel good about asking my parents to help pay for the flat. It shouldn't be their responsibility to help us own a flat."

But Parkland Residences' proximity to Ms Tan's parents' home in Hougang convinced the couple to proceed with the purchase of the 122sqm flat on the 18th floor.

Thinking ahead to the time when they might get married in 2015 and be parents soon after, the practical Ms Tan said: "If I need help with childcare, my parents are across the road. It's also very comforting to know I'm near my parents."

With a high queue number of 252 in hand, the couple - who bought under the fiance/fiancee scheme - did not expect to get a choice unit and had set their sights lower. When the unit on the highest floor was available, Mr Yeo's father told them to "go for it", said Ms Tan. "He said it would have good value."

Parkland Residences, launched in January last year, will have kitchen fixtures, air-conditioning, and sanitary fittings ready for its occupants, and also facilities such as a barbecue area and mini-mart. About 550 of the 680 units there have been sold.

But Ms Tan was not without reservations accepting the loan. "I felt that the flat was a bit expensive. We are young and starting out in our careers. If we had chosen somewhere else in Punggol, it would be much cheaper. These were real concerns," she said.

However, the interest-free loan from Mr Yeo's father is as far as it goes. The couple will take care of the monthly mortgage instalments of $1,500 with their combined monthly income of about $5,300. This is in addition to repaying $800 to MrYeo's father every month.

While Mr Yeo's father did not give them a deadline, they plan to repay the loan as soon as possible. "I think he would like to be able to use the money for his retirement," said Mr Yeo.

$30,000 from in-laws for cash premium and renovation

SINGAPORE - Unlike several of those who turned down SundayLife!'s request to be interviewed about getting financial help from family to buy a home, tutor Janice Wong feels there is nothing to be shy about.

Those who declined an interview typically said they did not want to come across as getting a handout from daddy dearest, when they should - as adult and married children - be caring for their old folks instead.

But Ms Wong says: "Why feel pai seh? It's not like we are not returning the money and taking them for granted." (Pai seh is Hokkien for embarrassed.) "It beats borrowing from loan sharks or giving interest to a cold financial institution. The interest we give is in the form of an occasional feast or trip overseas."

She and her engineer husband Shane Liew, both 33, have a 14-month-old daughter Kaelyn. Home is a five-room HDB flat in Kembangan, a five-minute walk from the five-room flat of Mr Liew's parents - semi-retired hawker C.P. Liew, 62, and housewife Q.E. Lim, 58.

Mr Liew, the second of three grown-up children, borrowed $9,000 from his father to pay the cash premium for the $387,000 flat in mid-2006. With money for renovation, the total borrowings from his father came to $30,000.

He had been working for about a year and his wife, for about four years at the time they bought the flat. Their combined monthly income was about $5,000. They both had study loans of about $20,000 each to pay off. The couple, who registered their marriage in November 2006, were also saving for a customary wedding banquet in 2007.

Ms Wong says that repayment was free and easy, with her in-laws being "extremely understanding" about it. They paid an interest-free sum every month, although it was not a fixed amount.

Her husband, she says, repaid more when, say, he received a bonus and less when they were tight financially. He cleared the loan in three years.

The older set declined to speak directly to SundayLife!. Asked about expectations from the loan, MsWong says her father-in-law laughed.

"They thought the question strange," she says. "They said, 'If we teach our children the right values, they will know what to do because they were brought up right'."

Besides, help is only a holler away, she says, adding that her husband's grandmother lives in the flat next to hers.

Of being near to her parents-in-law's home, she says: "We visit them almost every other day for dinner, especially now that my mum-in-law takes care of Kaelyn. We pick her up after work every night. The proximity saves us a lot of trouble."

Martin Koh | 86666 944 | R020968Z
Sherry Tang | 9844 4400 | R020241C
Senior Sales Director
DTZ Debenham Tie Leung (SEA) Pte Ltd (L3006301G)

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