Beware of investment traps when buying properties (Part II)

investment pitfalls

In the process of owning property, it often takes a lot of hard work and time before one can save up enough for the down payment. You could make your way around the eighteen districts visiting all sorts of housing estates before a unit even catches your eye. At this point, it is tempting to throw down the money and sign on the dotted line to secure the place, but you first need your bank to approve your mortgage loan which could reach a maximum of 80%. Whether or not you actually get that much will depend on your credit rating, for instance your credit card repayments, and whether you have personal or car loans. Getting bank pre-approval is essential, and if you plan on taking out mortgage insurance then even more care must be taken. Mortgage companies do not provide pre-approval services, and their approval criteria is generally stricter than bank standards. An alternative could be mortgage agencies; they do not directly seek out payment from home-owners, and have an in-depth understanding of various banks and loan institutions, which is invaluable help to homeseekers.

That said, a homeseeker cannot do without a bank valuation; aside from helping decide if the prospective unit is indeed value for money, the process can also sieve out the possibility of buying into a haunted house—banks generally will not give valuations for homes in which people have died. 

Before signing the contract, real estate agencies have to provide a copy of the property research for a homebuyer's perusal. Do request for your agent to explain the important points within, especially regarding property emcumbrance. There are various factors that could lead to a property being subject to emcumbrance, including illegal construction, owing management fees, and other finance companies, or if the property boundaries include slopes whose maintenance nearby homeowners would eventually have to take on. There are a myriad of reasons that could lead to emcumbrance, so do be wary.

At the same time, look out for gifting of deeds, an affair steeped in potential risks. Properties whose deeds have been gifted within five years of its original owner filing for bankruptcy could stand to be ruled as invalid in the court of law. This is why it is extremely different to take out a mortgage on gifted deeds within five years. If in doubt, do consult a professional or a lawyer.

When signing a contract for second-hand properties, you will often encounter joint owners. Ideally all the owners would be present for the contract signing, but it often seems the case that one of the owners will be abroad. This is surprisingly common, but the million dollar question here is if the other owner can sign for the absent party. If you’d rather eliminate the possibility of issues coming up later down the track, you could have the owner present also sign an agreement declaring he has authorisation to sell the property and is willing to bear the consequent responsibilities accordingly, including but not limited to shouldering monetary compensation in the event of the absent owner’s refusal to sell. While this is still not a guarantee to successfully purchasing a property, at least the homeseeker’s right to compensation is safeguarded.

Buying property comes with numerous risks and potential pitfalls, and we have merely covered the tip of the iceberg. Homeseekers should take care and be mindful of every step on their journey to home ownership. 

>> Previous issue: Beware of investment traps when buying properties (Part I)