Why property investors can’t cry foul to back out of deals

Property investors who suffer setbacks often like to use strict rules for real estate transactions here as a way of getting out of deals that no longer suit them.

They often argue that the agreements they have signed are “shams” created to mislead the authorities into thinking that the transactions are genuine.

One popular ploy is to buy property in their children’s names, but then claim that the deal is invalid because the transaction was concocted with the intention of avoiding tax, such as the additional buyer’s stamp duty (ABSD).

The reason behind this seemingly contradictory behaviour is that they want to nullify the trust documents that put the real estate under the children’s names in order to reclaim the property as their own. Such cases often happen after the parties involved in such deals have a falling out.

Before you try to use such a ruse, note that the chance of succeeding with a ploy that involves the use of sham transactions is zero because the courts will not side with those who knowingly break the law.

Even if the transactions are indeed shams, you will still lose as you will not be able to get a court order to transfer the property back to you, because doing so would only encourage more people to create such dodgy deals.

Take for example two fathers who bought property for their children using trust deeds. They eventually wanted to reclaim the homes after splitting with their spouses by alleging that the deals were shams set up to avoid paying the ABSD.

But both men failed to get what they wanted because the High Court ruled that the deeds were properly set up in good times and that this meant that the real estate belonged to their children, and not them.

Hard to prove shams

A separate case recently had a twist on the usual claim: A son cried foul in a family dispute because he was holding a $4 million house on trust for his elderly father.

The father had invested in the property when he was in his 60s, and he wanted the son and his brother to “hold” it for him so that they could get a loan with a longer tenure. When the elderly man died, the son was left with no share in the house because his father had willed the property to his other children.

The son argued that the original trust deed was not properly signed and that it was a sham executed by the father to enjoy “some advantages and savings relating to tax purposes” and “for the purpose of misleading third parties”.

But he could not explain how the trust deed could be used to deceive the taxman so that his father could enjoy tax savings.

Indeed, the property was bought in 1980, long before the ABSD was imposed in late 2011 to curb real estate speculation.

In fact, by putting the property in his sons’ names, the father ended up paying more property taxes for a number of years because he did not ask for owner-occupied concessions even though he lived in that house.

High Court Judge Hri Kumar Nair rejected the son’s arguments in October 2023 as baseless because the evidence showed that the father had paid for the house, and that the sons who signed the deal knew it belonged to him.

So contrary to what the son claimed, that trust deed had given an accurate account of the purchase and ownership of the house. “The assertion that the deed of trust was a sham was itself a sham,” the judge said.

If there is a lesson to be learnt from these cases, it is that it never pays to abuse the law because justice benefits those who have been fair and forthright in all their deals.

Source: Straits Times © SPH Media Limited. Permission required for reproduction.

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