The cash outlays needed to buy Singapore property had better not get any bigger! Given the way things are now with the LTV limits, it may be cheaper to just fund military coups in small countries for land. There’s one silver lining for local property buyers though: Condo developers are sensitive to our situation — and their bottom line. Because of this, they have come up with some alternative, and some say creative, payment methods for buyers. While these condo payment plans don’t really make properties more affordable, they at least prevent planet-sized holes in your cash flow.
[Article written with special thanks to Douglas Chow, CEO/Founder of Empower Advisory]
Alternative Payment Plan #1: Typical Deferred Payment Scheme
We mentioned this before two years ago, but it’s time for a quick update. Developers are allowed use a typical Deferred Payment Scheme (DPS) if the project has received its Certificate of Statutory Completion (CSC) and Temporary Occupancy Permit (TOP). In other words, you won’t find it on condos that are still in development.
Under the DPS, you would usually only pay to secure the Option To Purchase (OTP) for 1% of the property price. Three weeks later, you then proceed to pay another 9% to exercise the option. That’s 10% down, much lower than the usual 25% down payment you need under the new cooling measures.
Now here’s the attractive part: the remaining 90% be deferred for a significant length of time, most typically 24 months. There’s also no Additional Buyers Stamp Duty (ABSD) payable during this time, and you won’t need to pay any interest (i.e. you don’t need to secure a home loan until after the deferment period).
Many landlords like this payment option, since it allows them to immediately start renting out the unit and earn rental income. The property is, effectively, two years interest-free. For those who are really optimistic, they can also hope that taxes such as the ABSD might be lower by the time the deferred period ends (but we don’t suggest you count on that).
Alternative Payment Plan #2: Stay and Pay Scheme
Under this scheme, you would put down the usual 1% to secure the OTP. The OTP lasts a little longer, say three weeks, instead of the usual 14 days.
When you exercise the OTP, you put down another 20%. You can then move in, and the remaining 80% can be deferred for up to 24 months.
This is good if you need to move in immediately, but have issues to resolve regarding your bank loan. For example, if you have a weak credit score that wouldn’t give you full financing, the two-year deferment is enough time to build better credit (consult the Credit Bureau of Singapore for more information on this).
It’s also good if you’ve just sold your home in an en-bloc, and need to move into a new place while waiting for the proceeds to come in.
Alternative Payment Plan #3: Reservation Scheme
This is a good scheme for home owners who want to reserve a particular unit, but can’t get immediate funding. It’s also helpful if you need additional time to sell your existing home.
Under this scheme, you put down 10% to secure the OTP. You then have up to one year to exercise the OTP. After doing so at any time over the next year, you can move in three weeks later.
The downside to this scheme is that, unlike a typical DPS, you cannot move into the unit immediately. You also need to be really sure that you’re buying because the OTP is non-refundable. That’s $100,000 for a $1 million condo, so you had better not back out later!
Alternative Payment Plan #4: OTP extensions
This isn’t really a “payment scheme” per se, it’s just a way to buy some time to get funding.
Most OTPs are only valid for 14 days (30 days if signed overseas). After that, you need to exercise the Option by paying another 4% of the property price. Note that this initial amount is NOT covered by a bank loan, nor are banks allowed to lend you money to cover the downpayment.
So what happens if you need more time to rustle up the cash?
Well, some developers will allow the OTP to lapse, but then reissue a new OTP for an administrative fee (around $300). This buys you more time to come with the money for the down-payment.
This can be helpful if something unexpected crops up, and it’s much better than just losing your deposit.
Ask the developer if you need this — they may be willing to do it for you, even if they don’t advertise it.
Bear in mind that these alternative condo payment plans are modes of payment, NOT discounts.
You shouldn’t think of alternative payment schemes as ways to make your house “cheaper”. In fact, they may do the opposite — units sold under DPS, for instance, can cost five to seven per cent more.
Always factor in how much you’re paying in total, when deciding whether the property is affordable to you.
The alternative payment schemes are here to help you with liquidity issues, or administrative issues with your loans. With a tight LTV ratio, these schemes may prove a godsend for property buyers.
Would you take up an alternative condo payment plan? Voice your thoughts in the comments section or on our Facebook community page.
If you found this article helpful, 99.co recommends 99.co guides: All you need to know about private condo payment schedule and 5 reasons why property buyers forfeit their option fees
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