Progressive payment scheme is when you have the option of paying for your new home progressively in stages, rather than all at once.
This payment feature attract more buyers to buy uncompleted properties or properties under construction.
Many home/property buyers are hesitant to buy properties under construction because it can take up to a few years before they can settle into their newly purchased home. Since demand is lower, the prices of uncompleted properties are usually lower than completed properties.
Buying buildings under construction properties
Buying property before it has been completed is very common in Singapore. Our very first experience might be buying a BTO flat.
Here are some examples of current private buildings under construction as of October 2019:
Developers of private property usually follow the progressive payment scheme set out by the Housing Developers Rules. Progressive payment, if planned properly, can help you build up your cash savings. That’s the beauty of progressive payment and I will explain more later.
How does the Progressive Payment Scheme work?
Basically, the progressive payment scheme enables you to pay for a property according to the stage of construction is it at. Therefore, if construction gets delayed, your payment deadlines will also get pushed back.
Calculating progressive payments for your BUC property
Let’s say Mr and Mrs Lee have decided to buy a $1,000,000 condo unit.
In total, they contribute $2,300 to their CPF Ordinary Account
Here’s what they will pay at each stage.
After attending the sales launch, they decide on a unit.
- Booking fee: 5% x $1,000,000 = $50,000 (paid in cash at the launch)
They sign the sales and purchase agreement. At this stage, they must also pay stamp duty and legal fees.
- Upon signing the Sales and Purchase Agreement: 20% x $1,000,000 = $200,000(CPF/CASH)
After paying the first 25% downpayment, the progressive payment starts.
The progressive payment will be divided onto 8 different stages.
|Stage||Percentage of Purchase
|1||5.00%||$50,000||Completion of foundation works||$197.56|
|2||10.00%||$100,000||Completion of reinforced concrete framework||$597.18|
|3||5.00%||$50,000||Completion of partition walls||$798.54|
|4||5.00%||$50,000||Completion of roofing||$1,001.48|
|5||5.00%||$50,000||Completion of door sub-frames / door frames, window frames, electrical wiring (without fittings), internal plastering and plumbing||$1,206.04|
|6||5.00%||$50,000||Completion of the carpark, roads and drains servicing the housing project:||$1,412.69|
|7||25.00%||$250,000||Issuance of Temporary Occupation Permit||$2,458.84|
|8||15.00%||$150,000||Certificate of Statutory Completion||$3,102.96|
At stage 7, the issuance of Temporary Occupation Permit, this is where Mr and Mrs Lee will collect their keys. Each stage will usually take up to 6 months. Once each stage is completed, the developer will issue you a letter to inform you so.
Hmmm.. So where is the beauty of progressive payment?
Let’s look back at how much they contribute:
Mr and Mrs Lee contributed $2,300 per month into their Ordinary Account. There are 2 upsides in this senario.
One: They do not need to fork out any cash from Stage 1 to Stage 6 of the progressive payment plan. When the progressive payment is at Stage 7 and 8, the housing loan monthly instalments will be more than their monthly CPF OA contribution. This is when they will need to top up additional cash. They will need to top up additional $158.84 in Stage 7 and additional $802.96 in Stage 8. It takes approximately 3 years from Stage 1 to 6. At this period, they can save money to build up their rainy day fund.
Two: After they sign the sales and purchase agreement, they are already the owners of the property. Their monthly instalments start low and increase gradually as I mentioned earlier in the table above. But by the time, their property reaches Stage 7 or 8, they can sell their property in the open market. The best thing is they do not need to service their loan with cash all the way.
However, do note that the above is just an illustration. Different people are faced with different situations. You will need a professional consultant to assess your financial health and advise you further.
Hope you learn something new today!
Feel free to contact me, Andik Imran, for more infomation.