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. 

Mid 2015 Singapore Property News Update

Singapore Property Market News

 Mid 2015 Singapore Property News Update

It’s been an interesting 2015 for the Singapore Property Market, with the slowdown showing no signs of immediate relief. When compared with those sold in 2014, sales of new homes were down 57% according to this PropertyGuru article.

Rental yields are also down, and this is attributed to the increasing supply of new homes in the market as well as a supposed tightening of foreign talent inflow.

Even foreign press has given their inputs on the property market in Singapore. Bloomberg commented that defaults are rising especially for owners of multiple properties who most likely cant afford to maintain multiple empty homes.

However, while the volumes have gone down, prices have not budged much, with the non-landed prices dropping only 4% in 2014.

Analysts predict that the government would only take away the cooling measures once prices have dropped a certain level, most likely around 10%.

Banks have also given their forecast of the property market in Singapore, a BNP Paribas report stated that prices might still drop another 10%. UOB research stated however that there would be Government intervention by the end of the year.

From our point of view, there probably wouldn’t be drastic government intervention unless there is a repeat of the 2008 situation. The MERS scare in South Korea might be a critical point since Sars had made a huge impact in the property prices.

You may also want to refer to URA’s website for official statistics.

This is Propertyguru’s forecast for 2015.

For those who want to take advantage of the drop in property prices, you might want to read our article on beating the cooling measures and avoiding the ABSD.