Owning a condominium to your name is probably something one would not mind having regardless of whether you are a Generation Z or a Boomer.
Beyond the impression of a condominium being a pricy property asset, a condo also has other qualities and attributes – from its private address, luxurious fittings, to the amenities only for residents’ use. The lifestyle experience of owning a condo is what many would want to experience if they have the means to do so.
Although the Deferred Payment Scheme (DPS) has always been around, it has become something condo homebuyers are more interested in these days, as they find methods to combat the higher interest rates environment.
The DPS is an option some developers choose to offer to drive sales. As for many homebuyers, having an option like this may help them manage their immediate cashflow better amid the uncertain economic climate.
For example, new Executive Condo (EC) launches such as the recent Tenet in Tampines sold 72% of units at launch, partly thanks to the offering of a Deferred Payment Scheme.
Some observers note that the Covid-19 pandemic was a driving force for buyers’ preference for DPS, as it offers more flexible payment features and gives buyers more financial control in an unpredictable time.
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What Is The Deferred Payment Scheme
Developers have to build and sell all units within five years if they want an upfront remission of Additional Buyers Stamp Duty (ABSD), which is 30% of the land price. If they fail to do so, they have to pay 25% of the ABSD with interest (with an additional 5% of the payment going to the government).
If it is a foreign developer, there are more risks. They have to worry about the Qualifying Certificate (QC) regime, which requires them to complete and sell all units within five years or risk a penalty of up to 24%.
Looking at these fees that will be incurred if the developer fails to build and sell in time, it is understandable why developers do want to get speedy sales.
They throw in DPS as a method to encourage homebuyers to essentially “Buy Now, Complete Payment Later”.
Homebuyers put a downpayment of up to 20% on the house, and only need to worry about paying the remaining balance usually two to three years later.
DPS for condos are allowed for completed properties – the development has received the Temporary Occupation Permit and the Certificate of Statutory Completion. The scheme will therefore appear in the final phases of a new condo, when the project is built and the developer needs to move the remaining units.
For ECs, there is the EC payment scheme. The developer allows buyers to choose either the Normal Payment Scheme (NPS) or DPS. The price difference between NPS and DPS is usually around 3%.
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How Is The Deferred Payment Scheme Useful For Homebuyers
The time taken (two to three years) can be used for homeowners to save up and work hard to pay for the balance due. This is an attractive deal for upgraders with outstanding home loans.
The current Loan-To-Value (LTV) ratio limit for an outstanding home loan is between 25% to 45%, according to the Monetary Authority of Singapore.
LTV refers to the loan amount as a percentage of the property’s value. The LTV limit determines the maximum amount an individual can borrow from a financial institution for a housing loan.
The DPS allows for a later downpayment which gives upgraders time to move into their new homes and sell off the existing property to avoid ABSD charges for a second home and pay off the remaining home loan.
The upgrader can then get a fresh LTV rate for the new property.
This is also an attractive deal for buyers who plan to purchase the condo for investment purposes. They can first buy the unit before renting it out to collect rental income later.
In a nutshell, here are the benefits of DPS:
- You have a smaller initial cash outlay
- You have more time to raise cash
- You can escape two years of interest repayments
Is There A Catch To The Deferred Payment Scheme
There is no free lunch in this world, and buyers who opt for DPS will have to pay a markup. This is usually around 10% more than the selling price of the unit.
This can be a few hundred thousand dollars more than the condo’s selling price. But to some buyers, they may consider it a good deal as they only need to fork out an upfront downpayment of 20% and do not need to pay any amount for the next two to three years.
The LTV limit may also change depending on the buyers’ property portfolio and is useful for those who want to sell off their existing homes for the new purchase.
Buyers do not need to make interest payments in the two to three years window, which is a respite for some who may have other loans to burden with.
Here are some possible disadvantages to DPS:
- Property is sold at a markup
- No one can predict the interest rates environment in two to three years
What Are The Various Types Of Deferred Payment Schemes And The Condos Offering Them
Property developers do offer different versions of the DPS, including the Stay-Then-Pay-Scheme, Experiential Leasing Scheme, Preferential Payment Plan, and Enhanced Payment Scheme.
For ECs, the DPS is more straightforward:
The DPS allows the EC buyer to put down a 20% downpayment. The remaining is deferred until receiving a Notice of TOP, which means that buyers can move in.
The price for the property for those opting for EC DPS is expected to be 2-3% higher than the selling price.
The following condos below offer DPS and the various schemes:
Singaporeans and Singapore Permanent Residents (PR) have different DPS from foreigners. Singaporeans and Singapore PRs who purchase units here pay a downpayment of 10% of the purchase price. The remaining are to be paid one year later. This is also known as the Stay-Then-Pay Scheme.
For foreigners, the downpayment is 15%, with the remaining 85% to be paid a year later.
Buyers make a 1% payment for the OTP, and another 9% in eight weeks. After the OTP, the buyer can move in and the remaining 90% is paid after one year.
The Crest at Prince Charles Crescent
The buyer pays 7% of the purchase price first before moving in. In the following year, the buyer then pays 8% more, and the remaining 85% in the subsequent year. This DPS is called the Preferential Payment Plan.
There are two DPS offered, one with the normal DPS, and the second is a 20% downpayment followed by payments a year later.
Properties sold under the normal DPS will cost up to 9% more, but those under the second DPS will not have added cost.
The DPS offered is known as the Enhanced Payment Scheme. Buyers are required to pay a downpayment of 20% of the purchase price (option fee), but there is no need to exercise the Option-To-Purchase (OTP) for 24 months.
In the two years, the buyers do not need to fork out property tax, stamp duties, or maintenance fees. The buyer can also rent out the unit for rental income when they sign a master tenancy agreement with the developer. In the two years, the buyer is free to resell his/her unit.
Under the DPS schemes, one option is to fork out a 1% booking fee and a 19% deposit in two weeks to exercise the OTP. The buyer can move in three weeks after the exercise date (upon proof of necessary maintenance fees and taxes paid). The remaining 80% is to be paid within one year from the exercise date.
The second option follows the same procedures, except for a payment deferment of two years.
Buyers can opt for two DPS options.
For the first option, buyers are charged a 1% booking fee and will need to exercise their Option-To-Purchase within two weeks by paying a 19% balance of the deposit. The buyer will also have to complete the necessary stamp duty fees such as ABSD and BSD.
The buyer will be able to move in three weeks from the exercise date and pay the remaining 80% of the purchase price two years later.
For the second option, buyers pay a 1% booking fee and exercise the OTP by paying the remaining 9% deposit, as well as stamp duties and maintenance fees of six months. The buyer will be able to move in three weeks from the exercise date and pay the remaining 90% of the purchase price two years later.
The DPS is the Stay-and-Pay Scheme. In two weeks, the buyer will need to complete the booking fee of 1% and a 19% deposit to exercise the OTP. The buyer will receive the keys three weeks from the exercise date and the remaining 80% of the purchase is payable after two years.
Featured Image Credit: CapitaLand
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