Singapore’s real estate industry has been flourishing at an incredible pace. This is primarily why so many foreigners have started showing interest in purchasing properties here. Most people in the country plan for many years to buy their very own homes.
More often than not, it is the finances that pose a problem. But with a normal progressive payment scheme, it has made the purchase of new condominium launch to be much easier.
An Introduction to Progressive Payment Scheme: What You Should Know
Singapore has always been one step ahead when it comes to the real estate industry, which is the key to its success. The problem with buying property is that very few people have the entire sum for it. Majority of them need to take up bank loan and with the progressive payment scheme in place, it has made property purchase so much more attractive and feasible.
Typically, when people buy a new home, it is yet to be fully built. After signing the sales and purchase agreement, the buyer has to wait for a few years for the completion of the property.
But why do most people willing to wait for a few years instead of buying a property that is ready to move in?
Because firstly, uncompleted properties may allow you to potentially have a higher capital gain when you sell in the resale market as their worth may increases significantly after they are built. Secondly, when you purchase a property not fully built, payment is made progressively. That’s right! This is what the progressive payment scheme is all about.
You can pay the amount of your purchase in stages, which is usually 5% to 10% of the property purchase price as construction reaches designated milestones if you do not have the intention to get a bank loan. Else, once you have fulfilled the downpayment of 25% of the purchase price, the rest of the 75% will be covered by bank loan where the monthly mortgage will get higher as the construction progresses.
That is the beauty of purchasing uncompleted properties and keep in mind that this scheme only applies to buildings under construction, not for resale private property.
How Does Progressive Payment Scheme Work?
The normal progressive payment scheme makes the dream of purchasing your own home more accessible. So how do you go about the whole process to ensure everything proceeds smoothly? Here’s what you need to do.
Finding Your Ideal Property
The first step is zeroing in on the property you are interested in. Perhaps you spot a new condo development site that piques your interest. Or you could be particularly interested in an unfinished property and let your real estate agent find you a desirable option.
Once it is time for the launch of the property you are interested in, you can submit your interest through cheque submission. The normal procedure of securing an unit of your preference is through balloting. And this is when you will need to do your budgets and prepare for finances. Of course, you will have to pay some amount in cash upfront, but the rest can be made in installments, which is when the process of the progressive payment scheme will actually start.
The Milestones for The Progressive Payment Scheme
Most private property developers follow the same milestones and patterns for progressive payment schemes as set by the housing developers’ rule. So, you will know exactly how to prepare your budget under this scheme. Here are the stages for the monthly installments you will be expected to fulfill.
Before Monthly Loan Repayments
Note that before the installments come into effect, you will have to put in some money to secure the offer.
- Securing Option to Purchase
The developer will expect you to pay a 5% booking fee, and that will be in cash, to secure the Option to Purchase or OTP. After this, the developer will provide you with the Sale & Purchase Agreement within 14 days.
The Sales and Purchase Agreement (S&P) will expire 3 weeks from the date of the Agreement. So, it has to be exercised within the time frame at law firm. This is the period where you have to determine whether you want to go ahead with the purchase.
If is not exercised during this period, 25% of the 5% booking fee will be forfeited by the developer. The rest of 75% of the 5% booking fee will be returned back to you.
- Stamp Duties, Down Payments and More
Once the S&P is signed, you must pay a 15% down payment for the property. You have eight weeks from the option date to pay this amount which can be paid either with cash and/or CPF Ordinary Account. So, in total, you will be paying 20% of the purchase price before the progressive payment begins.
For the remaining 5% of the total down payment of 25%, it can be paid either through cash and or CPF Ordinary Account once the developer call for the first payment under the normal progressive scheme.
With the remaining 75%, it gets covered by your bank loan. As for the stamp duties, which are the Buyer’s Stamp Duty, and Additional Buyer’s Stamp Duty (if any), they have to be paid within 14 days from your exercise date of your S&P. These stamp duties can be paid using CPF if you have sufficient fund in your CPF Ordinary Account.
Monthly Loan Repayments
And this is where the main part of the progressive payment scheme commences. The funds will be disbursed from your home loan under the BUC loan according to a particular plan. The monthly installment will continue to increase at every stage and making your progressive payment higher as the developer reaches the next stage of building the property.
If you buy the property sometime after the launch, your monthly mortgage may be higher if the developer has completed certain stages of the development.
So how is the progressive payment scheme calculated?
Let’s say you purchase a condo unit worth $1.5 million. Below is an illustration of the scheme:
1) Initial Booking Fee Upon the Grant of Option to Purchase
5% – $75,000 in cash for booking fee
2) Exercise Sale and Purchase Agreement
15% – $225,000 (Cash/CPF Payment) – Within 8 weeks from Option to Purchase
3) 10% Foundation (Completion of the foundation work)
5% – $75,000 in cash and or CPF payment
5% – covered by bank loan
4) 10% Framework (Completion of reinforced concrete framework of units)
Covered by bank loan
5) 5% Wall (Completion of partition walls of units)
Covered by bank loan
6) 5% Ceiling (Completion of roofing/ceiling of unit)
Covered by bank loan
7) 5% Window (Completion of door subframe/door frame, window frame and plumbing of unit)
Covered by bank loan
8) 5% Carpark (Completion of carpark, roads and drains serving the housing)
Covered by bank loan
9) 25% TOP (Temporary Occupation Permit)
Covered by bank loan
10) 15% CSC (Legal completion)
Covered by bank loan
The whole process will be taken care of by your bank if you manage to secure a home loan. The bank will disburse funds at every stage, and you will simply have to service your monthly mortgage.
It is also vital to keep in mind that when you take a bank loan, you will also have to adhere to regulations like Valuation limit, withdrawal limit, and so on. Additionally, the bank will also take other monthly debts you have into account. These include outstanding credit card debt, car loans, renovation loans and so on.
Why Should You Consider the Progressive Payment Scheme?
Progressive payment scheme is good in the sense that the payment for the property that you have purchased stretches over a couple of years until the construction of the property completes. The initial monthly payment for such scheme is pretty low. As each stage of construction completes, your monthly mortgage will increase as the bank increases their money disbursement to the developer.
Not only that, your Seller Stamp Duty will also begin once you have exercised your Sale and Purchase Agreement. In a way you are allowed to sell your property after 3 years of holding your property even when it has yet to receive its Temporary Occupation Period (TOP).
The main disadvantage is that it is only until the property receives its TOP that you can choose to rent out this property or for own stay. It is after TOP where you are able to have some return on your investment.
To conclude, progressive payment scheme is only available for new condominium launch in Singapore and is not for resale private property. Through this scheme, you are not faced with high monthly mortgage until you get the key of your property.
Jimmy Sum is a professional real estate agent in the Singapore property market with more than 10 years of experience. If you need any professional advice on your asset progression journey or need some assistance in selling, buying or renting your property, you can feel free to send him an Whatsapp at +65 90918188.
