Progressive Payment Scheme
Want to buy a property but don’t have the entire amount yet? Just pay in installments! That’s where the Progressive Payment Scheme comes into play.
To understand the importance of the Progressive Payment Scheme, we must understand what was there before its arrival.
Many Singaporeans will remember that prior to 2007, there was a different payment method enacted for the property market.
You see, when property developers buy new land for housing projects, they often have to pay an Additional Buyers Stamp Duty of 30 % unless they complete all the residential units and sell them within 5 years.
So, in order to avoid the stamp duty, developers had to figure out a way to boost sales quickly.
This gave rise to the Deferred Payment Scheme, allowing property buyers to spend only 20 % in downpayment and pay the rest within 2-3 years.
However, this eventually caused the property market to overheat, resulting in uncontrolled and skyrocketing property prices.
Authorities invented a new payment system as a cooler measure to tackle this situation.
This measure was called the Progressive Payment Scheme and is still in use today property market.
What is a Progressive Payment Scheme (PPS)?
The PPS is applied to any kind of residential property or private properties which are still under construction.
Basically, you don’t have to pay the full amount if you’re buying any buildings under construction.
The PPS scheme allows you to only pay a certain amount until the legal completion of the building.
There is no fixed monthly payment timeline, meaning that you only have to pay when a certain milestone has been reached.
This method of making progressive payments make property purchases more financially lenient.
How does the Progressive Payment Scheme (PPS) work?
The key factor in the Progressive Payment Scheme is that you only have to pay according to the current stage of construction.
So, if your building is 20 % complete, you only have to pay up to that particular stage.
If there is a delay in the completion of construction for some, you won’t have to pay anything at the moment, i.e., your payment date will also be pushed back.
You will get a notice of completion from the property agent every time a construction stage is completed, after which you will be liable to pay the required fees.
This payment must reach the developer within 14 days of you receiving the notice; failure to do so will incur penalties for late payment.
It is not unusual for the developer to send you a notice for several stages of completion.
If that is the case, you will be obligated to pay for all the stages in one go.
Moreover, if you buy a property after it has reached several stages of completion, you will be liable to make payments for all the stages simultaneously.
Timeline for Progressive Payment Scheme
The timeline for the progressive payment scheme can be explained in two stages: Before monthly loan repayments and the Start of monthly loan repayments.
The first stage involves making the initial payments for booking and paying the necessary downpayment.
This is usually done within 14 days of receiving the option to buy at a booking rate of 5 % and a downpayment of 15 %.
Meanwhile, the second stage has to do with the scheduled payments for each stage of construction.
This includes sporadic payments which you have to make upon the completion of a particular phase of construction.
For example, if the construction is 20 % complete, you will only have to pay for the completed 20 % and not the rest of the work, which is still yet to be done.
Before Monthly Loan repayments
As mentioned earlier, the stage before the monthly loan repayments is the first stage of the progressive payment scheme.
This usually involves the initial steps of any sale agreement between two individuals.
It starts when the seller gives you the ‘option to purchase’ agreement, which is a legal agreement giving you exclusive rights to purchase the property.
Remember, this is merely the agreement for the purchase ‘option’ and not the actual purchase of the property.
The seller usually grants this after discussing the purchasing price, after which you, the buyer, will pay a fee to reserve the right to buy that property.
This means that although you haven’t paid for the property yet, there is a mutual understanding between you and the developer that you will indeed be purchasing shortly.
Secure the option to purchase (OTP)
The first step here is to secure the option to purchase by paying a 5 % booking fee in cash.
Once this is done, the developer should present you with the Sale & Purchase agreement (S & PA) within 14 days from the date of grant of option.
The OTP will expire three weeks after the S&PA, so it must be exercised within this three week period.
If you fail to do it within the time period, the developer can forfeit 25 % of the booking fee, while the other 75 % will be refunded within four weeks.
Downpayment and paying for stamp duties
After signing the S&PA, you will have to pay a 15 % downpayment for the property within eight weeks from the option date.
You can make this payment either by cash or use your CPF account.
So to conclude, stage 1 requires you to pay a 5 % booking fee and a 15 % downpayment, which amounts to 20 % of the purchase price.
Now, you can secure a loan for the property at 75 % TDSR and pay any stamp duty which may be applicable, such as BSD and ABSD.
Buyer’s stamp duty (BSD) is paid on all property purchases that you make in Singapore.
It is determined either by using the property’s purchase price or the market value, whatever is higher.
The first $ 180,000 you pay will be charged with 1 % BSD, while the second $ 180,000 will be charged with 2 % BSD.
Meanwhile, the third $ 640,000 will be charged with 3 %, and any amount paid onwards will be charged at 4 %.
Additional Buyer’s stamp duty (ABSD) is applicable for Singapore citizens after their 2nd property purchases and so on.
Meanwhile, permanent residents and foreigners are liable to pay ABSD for any property they buy, including the first.
ABSD for Singapore citizens will be charged at 17 % for their second property and 25 % on their third and subsequent purchases.
Permanent citizens will be charged 5 % on their first property and 25 % and 30 % for the second and third.
Meanwhile, foreigners have to pay a flat 30 % on all property purchases.
Start of monthly loan repayments
Once this stage begins, you will be liable to pay the required amount for the completed portion after receiving the completion notice.
These payments are often irregular and sporadic; it depends on how far the developers have reached in the construction process.
Let’s take a look at the information below to understand what you have to pay during each stage.
- After completing foundation/framework of unit = 10 % payment.
- After completing reinforced concrete work = 10 % payment.
- After completing wall partitions = 5 % payment.
- After completing roof = 5 % payment.
- After completing window frames,door frames of unit, electrical wiring, plumbing and internal plastering = 5 %
- After completing drainage lines, car parking and roads = 5 %
- After completing building structure, drainage, roads, water connection, sewage works, electricity and gas supplies = 25 %
- After completing entire building = 15 %
So as we can see, 80 % of the housing payment is carried out steadily using these 8 stages.
Usually, you will be able to collect the keys and move in after the 2nd last stage, i.e. after the completion of the building.
Calculating PPS for BUC property
Calculating the PPS for buildings under construction is a long and tedious process consisting of multiple stages.
We will be using the steps mentioned above to calculate exactly how much you are liable to pay at each step.
Let’s say you buy a BUC condo for a price of $ 1 million; the condo payment schedule will follow as stated below.
Naturally, the first payment you have to make is for the booking fee, which is 5 % of the total amount.
5% of $ 1000,000 = $ 50,000. (Cash payment)
The second expense is the downpayment for the whole property, which can be paid in cash or using your CPF funds.
It is calculated at 15 % of the property price.
15 % of $ 1000,000 = $ 150,000
Now, we will be referring to the stages of completion from the above section to calculate the payment for each stage.
10 % for Foundation work= (10 % of $ 1000,000) $ 100,000
10 % for completion of reinforced concrete framework= $ 100,000
5 % after completion of partition walls = (5 % of $ 1000,000) $ 50,000
5 % after completing roof/ceilings= $ 50,000
5 % after completing door frames, window frames wirings, plumbing etc = $ 50,000
5 % after completing parking, drain service, roads = $ 50,000
25 % after completion of building and receiving temporary occupation period = (25% of $ 1,000,000) $ 250,000
Finally, 15 % upon legal completion of sale= (15 % of $ 1000,000) $ 150,000
Why is the Progressive Payment Scheme good?
The progressive payment scheme allows you, the buyer, to make strategic payments for your property over a period of time.
This is advantageous because you don’t have to pay the entire lump sum for buying the property.
Moreover, even though the payment is panned out over 2 to 3 years, you will still get the legal ownership status of the concerned property.
This ownership status is attained right after you sign the sales and purchase agreement and pay the downpayment.
Another benefit is that you can choose to sell your property after it has reached the final stages of construction.
Advantages of Progressive Payment Scheme (PPS)
Buying a property can be financially stressful for you as it requires you to spend a huge amount of your finances in one go.
While this may not be troublesome for most people, it can be difficult for many to arrange that kind of amount in the first place.
Because of this, many people have to wait years and years to have the financial capacity actually to purchase a home.
The Progressive Payment Scheme reduces the overall financial strain that you go through while making a property purchase.
Since the payment is made through a series of small sums over 2 to 3 years, it gives the much needed time and preparation required for this kind of undertaking.
Each payment is only made after a certain construction milestone has been achieved and not before.
Therefore, you have the chance to properly plan out your payments over the construction period and avoid straining your bank account at one go.
Moreover, it also works as an incentive for people who are still in a dilemma regarding whether or not they should go ahead with the purchase.
Developers benefit from this scheme, too, as it allows them to sell the property much faster.
Construction firms, who usually have to pay for the entire project until its completion, also receive much-needed relief.
With PPS, construction firms receive a steady influx of payments from the buyers, which they can add to the overall working capital.
Disadvantages of Progressive Payment Scheme (PPS)
Although Progressive Payment Scheme has brought tons of advantages for both buyers, sellers, and developers, there are still some minor setbacks to the scheme.
Since the PPS enables buyers to make multiple payments over a long time, keeping track of all payments might get difficult.
Developers often have to deal with multiple clients while working on one project, which means that numerous income streams come in from various sources.
It falls under the responsibility of the construction firm to keep records of all the payments that have been made.
This requires them to dedicate a portion of their energy to make sure all the accounts are in the proper state.
What’s more, a minor mistake made during accounting might hamper the payments of one or more clients.
Another possibility is that there might be payment disputes between the builder and the client, which might hamper his payment responses.
For example, the developer might submit a payment notice for 60 % of the property.
However, the client could argue that only 30 % of the work has been done; therefore, he might choose to send only 30 % of the payment.
Instances like these could financially affect the contractor and hamper his capacity to finish the project resulting in delays or even stalemates.
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