Often developers mark up the selling price beyond market value so they have room for very attractive financial schemes to purchasers and can afford to pay real estate agents a very high commission.
As an example. If the sell price has been marked up by 50% (with support from developer’s friendly valuers to financial institutions), the attractive rebates in forms of high cash back, zero down payments, free car, free stamp duty, etc to the purchaser means
- If the property does not appreciate, the purchaser will have problems selling the property at actual market price. The selling price is usually not enough to pay off the redemption sum.
- If the purchaser cannot pay the monthly installment, the purchaser can be forced to go bankrupt because the foreclosure amount by the lender is not enough to pay off the loan amount.
Overly discounted property launches are usually problematic properties and agents should have the conscience to educate their buyers about the risk. After all their career depends on repeat customers and referrals because cost per leads on social media is getting more expensive. If their buyers got burnt by these purchases, very likely the realtor will not get any further businesses from them anymore. Reputation will not be good too.
However, that does not mean they should not recommend such properties to their buyers. Some buyers can take such risk and are able to make better use of the cash rebates as interest rates on housing loans are much lower than other forms of loans. The long housing loan repayment period makes car repayment, credit card repayment, and personal loan repayment very affordable. Some buyers use this as a debt restructuring tool and are willing to risk purchasing a possible problematic real estate.
