Deferred Payment Scheme For Home Buyers Scrapped

Source : The Straits Times, Oct 27, 2007

THE Government last night scrapped the deferred payment scheme that allowed homebuyers to postpone payments on new property.

It said the strong economy and property market allowed it to axe the scheme. This would also deter speculators and force people to be more prudent when committing to pricey real estate.

It was a response to signs of overheating in the market, National Development Minister Mah Bow Tan said last night. 'There's a danger that we may feel over-exuberance in the market. There's also a danger it may actually encourage excessive speculation,' he said.

Buyers will now have to make progressive payments in step with the construction process, instead of deferring payment till the property is completed a few years later.

Experts say prices and sales will be hit, though the impact may not be significant, given the robust demand.

'Now the property market is 'red-hot', maybe after withdrawing deferred payment it will just be 'hot',' said Mr Ku Swee Yong, director of marketing and business development at Savills Singapore. 'There is strong, genuine demand driving sales. Taking away this scheme will only spook speculators. It will take away the froth that is false demand.'

The deferred payment scheme was introduced in 1997, when the market was lacklustre. It is no longer relevant today, said Mr Mah.

Projects that have been approved can continue with deferred payments, but others - uncompleted private homes and commercial properties, including industrial ones - will be hit by the withdrawal, which took effect last night.

Some experts say deferred payment encouraged speculators - pushing up prices. 'Once speculators find it riskier to go into the market, there will be less competition for homes,' said an industry observer. 'Developers may have to lower their prices, and prices may level off. It's good to cool the market, so that you are in tune with the rest of the world.'

Progressive payments call on buyers to pay an amount varying from 5 per cent to 25 per cent of the purchase price at various stages of construction. A 10 per cent payment is required once foundation work is completed, which can be in as soon as six months after purchase or up to 18 months.

Luxury homes have continued soaring in price, while new Government figures show that speculation is becoming a market factor.

Sub-sales - owners selling uncompleted properties - in the core central region comprised 21.6 per cent of total sales in the three months ended Sept 30.

Overall, sub-sales accounted for 12.7 per cent of total deals. They accounted for 28 per cent of total deals in 1996, when speculation was rife.

'Speculation has not reached the mid-1990s level, but at the rate it's going, it could increase, so why not nip it in the bud?' said Ms Tay Huey Ying, director of research and consultancy at Colliers International .

The Real Estate Developers' Association of Singapore said: 'The need for this scheme has diminished with the strong market recovery.'

Some experts say yesterday's move may trigger fears of further Government intervention, which may then indirectly hit prices and sales.

Mr Mah did not rule out the possibility of further moves: 'We are monitoring the market very closely. Obviously, the objective is to make sure that our prices do not overrun, do not go beyond the fundamentals.

'We want to make sure the market is a stable and healthy one.'