It’s been four years since the progressive payment scheme became the norm. By now, property buyers have been frowning so long their faces could fit in a raisin commercial. But what’s the deal with progressive payment? Why does even saying it make buyers and sellers wince? We examine the subject below.
The progressive payment scheme deals with houses / apartments that are in the process of being built. It refers to payment by installments, with each payment being made when a specific milestone is reached. So you would pay the developers one installment when the foundation is built, one more when the walls are up, one more when the roof is finished, etc.
This is the standard breakdown:
|
Stage |
Payment under a standard pay scheme (% of purchase price) |
|
Upon the grant of option to purchase |
5 – 10% (booking fee) |
|
Upon the signing of the Sale & Purchase Agreement, or within 8 weeks from the Option date |
20%, minus booking fee |
|
Completion of foundation work |
10% |
|
Completion of reinforced concrete framework of unit |
10% |
|
Completion of brick walls of unit |
5% |
|
Completion of roofing / ceiling of unit |
5% |
|
Completion of electrical wiring, internal plastering, plumbing and installation of door and window frames of unit |
5% |
|
Completion of car park, roads and drains serving the housing project |
5% |
|
Notice of Vacant Possession |
25% |
|
On Completion Date |
15% |
These installments are percentages of the total cost, typically 5 – 10 percent. Payments are spaced far apart during the initial stages, and become more constant toward the second stage.
Until the Temporary Occupation Permit (TOP) is issued, the installments are paid into a project account. This is an account that the developer opens with any bank or related institution, and the money is set aside for the project.
The progressive payment scheme is also referred to as the standard payment scheme.
So What’s the Problem?
In 1997, the Singapore government introduced the deferred payment scheme (DPS). This allowed buyers to put down 10-20 percent downpayment. The remaining 80 percent was deferred until receiving a Notice of Vacant Possession. Or in simple terms, until the house / apartment was ready to move into.
DPS meant that property buyers had time to raise assets and acquire loans. In effect, they could buy more easily. In 2007 however, DPS was withdrawn. The reason was the financial crisis and fall in home prices. With the bad economy, there was a risk of mass defaults: lots of people paying the downpayment, and then being unable to pay the rest later.
The Ongoing Issue on the Progressive Payment Scheme
The progressive payment scheme is doing exactly what it’s meant to: cool the property market. While it’s great in the long run, current home buyers and developers are taking it about as well as a swift kick in the groin. Whether or not people want to buy, progressive payment means they just won’t have the purchasing power.
If you are looking for a home loan for property under construction in Singapore, you might want to check out MoneySmart. You can find the latest information on home loan packages available on the site.
Image Credits:
CapitaLand Inside
Kilada Real Estate
Totes McGoats
Do you think the progressive payment scheme is necessary? Could lighter measures have been taken? Comment and let us know!