Deferred Payment Property: Why You Should Apply Loan Now?

[Dennis Ng]

Should you apply for a housing loan now for properties purchased on a deferred payment scheme?

You might have purchased a property on a deferred payment scheme and only need to take a loan when the project gets its Temporary Occupation Permit (TOP), which might be in 2009 or 2010. Should you apply for a housing loan now?

You should. Why?

By applying for a loan now, you eliminate the risk of loan rejection should there be any adverse change in your financial situation in future, for instance, a pay cut or job loss when the property is ready.

You also eliminate the risk of banks granting a lower loan quantum should the property market turn and prices fall.

For instance, you bought a property for S$1 million on Deferred Payment Scheme and paid 10%. However, should the Property Valuation drops, say to S$900,000, then banks would only grant a maximum loan of 90% based on the Latest Valuation of S$900,000 instead of Purchase Price of S$1,000,000.

This means maximum loan you can get is S$810,000 and you need to come up additional Cash of S$90,000 yourself. If you cannot do so, you face the risk of being forced to sell the Property before TOP.

Furthermore, as the Global Credit Crisis drags on, there is a risk that banks in Singapore might start tightening their Loan Approval Criteria and thus, you might face the risk of getting a lower quantum of financing than you expected and might need to come up with more Cash yourself. Similarly, if you cannot come up with the additional Cash, you might be forced to sell your property before TOP instead of having more bargaining power to negotiate price with potential buyers.

One reason why some delay in applying for Housing Loan for properties bought on deferred payment is because they are afraid they lock themselves into a Housing Loan package that might not be good enough compared to packages available when the property TOP.

To safeguard your interests, you can choose a loan package that allows you a free loan conversion so that you can switch to a better package should one be available nearer TOP.

My advice to all those people in Singapore who bought properties on deferred payment scheme in the last 2 years, is that you better apply for a Housing Loan as soon as possible while conditions are still favourable. Waiting might increase your risk of not getting the loan that you want.

I'm speaking from 15 years of bank lending experience.