So you have your sights set on a new condo: The brochures are sleek, the list of facilities resemble a resort more than a residence, and the showflat you visited is absolutely stunning. You can already imagine how wonderful it would be to live there… But alas! It’s not quite ready for move-in yet.
New condos – whether launched recently or a few years ago – are considered buildings under construction (BUC), which are by definition, projects that have not yet been completed or not yet obtained their TOP (Temporary Occupation Permit).
But you don’t mind – you’re willing to wait. In fact, the developer has offered you a nice discount, and you already have enough cash saved up to pay the 5% Option to Purchase (OTP) fee. Plus, you have more than enough in your CPF Ordinary Account to cover the rest of the downpayment.
Should You Use CPF to Pay Off Your Home Loan?
Read more here.
For the home loan, though, you figure you can wait. After all, you have some time before the property is completed. Plus, perhaps interest rates might fall even further in the meantime, so waiting is the best move, right?
Wrong.
If you’re thinking of buying an uncompleted property, the time to apply for a loan – specifically, a Building Under Construction (BUC) loan – is now. In this article, we’ll explain what a BUC and BUC loan is, and why you should obtain a home loan long before the TOP is received.
What is a Building Under Construction (BUC)?
In real estate jargon, BUC simply stands for “Building Under Construction”. Although it seems self-explanatory, keep in mind that in Singapore, BUCs only refer to private properties. Whether a new launch that just opened for booking recently or an older project that is nearing completion, as long as they have not been completed or received their TOP, they are BUCs.
There are a few reasons people choose BUCs over resale condos:
- Better and more modern facilities, features, and designs
- Early-bird discounts
- Generally lower maintenance costs
- Wider choice of units
- More appealing to renters
- There is generally a “defects-free period” where the developer will bear the cost of any problems
That said, there are considerations from the other side as well:
- Developer may delay or even abandon the project if sales do not meet certain thresholds
- No matter how nice the showroom is, you won’t know for certain how the completed unit will look like
- Rental income is less predictable as there is no historical data
Now, there is no universal rule stating whether BUCs are a good or bad idea. It all depends on the individual property, current market conditions, and your own personal circumstances and goals (for instance, whether you are looking for an investment property or a place to stay).
But one thing you should be aware of from a home loan perspective is that purchasing BUCs requires a specific type of home loan, with its own particular payment structure.
Understanding BUC Loans in Singapore
When you buy a resale property, you will have to disburse the full purchase amount – minus downpayment – to the seller at one go. However, when you purchase a BUC, the loan disbursement will follow what is known as a Progressive Payment Scheme (PPS).
How the Progressive Payment Scheme (PPS) works:
- Pay the 5% OTP fee in cash
- Sign the Sale & Purchase Agreement and pay off the remaining 15% downpayment (CPF funds can be used)
- Settle any stamp duties (Also possibly with CPF funds)
Then loan disbursal – and your monthly repayments – will begin. These will be on a staggered basis, in tandem with the property’s construction progress. Here’s how the loan disbursement and repayments (80% of purchase price) generally plays out.
| Completion of Stage | Repayments (as a percentage of purchase price) |
| Foundation work | 10% |
| Reinforced concrete framework | 10% |
| Partitions and walls | 5% |
| Ceilings | 5% |
| Internal plumbing and plastering, door and window frames, and electrical wiring | 5% |
| Roads, drains, and car parks | 5% |
| Receipt of Temporary Occupation Permit (residents can move in) | 25% |
| Completion (receipt of Certificate of Statutory Completion) | 15% |
| Total | 80% |
As you can see, because of the progressive payment structure, you absolutely cannot wait for the TOP date to get your home loan. Because by then, the developer would already have expected to receive half the loan amount (40% of purchase price).
So, while you can’t “wait around” until near the TOP date to get a home loan, the good news is that your monthly instalments will be much lower during the construction period. Further, because almost all BUC loans given by banks are floating rate – usually pegged to SIBOR – if interest rates decline, so will your monthly instalments.
Now, that being said, you would notice that the first loan disbursement only takes place upon completion of the foundation work. Does this mean that if a property is being sold even before the ground has been dug, you can wait until the foundation work is almost done before getting a home loan?
The answer is (generally) also no, and the next section explains why.
How CPF Disburses Your Funds for Property Purchases
Here’s the thing. Although the sequence of payment goes from OTP fee to remaining downpayment to loan disbursement, the prerequisites don’t follow the same order. To be able to release the funds from your CPF account to cover the remaining downpayment, it is a prerequisite for you to get your BUC loan approved first.
In other words, you must get your BUC home loan before you can use your CPF monies to cover the remaining downpayment and other fees. Although it seems inconvenient, it is actually for your own protection.
Here’s Paul Wee, Managing Director at PropertyGuru, explaining this concept:
As Paul mentions, many buyers are unaware of this requirement, which results in a mad scramble to get a home loan so they can release their CPF funds to cover the downpayment before the OTP expires. And of course, when you are forced to rush the home loan process like that, you might end up not getting the best deal.
Plan Ahead for Your Home Loan (Even for BUC Properties)
In short, even for a BUC, you should start the process of getting your home loan early. Not only will this increase your chances of getting the best deal possible, it is also much better for your peace of mind.
If you’re looking for how to get the best deal on your home loan, PropertyGuru is here to help. You can take a sneak peek at all the home loans available on the market today, and when you’re ready, one of our Home Finance Advisors will be on standby to offer you personalised assistance.
For more information on everything home financing-related, our home financing guides have everything you need.
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This article was written by Ian Lee, an ex-banker turned financial writer who hopes to use his financial background and writing skills to help raise people’s financial literacy levels – a necessity in our modern world.
Disclaimer: The information is provided for general information only. PropertyGuru Pte Ltd makes no representations or warranties in relation to the information, including but not limited to any representation or warranty as to the fitness for any particular purpose of the information to the fullest extent permitted by law. While every effort has been made to ensure that the information provided in this article is accurate, reliable, and complete as of the time of writing, the information provided in this article should not be relied upon to make any financial, investment, real estate or legal decisions. Additionally, the information should not substitute advice from a trained professional who can take into account your personal facts and circumstances, and we accept no liability if you use the information to form decisions.