An ongoing global pandemic. Uncertain employment outlook. Rising property prices. These are just some of the factors why you’d think people would refrain from buying a home at this time. But according to Channel News Asia, new private home sales soared past the 10,000 mark for the whole of 2020, higher than the 9,912 units sold in 2019. That means there’s still interest and demand for new homes in Singapore.
The uptick in sales was reported to be primarily driven by the launches of Clavon and Ki Residences, both located in Clementi.
However, the popularity of new launch condos among local buyers has more to do with the Progressive Payment Scheme (PPS) than anything else.
What is Progressive Payment Scheme (PPS)?
The PPS applies to properties still under construction, also known as Buildings Under Construction (BUC). It refers to paying by instalments, which are typically five to ten per cent.
Rather than paying for the whole condo unit at one go, the PPS allows you to pay when the construction reaches particular milestones. (For resale condos, you need to make a 25% down payment and start your monthly repayments right away.)
Here’s how the PPS works:
Timeline for the Progressive Payment Scheme
Developers of private property typically follow the progressive payment scheme set out by the Housing Developers Rules. Although some modifications might be allowed, the payment schedule is always more or less the same.
The PPS refers to paying by instalments, which are typically five to ten per cent, whenever the construction reaches particular milestones.
In this article, we break it down for you into two stages:
- Before monthly loan repayments
- Start of monthly loan repayments
Stage 1: Before monthly loan repayments
1. Secure the Option To Purchase (OTP)
First, you will have to pay a 5% booking fee in cash to obtain the OTP.
Once you’ve been granted the OTP, the developer is required to deliver the Sale & Purchase Agreement (S&PA) to you within 14 days from the date of the Option.
2. Exercise OTP and sign S&PA
Remember: The OTP will expire three weeks after the S&PA and must be exercised within that time period, should you decide to purchase the property.
Dive Deeper: 5 Steps Before Exercising the OTP
If the OTP is not exercised before it expires, the developer will be entitled to forfeit 25% of the booking fee. The other 75% of the booking fee will be refunded within four weeks.
3. Down payment and pay for any stamp duties
Upon signing the S&PA, you will be required to pay a 15% down payment within eight weeks from the Option date. You can pay either with cash or your CPF Ordinary Account (OA).
At this point, you will need to pay a 5% booking fee + 15% down payment = 20% of the purchase price. You can now secure a bank loan of 75% and pay any applicable stamp duties, be it Buyer’s Stamp Duty (BSD) or Additional Buyer’s Stamp Duty (ABSD).
- Everything You Need to Know About Stamp Duties in Singapore
- Changes in Buyer’s Stamp Duty Rates
- Everything You Need to Know About Buyer’s Stamp Duty (BSD)
Stage 2: Start of monthly loan repayments
Under the BUC loan, funds are disbursed from your home loan as follows, and buyers pay a monthly instalment which gradually increases at every stage.
|Stage of Construction||Percentage of purchase price disbursed|
|Reinforced concrete work||10%|
|Door sub-frames / door frames, window frames, electrical wiring (without fittings), internal plastering, and plumbing||5%|
|Car parks, roads, and drains serving the housing project||5%
|Building; roads, drainage, and sewage works; connection of water; and electricity and gas supplies (At this stage, the Temporary Occupation Permit (TOP) is typically released, which means you can pick up your keys and move in.)||25%|
|Final Payment Date and/or Completion (might be staggered further depending on when the Certificate of Statutory Completion is issued)||15%|
Builders might send a notice of completion regarding more than one phase of the construction, at the same time. In such cases, you will be required to make more than one stage of progressive payments.
If you commit to buying the property sometime after the launch (meaning, if you buy it from another buyer at a later stage), you might be called upon to pay several stages of progressive payments at once after the S&PA has been signed.
Do take note that the process is not the same for every new launch condo project.
Calculating PPS for BUC property
Let’s say a married couple has decided to buy a $1.5 million condo unit. Here’s what they will pay at each stage:
As its name suggests, payments increase progressively as more of the development is completed.
Booking fee: 5% x $1,500,000 = $75,000 (paid in cash)
Down payment: 15% x $1,500,000 = $225,000 (paid in cash or CPF OA)
Foundation works: 10% x $1,500,000 = $150,000
Reinforced concrete framework: 10% x $1,500,000 = $150,000
Partition walls: 5% x $1,500,000 = $75,000
Roofing: 5% x $1,500,000 = $75,000
Door sub-frames / door frames, window frames, electrical wiring (without fittings), internal plastering, and plumbing: 5% x $1,500,000 = $75,000
Car parks, roads, ands drains serving the housing project: 5% x $1,500,000 = $75,000
Upon receipt of Temporary Occupation Period and collection of keys: 25% x $1,500,000 = $375,000
Upon legal completion of the sale: 15% x x $1,500,000 = $225,000
If you had managed to secure financing, the disbursement of funds at each of these stages would be done by your bank. On your end, you will continue to service your monthly mortgage.
Do note that when taking a bank loan will you be subjected to the Total Debt Service Ratio (TDSR), Valuation Limit, and Withdrawal Limit. The banks will consider the monthly debts you are currently servicing, such as car loans, renovation loans, or study loans. The Monetary Authority of Singapore (MAS) explains here how you calculate your TDSR.
Why is the Progressive Payment Scheme good?
As its name suggests, payments increase progressively as more of the development is completed. For example, you would pay the developer one instalment upon completing the foundation, one more payment when the walls are up, and another when the roofs are ready.
The advantage to this is the lower initial monthly repayments and that, even if the developer is late or the milestones are not reached, the loan repayments don’t increase.
Get a personalised Progressive Payment Schedule
Engage any of our Ohmyhome Super Agents to get a personalised progressive payment schedule, plus new launch recommendations, mortgage financial assessment, and more. Find out exactly What To Expect From Ohmyhome Condo Buyer Agents.