Help For Cash-Strapped Home Buyers

Source : The Business Times, January 28, 2009

But developers will be judicious in granting payment extensions, and even sue those trying to walk away

Some developers are considering granting payment extensions to their home buyers if they face difficulty paying up when the projects get Temporary Occupation Permit (TOP), BT understands. Buyers on the deferred payment scheme (DPS) will have to pay up the chunk of the purchase price then.

Developers may give buyers a longer period to pay, or work out an instalment programme for them to complete the purchase of their units.

It is still early days but BT understands a few developers are prepared for this eventuality for projects in Sentosa and Districts 9 and 10.

A seasoned developer said: 'I think if the buyer demonstrates good faith that he intends to pay up eventually (by committing to make regular payments), developers should try to be sympathetic. The whole idea is to get buyers to commit more than the 20 per cent they've paid so far under DPS. If they're able to do this, it's better than taking them to court.

'There's not much point taking financially-strapped buyers to court and suing them for specific performance to make them complete their purchase at the contracted price. The most is, we'll make them bankrupt. It doesn't serve our purpose.'

Some developers could already be letting buyers send in their payments late. A banker who handles property investments for overseas buyers said that in some cases developers were letting his clients send them cheques for their homes three or four months late. 'They are not chasing them for the money,' he said.

Frasers Centrepoint Homes chief operating officer Cheang Kok Kheong told BT the group has two residential projects for TOP in Q3 2009 - One Jervois and One St Michael's. 'Based on the prices at which we sold to DPS customers and the current market prices, there's still a comfortable gap in favour of our DPS buyers. If buyers have difficulty getting loans, from an economic viewpoint, the best thing to do would be to sell their units in the market,' he said. Frasers Centrepoint did not extend DPS to subsale buyers.

'Generally, I think most projects that TOP this year would have been launched in 2006 or early 2007 before the market peaked, so assuming developers offered DPS to primary market buyers only, the DPS buyers should still be comfortable. Of course a lot will depend on how home prices fare this year. But DPS buyers in projects that will TOP in 2010 may face some difficulty,' Mr Cheang added.

Analysts say not all developers may be able to help troubled buyers. If problem cases are few, developers may use existing cashflow to accommodate payment extensions. But if the incidence is widespread, developers may need the support of their own banks before they can give more breathing room to buyers.

Repayment plans will also have to be customised according to buyers' circumstances and they'll have to prove they're in financial difficulty.

Developers are entitled to pocket interest on any late payments from buyers beyond a 14-day deadline, under the prescribed Sale & Purchase Agreement for private properties. The interest is calculated on a daily basis at the rate of 2 per cent above the average of the prevailing prime lending rates of the three local banks. However, a spokeswoman for the Urban Redevelopment Authority said it is up to the developer to exercise his contractual right. 'That is, the developer may waive the interest for late payment, in full or in part, if he wishes to,' she added.

Developers say they'll be judicious in granting payment extensions. 'In some cases, we'll sue for specific performance, if the buyers aren't in financial difficulty and are just trying to walk away from the deal,' the seasoned developer added.

City Developments Ltd (CDL), which expects City Square Residences to obtain TOP this year, told BT that 'to date, only a small number of DPS clients have approached us for help'.

'While these clients have a legal obligation to fulfil the terms under the contract, for cases which are genuine, we've tried our best to help. We have referred to banks loyal CDL customers and those with good financial track records. We also offer other forms of assistance where appropriate on a case-by-case basis,' a CDL spokeswoman said.

DTZ's senior director (research) Chua Chor Hoon advises buyers facing hardship to inform developers early to try and work out some instalment schedule rather than keeping mum.

Developers are also weighing other options, including asking buyers if they'd like to exchange their units for smaller ones (if any unsold units are available) to reduce their financial commitment. Some developers are also prepared to help buyers find tenants to help them generate cashflow on their investment. Far East Organization, for example, has an in-house leasing team to find tenants for properties. The scheme was launched in 2006, and could well gain some impetus during these hard times. Other developers have been helping DPS buyers get loans by introducing them to their bankers.

Already, innovative financing schemes that mimic DPS (which was scrapped in October 2007) are aplenty as developers try to make their homes more appealing. At Roxy Homes' Nova 88, the developer has tied up with OCBC Bank to absorb the interest rate due from buyers during the construction period. Buyers, having secured a bank loan, need not make any payment to the bank until the TOP. Then, the buyer will have to start making loan payments.

'Buyers expect these kind of schemes now,' said Teo Hong Lim, chief executive of listed Roxy-Pacific, the parent company of Roxy Homes. 'Those projects that don't offer such schemes are at a disadvantage,' he added. A market watcher estimated that up to 90 per cent of projects launched in recent months offer some variation of this scheme.