Deferred Payment Scheme Explained

Deferred Payment Scheme Explained

Normal Payment Scheme and Deferred Payment Scheme

Normal payment scheme, sometimes known as a progressive payment scheme is a type of installment payment offered for uncompleted house developments. The purchaser of the property follows a standard payment schedule, payment is required at the different stage of the construction.

Sample Progressive Payment Scheme

Stages Timeline % of Purchase Price
1. Granting of OTP (Booking fee) 5%
2. Signing of S&P within 8 weeks from OTP 15%
3. Completion of foundation 6 months 10%
4. Completion of superstructure 6 months 10%
5. Completion of brick walls 3 months 5%
6. Completion of roofing/ceiling 3 months 5%
7. Completion of wiring and plumbing 3 months 5%
8. Completion of car park, roads and drains 3 months 5%
9. Notice of vacant posession TOP 25%
10. Legal completion date CSC 15%

Buyers can move into their home once they opt for DPS, and have made a small down payment and exercised the option to purchase. They will need to pay the remaining amount which is usually through a housing mortgage within 12 to 36 months. The time frame will depend on the rules that the developer has created. Deferred Payment Scheme stands in contrast to a normal payment scheme for completed properties which requires the full sum to be paid within 10 weeks.

A DPS normally is used when the development has already completed, and the units are taking longer than expected to sell. The developer uses DPS to speed up the sales, and avoid hefty penalties on Qualifying Certificate (QC) payment along with the Additional Buyer Stamp Duty (ABSD).

For example, a particular condo sells for $1 million, the price of a condo usually goes up by a little, let’s say $1.1 million. For a 10% down payment, a buyer can put down $110,000 to buy the unit. A landlord can rent it out for $2,800 a month. At that price, the landlord would make around $33,600 before even making the first loan repayment for the deferred period.

How DPS Works

A Deferred Payment Scheme comes into play only when a project has received a Certificate of Statutory Completion (CSC) along with a Temporary Occupation Permit (TOP). This means that the Controller of Housing no longer oversees the project, so the process of sale is considered a private treaty deal or a resale between the buyer and the developer in terms of a DPS, sales rebate, or furnishing package.

Sample 24 months Deferred Payment Schedule

Stages Timeline % of purchase price
1. Granting of OTP (Booking fee) 5%
2. Signing of S&P within 8 weeks from OTP 15%
3. Completion of foundation 6 months -%
4. Completion of superstructure 6 months -%
5. Completion of brick walls 3 months -%
6. Completion of roofing/ceiling 3 months -%
7. Completion of wiring and plumbing 3 months -%
8. Completion of car park , roads and drains 3 months -%
9. Notice of vacant posession TOP 65%
10. Legal completion date CSC 15%

Is DPS worth the premium?

There are considerable advantages to using DPS for property buyers and investors

  • Ability to own a property with very little cash outlay
  • No ABSD, SSD, property tax and maintenance fee payable during the deferred period
  • Positive Rental Income. There are projects such as Hilltops by SC Global which offers guaranteed rental for years.
  • Zero interest cost since buyer does not need to secure a housing loan during deferred period
  • Greater flexibility home upgraders. They can move into their new house early, have ample time to sell their existing property and qualify close to a full loan under DPS.

However, there are some drawbacks a DPS.

  • The purchase price of the property will most likely go up from 5% to 10% to compensate for the inherent delay.
  • Lower Loan to Value (LTV). The financial institution can only granted the loan based on the adjusted purchase price, which comes after all deduction of rebates, benefits, or discounts.
  • Under the current rules, a first-time buyer can loan up to 80% of the property price. The buyer can take a $1.6 million loan for a $2 million property. But under the deferred payment scheme, assuming 90 percent of the purchase price is deferred for a year, buyers can borrow only $1,587,328, said MAS.

Despite such disadvantages, the DPS is here to stay thanks to its flexibility and benefits when the property is offered at competitive prices. Home buyers are encouraged to do their homework, and assess if the price is right for DPS compared to normal payment scheme. Check out a list of condos which offer deferred payment scheme here.

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