I seem to be getting several enquiries with regards to the deferred payment scheme(DPS) recently. The general question is, why do only a selection of new projects in Singapore these days offer them. Are the prices higher if you were to take such schemes over the standard payment scheme? How did it come about? Well, this article serves to give you a better understanding of the deferred payment scheme, the origins, and how they work.
Introduction of the deferred payment scheme
The scheme was offered back in October 1997 during the housing market crash. Where average housing prices collapsed from $764 psf in 1997 to $520 psf in 1998. A shocking drop of 32% within a single year. The deferred payment scheme was a means to stimulate the market where homeowners only paid a minimum sum with the bulk of the property price upon completion a few years later. Homeowners or investors were able to soak up the supply in the market with little liquidity. However, some criticise this measure as a means of speculation. Of course, the DPS was highly effective in raising prices, which saw them hit a peak of $1039 psf in 2007. A significant gain of almost 100% within nine years. 2007 was such a hot year for real estate that I do know of some clients who made $800k within a year flipping just one property.
With such rife speculation, the market edges closer to becoming a bubble all over again. As such, the government then decided to remove the deferred payment scheme in 2007. Thereby ending the bull run and causing the housing market to cool in 2008.
Everything’s Normal With The Normal Payment Scheme
With the removal of the deferred payment scheme, there is now only one form of payment scheme for new launches. Also known as the Normal Payment Scheme (NPS) or the progressive payment scheme. So no matter which showflat you visit with the building still under construction, all developers have to follow this regulation. The only exceptions are executive condominiums. The reason is simple; you can’t speculate on a form of public housing which requires a Singaporean family nucleus to apply.
|Day 1||Choose a Unit. Sign Option To Purchase issued by developer||Booking fee of 5%-10% to developer's project account.|
|Within 14 days from Day 1||The Developer must deliver Sales and Purchase agreement to buyer or buyer's lawyer.||Nil|
|Within 3 weeks of Delivery of S&P||Buyer must exercise within this 3-week time frame or risk forfeiting 25% of the booking fee. Exercising of option is done at the lawyer's office. The lawyer may request for the payment of stamp duties during this time(See Below).||Nil|
|Within 14 days of Exercising Option||Payment of stamp duty.||Buyer's Stamp Duty as well as any Additional Buyer's Stamp Duties.|
|Within 8 weeks from Day 1||Buyer to transfer the remainder of the initial downpayment(CPF/Cash) to the developer's project account. The rest of the payment will be progressive.||20% minus booking fee|
|Generally 1 year from Day 1. Dependent on many factors||Completion of foundation work||10%|
|Generally 6 months later||Completion of reinforced concrete framework of unit||10%|
|Generally 6 months later||Completion of partition walls of unit||5%|
|Generally 6 months later||Completion of roofing/ceiling of unit||5%|
|Generally 6 months later||Completion of door sub-frames/ door frames, window frames, electrical wiring, internal plastering and plumbing of unit||5%|
|Generally 6 months later||Completion of car park, roads and drains serving the housing project||5%|
|Generally 6 months later||Temporary Occupation Permit or Certificate of Statutory Completion||25%|
|Generally 1 year from TOP.||On completion date||15%|
Then What About Those Deferred Payment Schemes Offered In The Market?
So why are some developers still able to offer the DPS for private condos? Aren’t they against regulations? The critical point to take note is that the URA’s rule only applies to buildings under construction that have not received the Certificate of Statutory Completion or CSC in short. When a project obtains CSC, the classification changes to a “completed” status and any sales done is by private treaty. Purchasing done this way is no different from those in the resale or secondary market. The private agreement means precisely that, the terms and conditions of the sale are determined between sellers and buyers. In this case, the seller or developer can offer any form of deferred payment scheme.
There is also a bit of confusion on the types of deferred payment schemes in the market. Some do not require you to pay the stamp duties, property taxes upfront, maintenance fees while others do. While most of these schemes allow you to pay the majority sum 1 or 2 years later, there is only one key difference between them — the option exercise date. I will classify them into two general categories, the “normal” and the “enhanced” version. Do take note that these two categories are for reference purposes only. Since sales are via the private treaty method, sellers are free to craft whatever terms and conditions they like.
Normal Deferred Payment Scheme
As stated here, “normal” is a reference to something that is geared towards the norm. For these DPS, the exercise date usually follows 21 days after receipt of the sales and purchase agreement by the lawyer’s office. Stamp duties are liable with 14 days of the exercise date. Only upon successful payment of the stamp duties will the developer allow you to move in or rent out the unit. After all, when you exercise the OTP, you are considered the legal owner. Just that you owe bulk of the remaining payment which the developer has agreed to accept at a later date, with or without interest. Deposits usually range from 10 to 20%. Here’s a list of developments which offer the deferred payment scheme in the market
–The Crest @ Prince Charles Crescent. 10% booking fee with the remainder paid 24 months from the initial option date.
–8 St Thomas offers a “stay and pay” scheme where there is a 20% deposit with the remainder paid 24 months later or October 2020(whichever is earlier).
Enhanced Deferred Payment Scheme
The enhanced version is slightly different in that the OTP window is usually much longer compared with the “normal” DPS. Instead of the usual 21 days, the option period can go up to 2 years. During this time, you are not the legal owner per se, and as such, there is no need to pay property taxes, maintenance fees as well as any stamp duties. However, because you are not the legal owner, you can’t rent it out and collect rental income. Some developers, however, do give buyers a fixed return every month or a subletting agreement to rent out the unit.
–The Peak at Cairnhill 2. 30% down payment for OTP. Get fixed rental returns for a period of 5% per year every month for the next three years. Pay no stamp duty, maintenance or property taxes during this time frame. The remaining 70% to be paid three years later.
–Mon Jervois. 30% down payment for OTP, exercise and complete 24 months later.
–Llyod 65. 30% down payment for OTP, exercise and complete 24 months later. Pay no stamp duty, maintenance or property taxes during this time frame.
–The Line @ Tanjong Rhu. 20% downpayment for OTP, exercise and complete 24 months later. Master tenancy agreement issued under the buyer’s name so you can rent out the unit.
–South Beach Residences. 30% option fee with the exercise date 22 months later.
Are deferred payment schemes worth it?
Some people may argue that deferred payment schemes are not worth because these are products that have been in a market for quite a while. After all, if something was in such hot demand, wouldn’t it be already sold by now?
Critics aside, the DPS does solve a problem for a group of buyers who are either looking to upgrade or waiting for their enbloc monies to come in. The flexibility allows them to book a unit of their choice while selling their current home in the process. With units ready for immediate occupation, they can also choose exactly when to move in and the kind of renovation required — thereby making the entire house moving procedure a stress-free process. Furthermore, you might even save on the rental or storage fees incurred. Which happens all the time if the next home you are moving to does not coordinate with your timeline.
Are deferred payment schemes suitable for me?
For some people, the DPS is a perfect solution and fits them like a glove. Others may not be comfortable with the differential in pricing or the selection of units offered. To understand if the DPS is a solution for you, do contact us and we will get back to you shortly. We are here to craft the best solution for your real estate needs.
Article contributed by Jerry Wong
Jerry Wong is a realtor with Huttons Asia Pte Ltd. He loves coffee, cookies and condos. Most importantly, he loves connecting people to properties and gets enormous satisfaction when they acquire their dream home or make that capital upside in just a matter of months. Buy Jerry a coffee, and he will meet up with you on a 1 to 1 session to share the following
- How certain factors affect real estate prices. (Using historical transactions as references)
- Applying lessons from history to determine if a condo has the potential for upside or not. These condos can be those under construction, resale or the very one you are staying in right now.
- Or just prepare the toughest question you have on your mind! If it is interesting enough, the answer will be in a blog post and shared with everyone!
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Do take note that all schemes provided here are accurate on the date of publish. The author cannot be held responsible or liable for damages arising from the use of this information. This list is not exhaustive, and other developments offer the DPS as well.