Buying a property, especially a private one, is a huge commitment, and a long-term one too. So while buying a new condo may make those around you envious, the reality is that forking out for the down payment alone requires a lot of moolah. To entice buyers (and to boost sales), property developers use a popular trick known as the Deferred Payment Scheme (DPS).
In this article, you’ll learn about the DPS and find out which condos offer it.
What is the Deferred Payment Scheme (DPS)?
When property developers buy land to develop new housing projects, they have to ensure that they completely build and sell all units within 5 years if they want to get an upfront remission of Additional Buyers Stamp Duty (ABSD), which is 30% of the land price. Failing to do so, means they will have to pay the 25% ABSD with interest (5% will still need to be paid to the government).
On top of ABSD, foreign developers also have to sweat about the Qualifying Certificate (QC) regime, which basically requires them to complete and sell all units within 5 years, or risk up to 24% penalty.
Wary of these hefty penalties, developers understandably want to speed up sales. To do that, they use DPS, which basically allows buyers to put down a down payment of up to 20% on the house, and only pay the remaining balance usually 2-3 years later.
In other words, buy now and worry later.
Obviously, this sounds super attractive especially among landlords who can first buy the unit and rent it out to collect rental income for the years before the developer comes knocking on the door.
The DPS is also attractive to upgraders with outstanding home loans. According to Singapore’s Monetary of Authority (MAS), the current loan-to-value ratio (LTV) limit for one outstanding home loan is between 25% to 45%. A minimum of 25% needs to be paid in cash, while the remaining 30% can be paid in cash or CPF. Remember that upgraders will also need to pay ABSD if they cannot sell the property within 6 months.
But because the DPS allows lower downpayment and provides a longer deferment period, this extra time allows upgraders to move into their new home, sell the current property, pay off the remaining home loans, avoid ABSD and finally get a fresh LTV rate.
But what’s the catch?
Well, developers will usually mark up the condo price. For example, say if the condo’s selling price is $1 million, under the DPS, the condo goes up to $1.2 million.
However, since buyers only need to fork out 20% downpayment (5% option fee + 10% sale and purchase agreement) of $1.2 million (in this case $240,000) and not pay anything for the next 2-3 years, this is still seen as attractive since the LTV limit might change in next few years. They also don’t have to make any interest payments during this period (provided that they didn’t get a loan for the down payment, that is).
However, DPS for uncompleted units has been disallowed since October 2007 as they contributed to rising property prices. Only completed units with Certificate of Statutory Completion (CSC) can allow DPS.
With that, here are some attractive Deferred Payment Schemes that are currently available for private condominiums:
#1. The Interlace and D’Leedon
These two properties have the same DPS as both are developed by CapitaLand. Most units in the two developments are also sold at a 15% discount, regardless of whether they are purchased under the DPS scheme or normal payment schemes.
The DPS for these developments is known as the Stay-Then-Pay scheme. Singaporean and Singapore Permanent Residents (PRs) have a different payment scheme from foreigners.
Singaporeans and Singapore PRs who purchase units at these developments pay a down payment of 10% of the purchase price.
The remaining 90% of the purchase price needs to be paid one year later. Foreign buyers need to pay a down payment of 15% of the purchase price and the remaining 85% a year later.
The Stay-Then-Pay scheme may benefit buyers looking to purchase a second property. The scheme would grant them more time before they pay the remaining bulk of the purchase price. This time can be used to manage their assets, such as handling outstanding loans and selling existing properties. For example, settling any outstanding loans would enable them to qualify for a higher loan amount.
Preferential Payment Plan
The Crest has a DPS called the Preferential Payment Plan. Under this plan, buyers pay 7% of the purchase price before moving in. They then pay an additional 8% the following year, and the remaining 85% in the subsequent year.
Like the Stay-Then-Pay scheme, the Preferential Payment Plan benefits buyers looking to buy a second property as it allows them more time to manage other assets accordingly.
Enhanced Payment Scheme
The DPS at this development is called the Enhanced Payment Scheme. Under this scheme, buyers are required to pay a down payment of 20% of the purchase price. This 20% is the Option Fee. However, buyers do not have to exercise the Option to Purchase (OTP) for 24 months.
During this two-year period, buyers need not pay property tax, stamp duties, or maintenance fees. In addition, by signing a master tenancy agreement with the developer, buyers can rent out the unit and receive rental income. Before exercising the OTP, the buyers are free to resell the unit and transfer the OTP to someone else.
The Enhanced Payment Scheme may be suitable for property investors who wish to have more flexibility in their investments since it allows them to sell their units within the two year period.
Should the price of the unit increase, investors can sell their units before exercising the OTP. Since they can rent out the unit before exercising the OTP, they can earn back some of their initial investment. They would not even have to pay property tax or other miscellaneous fees for two years.
There are various DPS schemes available in the market today. If you are looking to purchase units from one of these developments, take the time to research which DPS will be the most suitable for you. Also, don’t forget to take into account inflation and interest rates, which will also affect how much you will eventually need to fork out.
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