Should you take Deferred Payment Scheme for Exec Condos?

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Dennis Ng
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Should you take Deferred Payment Scheme for Exec Condos?

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I share my views in this article published in Business Times on 2 Dec 2010:

Interest rates are so low, they might as well start paying and reduce their borrowings.
- Dennis Ng

Relevance of deferred payments in spotlight


(SINGAPORE) Is the deferred payment scheme (DPS) relevant in today's property market? That's the question on the mind of some observers as they learned the scheme can be offered for executive condominium (EC) projects.

The low interest rate environment and higher price tags for homes sold on DPS could encourage buyers to stick to the normal payment scheme (NPS), some say.

On Tuesday, NTUC Choice Homes Co-operative (NCH) and Chip Eng Seng said they will offer NPS and DPS for their EC at Punggol, Prive.

Buyers who opt for DPS will pay just a 5 per cent booking fee and 15 per cent of the purchase price - they need not make further payment until the development obtains its Temporary Occupation Permit.

That caught many market players by surprise, as they had assumed the government withdrew DPS in 2007 to curb speculation. BT found out later that the change did not apply to ECs.

NCH chief executive Margaret Goh told BT yesterday the developers wanted to give EC buyers an 'attractive and affordable' option with the DPS.

Those taking up the scheme have to pay 2 per cent more than those under NPS. Average selling prices at Prive will be $660-690 per sq ft.

Colliers International research and advisory director Tay Huey Ying does not expect take-up of DPS to be high because of the premium charged.

Typically, 'genuine buyers' prefer to pay less for their homes while those who aim to re-sell units before project completion take up DPS, she said. With ECs, flipping is not possible in the early years, as owners need to fulfil a minimum occupation period of five years.

Some observers also feel there is little incentive for buyers to defer payments, since banks are offering attractive home loans now. Interest rates may not stay low, and buyers on DPS may end up signing on to more expensive loans later.

'Because the interest rates are so low, they might as well start (paying)' and reduce their borrowings along the way, said Dennis Ng, founder of mortgage consultancy portal

Some consultants are a bit more optimistic about DPS's appeal. It is still a 'persuasive tool', said Cushman & Wakefield Singapore vice-chairman Donald Han.

EC buyers tend to be less cash-rich than other private property buyers and many may want to put off the burden of paying for the homes, he said.

DTZ executive director (consulting) Ong Choon Fah feels Prive's developers made a strategic move to offer DPS.

'We know there has been a slowdown in some parts of the market, so it's good to be cautious and make sure that whatever you can do to incentivise and empower the buyer is there,' she said.

Dennis Ng - When You Master Your Finances, You Master Your Destiny

Note: I'm just sharing my personal comments, not giving you investment advice nor stock investment tips.
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