Overview of a Sub-Sale Transaction
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A "Sub-Sale Transactionâ€ means buying a property from an individual (including a company) other than the developer.
Every sub-sale transaction is unique and is usually regarded to be more complicated than a direct purchase of an under-construction property from the developer. Generally, it is because:
1. The parties are at liberty to negotiate and agree to the terms and conditions of the transaction;
2. Every sub-sale transaction is different
[for example: (a) the transaction may or may not involve payment of the Real Property Gain Tax (RPGT); (b) the transaction may or may not involve redemption from the Seller's existing financier; (c) the Purchaser may or may not obtain bank loan to part finance the purchase]
Due to the ever changing nature and character of a sub-sale transaction, it is important to understand the general structure and steps involved.
The flowchart below seeks to give an overview of a sub-sale transaction.
Pay Earnest Deposit And Confirm Intention To Sell And Purchase
Usually, once the Seller agrees to sell and the Purchaser agrees to purchase the property:
1. The Purchaser will pay an earnest deposit, usually 2% of the Purchase Price, to the Real Estate Agency (REA) or appointed lawyer, whom will hold the earnest deposit as the stakeholder for the parties;
2. The parties will confirm their respective offer and/or acceptance to purchase or sell by signing an Offer to Purchase (OTP) / Agreement to Sell (ATS) or other similar documents prepared by the REA or the appointed lawyer.
Sale and Purchase Agreement (SPA)
Here, the parties will sign the SPA and other related documents prepared by the appointed lawyer.
Before signing the SPA, it is important:
1. For the Purchaser to verify if the Seller is the rightful owner of the property;
2. For the parties to verify if the details and description of the property stated in the SPA corresponds with the one which the Seller intends to sell and the one which the Purchaser intends to buy;
3. For the parties to verify and confirm the purchase price and the payment method stated in the SPA;
4. For the parties to understand their respective duties, obligations and potential liabilities under the SPA (for example, the liability to pay for liquidated damages in the event there is late payment or late delivery of vacant possession).
Generally, the Purchaser will pay the purchase price by:
1. The Purchaser's own money that is readily available; or
2. The assistance of a loan granted by a financial institution.
If the Purchaser does obtain a loan from a financial institution to partly finance the purchase, the Purchaser is required to execute the necessary loan documentations which will be prepared by the lawyer appointed by the financial institution.
The sub-sale transaction will involve redeeming the property from the Seller's Bank if the Seller still has existing loan(s) with the Bank where the Property is being charged (for individual title property) or assigned (for master title property) as security for the said loan(s).
Generally, the Seller will utilise the purchase price paid by the Purchaser to settle the Seller's existing loan(s).
After full payment of the Seller's existing loan(s), the Seller shall cause the Bank to:
1. Discharge its interest on the said property by an instrument called the Satisfaction of Charge (for individual title property); or
2. Reassign the rights, title, interest and benefits in and to the property and the SPA back to the Seller by an instrument called the Deed of Receipt and Reassignment (for master title property).
Disbursement by Bank and Full Payment
The Purchaser needs to make full payment of the purchase price within the time frame stated in the SPA which would include getting the Purchaser's Bank to disburse the full loan within the said time frame too.
In most cases, the Purchaser will risk paying late payment interest to the Seller if the Purchaser fails to make full payment within the said time frame.
After full payment has been made, the Seller shall deliver the vacant possession of the property to the Purchaser within the time frame stated in the SPA.
This article is intended for general awareness purposes only and should not amount to any form of advice. While every effort has been made to ensure the accuracy and correctness of the calculations, contents, information or data contained herein, the writer accepts no liability for loss or damage suffered or incurred by anyone as a result of the reliance on this article or howsoever arising from the use of the information or material set out herein.