Think before you give advice & think harder before you act on an advice.

It is a privilege for people in some trades to be a position to advice on someone else’s financial matters. These people could be a financial adviser like myself, a banker or from a property agent. The trust placed with us should never be abused for personal gain. I am disappointed with a suggestion from a property agent to an old time client of mine.

This client had been with me since the earlier days of my career. He was earning a good income closed to $5,000/mth in 1998 but when he got retrenched during the Asian Financial Crisis. Finally he got a job but he was not able to get a salary not exceeding $3,000/mth. His financial situation starts to go downhill from here.

Due to the paycut and improper financial management, he got into debts with banks. The appearance of “fast cash” financial insitution did not help much as he keep borrowing from one to pay off another. In 2005, his property agent suggested he do a contra sales with his in-law. In this case, he buys over his in-law’s house and the in-law buys over his house. Any profit from the sales proceed goes into their pocket as cash. However, they still stay at their old house as usual. In short, its a paper sales only.(This was one of the common way Singaporeans do to have an “early CPF withdrawal” in case you don’t know). I suggested to him to look for Credit Counselling Singapore(CCS) for help. CCS negotiated with the banks a regular repayment scheme but a lump sum must be paid first. The cash from the proceed managed to settle the money required by the bank.

His debts had greatly reduced from $80,000 to the current $40,000. His house is fully paid with CPF and he is turning 55 next March. There are some money in his CPF and he would expect an estimated amount of $80,000 from the maturity of the CPF-approved endowment plans I had given him in the earlier days which will be refunded into his CPF. I did a calculation and he would easily withdraw an amount close to $170,000 after setting aside the CPF minimum sum. I told him that he will still have an excess of $100,oo even if you pay off the debts.

Interestingly, the same property agent suggested to him to sell off this fully paid house now and rent a unit for a few months while waiting for some Executive Condo(EC) projects. The rationale is the cost of a EC direct from HDB will be similar to a 5room flat in the open market.

My concern to him was -How long will that few months of renting be?

He said the property agent mentioned to him it’s about 6 mths. I presumed anyone in the right mind will know there is almost no way to get a flat directly from HDB in a short 6 mths even for a first timer. He is a 3rd timer….how long will he need to wait!?

Next will be a more concerning factor. What if for some reason he gets the house and the banks does not approve his loan? I suggested to him to get an In-principle approval first to see how the banks rates him. I know banks will reject him but still good for him to find it out himself. Interestingly, he said that’s why the property agent suggested to him to sell off the flat, pay off the debts so he has a higher credit rating. Now…either that property agent is ignorant or trying to pull off a fast one. For someone who has a record with Credit Bureau Singapore(CBS), it takes donkey years to get that mark erase (that’s if it does get erase). My client owes more than 5 banks, had been issued with writ of summons and lawyers asking for repayment. His record will stay with CBS for a very long time and clearing all debts does not help. He should also be more familar than me to witness how many property transactions failed due to loans not being approved. And selling a house before getting one (and more importantly an IPA in place) put my client in a very bad position.

I advice my client to think thru’ properly. A fully paid house vs a new mortage? A fully paid house vs another fully paid house?

May I suggest to anyone who had earned the trust to managed & advice someone else’s finances to think more than thrice before making a suggestion? And to anyhow who is taking on advice, if the agent think thrice, you need to think thrice times more than him.