Are developers becoming increasingly creative? OUE and the deferred payment scheme

Developer Discounts Property

1. Will creativity help the Singapore Property Market? 

Tough times call for creative measures and this exactly what this developer did.

UOE announced last week that they were offering 2 schemes to sell off the remaining units of the UOE Twin Peaks located on Leonie Hill Road in District 10. Rather than slash property prices to bring in buyers, the developers have decided to offer 2 creative payment methods to buyers in hopes of selling more units before they have to pay the ABSD and the extension QC charges for unsold units in 2018.

Straits times article : UOE Twin Peaks 

2. What is the OUE Twin Peaks selling scheme about?

a. Scheme 1

In the first scheme, the Buyer puts down a 20% downpayment for the unit he wants to purchase but he will only sign the Sales and Purchase (S&P) agreement ( $1000 ) at the end of the year (instead of completing the sale in about 2 weeks to 1 month i.e. the normal procedure. )

This scheme allows the buyer to lock in the purchase price, eventhough the sale will only be completed at the end of the year, where developers and experts predict the ABSD might be reduced or even removed. (Note: The various Stamp Duties is usually due upon the sale completion i.e. signing of the S&P)

PROS

CONS

  • You get to lock in the price and not be affected by price increases if the ABSD is removed/ reduced at the end of the year
  • (Analysts predict that removal of the ABSD will result in an increase in price, because of suppressed demand )
  • Instead of 5% cash deposit, you will need to pay a 20% cash deposit. 
  • If ABSD is not removed, its pretty much the status quo. You will still need to pay the ABSD if this is your second or third property and alternatively market forces might have allowed you to purchase a sub-sale unit at a cheaper price.

b. Scheme 2

Buyers will have to make a 20% downpayment first and sign the sales and purchase agreement (another $1000 ) as per normal but the loan payments/ balance payment can be deferred for another 3 years.

This is known as the deferred payment scheme.

However, since the S&P has been signed, buyers would have to make the payment for the various stamp duties as per IRAS’s timelines.

PROS

CONS

  • With no monthly mortgage payment, buyers who are purchasing a unit to rent out will not be pressured by the weak rental market.
  • These buyers can technically underbid all other landlords who are renting out their units in the same or neigbouring developments. The rent collected for the next 2-3 years adds directly to your profits.
  • If the overall property and rental market improves in 3 years time, owners would have bypassed the worst of times.
  • Instead of 5% cash deposit, you will need to pay a 20% cash deposit. 
  • The property price is increased by about 3-9 %
  • You will still need to make the ABSD payments.

What is the Deferred Payment Scheme (DPS) ?


The deferred payment scheme is basically a scheme which allowed buyers to put off a bulk of their mortgage payments until the building was ready for construction. This was popular in 2002 to 2006 but was removed in 2007 when the market started heating up. 

Currently the deferred payment is only available for Executive Condominiums.

Why is UOE able to do this? Will other developers follow suit?

UOE is able to do this because the property has received the CSC (Certificate of Statutory Completion) and is no longer subjected to the Housing Developers Rules. Other developers might follow suit or they might have other methods of overcoming the ABSD.

In this Business Times article, " Developers sanguine about selling out before stamp duty deadline, rather than giving hefty discounts to individual buyers and thus be accountable to their lenders and their shareholders, other options might include:

  • Buying the properties themselves (using a subsidiary) and rent the units out. 
  • Selling to a bulk buyer
  • Accepting a silent offer from a buyer without offering hefty discounts from the public. 

Our Thoughts? 

With plenty of supply and many buyers waiting on the sideline, developers would definitely come up with creative ways of selling off their units.  

However, its still quite clear that these developers have choices and it is not as simple as slashing their prices to get more sales. Their bottomlines and profit margins still matter especially where there are shareholders involved. These developers won't risk scaring off their shareholders or even reducing the shareholder's confidence because this affects the company's long term progress ( while selling off the units affects only their short term balance sheet). 

This is not to say that there aren't any developers who offer price discounts.

While 'waiting for prices' to drop may seem a reasonable strategy , we believe that taking a pro-active method and offering a lower but still reasonable price for a better unit can make all the difference for you, especially if the development is in a good location. 

Update: As of 5th May, The Straits Times reported that UOE Twin Peaks sold about 30 units over the past few weeks. Its not indicated if all the buyers opted for the DPS. 

Eyeing a condo at a particular development ? Let us find out for you the lowest price developers have accepted for similar unit types.  Email us at askus@propertyrocking.com today. 

Dual Key Condominium Units

Dual Key Condominiums in Singapore

What are dual key condominium units?

Dual Key condo units are apartments with 2 separate living spaces, typically a 2 or 3 bedder apartment and with an attached studio unit or one bedroom apartment.

They are found in private condominiums and executive condominiums (ECs).

[Note: As of end 2013, HDB revised its policies and would only allow multi-generational families to purchase Dual Key ECs.]

Dual Key Condominium Singapore

Sample 3 bedroom Dual Key Unit at the Santorini in Tampines

As you can see from the floor plan above, there is one main door but living space is quite clearly defined.

Some dual key units (like the one in the floorplan above) come with 2 kitchens spaces (i.e. the studio unit has an induction cooker) while others come with an oven / microwave oven for simple cooking and reheating.

Why are these types of units popular?

1) Passive income while enjoying condo living.

While many people enjoy the perks and facilities of a private development, be it a condominium or an apartment, they usually shudder at the thought of the hefty mortgage payments.

A dual key condominium unit ensures that you have some rental income coming in while you enjoy the luxuries associated with condo living.

2) More privacy than renting out a room

Some families, especially those with young children, do not like the option of renting out a room because of the loss of privacy associated with the sharing of a bathroom, kitchen etc.

With a dual key unit, the tenant has access to his own bathroom and kitchen, which means more privacy for the family.

3) Restrictions of the Cooling Measures

Currently, if you purchase a second property, there are several restrictions for example a lower loan amount (LTV), and an additional stamp duty (ABSD) imposed on the owner.

With a dual key unit, you technically own ‘two’ properties since you can rent one out.

However, we can also suggest other legal means of avoiding the ABSD if it is an issue for you.

Typical Use of dual key units

  1. Owners of dual key units usually stay in the main living space and rent out the one bedroom /studio
  2. There are also savvy singles or young couples who prefer to stay in the one bedder and rent out the 2 or 3 bedder for a higher monthly rent.
  3. Multigenerational families also remain close by using the space for their teenage or adult children, or even elderly parents.
  4.  Entrepreneurs who operate a home office might also prefer to use the unit as a study or as an office space. Please take note that you would still need to abide by URA's guidelines for operating a home office. 

Is it a wise investment to purchase a dual key apartment?

As with other investment properties, you need to remember that there are basic concepts to purchasing a good rental property.

    1) Proximity to amenities and transportation

If the attached apartment does not have any cooking facilities, proximity to eateries would definitely be an important factor.

Distance to public transportation is definitely an important factor since , if everything else is equal, tenants would definitely prefer accommodation closer to public transport.

2) Living space

Some dual key studio or 1 bedroom units come in loft style, which means that the bed is on a platform. You might want to survey the other developments in the area to see if this is a typical set up because tenants might not be too receptive to this set up, unless there are a lot more advantages to living in that development, for example, bigger living spaces, a condominium in the city center etc.

3) Lower Quantum because of total PSF

When buying a private property, the bigger the size of the unit, the lower the PSF (i.e. price per square foot).​

If you were to compare the cost of purchasing a 4-room dual key apartment to 2 separate apartments (i.e. a 3 bedder and a one bedroom apartment for rental), the cost of the dual key is definitely cheaper than that of the 2 separate units.

A list of condominium developments with dual key units?

Note: This is not a comprehensive list of developments. If you have any other development in mind and need more information, we will be glad to assist. 

Private Condominiums

  • Citygate - Beach Road
  • Sunnyvale Residences- Lorong K Telok Kurau
  • The Santorini - Tampines
  • Bartley Ridge - Bartley Rd
  • The Interlace - Depot Road
  • Waterfront at Faber
  • The Glades - Tanah Merah

Executive Condominiums (ECs)

  • Ecopolitan @ Punggol

Singapore Condos : Which one should I buy? New Launch, Recently TOP or a Resale Unit?

If you are looking to find out more information on executive condos, click here instead

Which Singapore condo development should i choose

 

It’s come to that point in your life where you know the time is right for you to get an investment property  to rent out in Singapore. ( For purposes of this article, we shall refer to properties that you rent out as rental properties).

You’ve been patiently monitoring the market and you are ready to swoop in. You’ve done your finances, reorganized your portfolio and know how to work around the cooling measures to avoid paying the absd.

[Read more…]