Deferred Payment Scheme Set To Stay

Source: The Business Times, 13 April 2007

The deferred payment scheme is a good option for buyers, and developers that BT spoke to reckon the number who opt for this is manageable. Ho Bee Group general manager (business development and marketing) Chong Hock Chang said: ‘The number who opted for the scheme varies from project to project and we are comfortable with the current arrangement.’

‘Some of our buyers opt for deferred payment schemes even though there is a price differential because they prefer the flexibility of managing their own finances,’ he added.

Whether the scheme encourages property speculation is an issue that has recently surfaced though.

Official property data reveals that the level of speculation remains below the levels recorded during the previous peak in the mid-1990s, even before the scheme was introduced.

Still, Lippo Realty executive director Thio Gim Hock believes the scheme will ‘encourage’ speculation. ‘If you defer payment, the transaction is actually virtual,’ he said, adding: ‘It’s like gambling.’

Lippo did not offer a deferred payment scheme on either The Trillium, launched last month, or Newton One, launched in March 2006. Newton One is fully sold and The Trillium is over 85 per cent sold.

Even for projects where both deferred payment and progress payment schemes are offered, the former does not always appear more popular.

At Sim Lian Land’s 338-unit Carabelle in the West Coast, 80 per cent of the 240 buyers so far opted for the progress payment scheme. Although it came with a 2 per cent discount, Sim Lian executive director Diana Kuik believes ’serious buyers do not have a problem with the progress payment method’.

Interestingly, for its sell-out 616-unit Premiere @ Tampines, Sim Lian did not offer deferred payment at all, and met with some displeasure from buyers.

The Premiere was aimed at the HDB market, and there was some initial concern that, as with HDB flats, some newly married couples could back out early, leaving the developer in the lurch.

Indeed, a developer’s over-exposure to debt was a concern the Monetary Authority of Singapore raised recently.

But even on this point, one developer who spoke to BT on condition of anonymity said there were several ‘mechanisms’ within the preferred payment scheme that ensured that a developer was rarely more than 55 per cent exposed to debt at the Temporary Occupation Permit (TOP) stage. ‘Most developers will ask for at least 20 to 30 per cent upfront,’ he explained.

‘If a buyer defaults on payment before TOP, I will have at least 20 per cent in the pocket. So unless the prices fall dramatically, I do not perceive deferred payment as a risk,’ he said. ‘The crux of the matter is that a developer is not 100 per cent exposed.’

Even in the case of a sub-sale, he said the developer has the option of transfering the structure of the deferred payment scheme on to the new buyer and in instances like this, an additional cash deposit is often required.

The deferred payment scheme looks set to stay then, judging from its support from developers. A spokesman for CapitaLand said: ‘Where there is an option between progress and deferred payment schemes, the bulk of our homebuyers prefer the latter. We will continue to give payment choices to our homebuyers where appropriate.’

City Developments Ltd said: ‘The percentage of the take-up rate for the deferred payment scheme varies depending on the type of properties as well as the type of schemes offered . . . in general, we have more buyers who opt for the normal payment scheme.’