Deferred payment plans popular with home buyers

Deferred payment schemes have proved so popular with home buyers that they are now standard fare in most new residential projects.

They allow home buyers to delay paying the bulk of a new home’s price for years, but the flip side is that units bought under such plans are costlier.

Deferred payments were thrust into the spotlight yesterday after the Monetary Authority of Singapore (MAS) said such schemes pose higher risks to developers and their banks, and that it expects banks to take these risks into account.

A Straits Times poll of developers showed that most new projects offer deferred payments. And where they are available, the take-up rates are usually significant.

At one end of the spectrum are developments such as The View @ Meyer, where all the buyers so far have opted for deferred payments, said developer GuocoLand yesterday.

CapitaLand, the biggest developer in South-east Asia,

also said that ‘the bulk’ of its home buyers choose such schemes whenever they are offered as an option.

Another major developer, whose projects range from mass market to luxury homes, said 74 per cent of its home buyers across the board have taken up deferred plans when they are available.

But there are also developers, such as City Developments, which say that more of their buyers opt for normal payment schemes.

And some developers, such as Indonesia’s Lippo Group, do not offer deferred plans at all.

‘We have never used such schemes and we have no intention of using them,’ said
Mr Thio Gim Hock, executive director of Lippo Realty (Singapore), which developed Newton One in Newton Road and Trillium in Kim Seng Road.

In general, property developers were unfazed by MAS’ comments yesterday.

GuocoLand said it is ‘likely to continue with deferred payment schemes’ as its buyers - ‘both owner-occupiers and investors’ - find them ‘attractive and convenient’.

It added that to date, it ‘has not encountered default cases’ when such schemes at its other projects are due.

‘If MAS clamps down on these schemes, we will have to change them accordingly,’ said Ms Diana Kuik, executive director of boutique developer Sim Lian Land.

‘But if all they do is make comments but not policy changes, we might just leave it. At the end of the day it’s the buyer’s choice to take up deferred payments,’ she added.

In any case, she said Sim Lian’s experience was that ‘most of the serious buyers prefer normal payment schemes because they pay a lower price for the unit’.

Property consultants concurred, saying that deferred payments appealed mostly to speculators or home buyers on the fence. They argued that there is little reason to change such schemes, as both the level of property speculation and the risk of mortgage defaults is relatively low.

‘There’s no reason to regulate because the risk is on the developer,’ said Mr Peter Ow, executive director of residential marketing at Knight Frank. He added that ‘in any market there must be some element of speculation’.

Mr Ku Swee Yong, director of marketing and business development at Savills Singapore, also said that deferred payments are becoming less relevant in a rising market.

Initially offered as a carrot to home buyers during the property downturn, they actually require developers to set aside more capital as a guarantee to banks, said Mr Ku.

He added that as home sales boom, some developers are starting to discourage buyers from taking up deferred plans by widening the price gap between homes under deferred and normal payments.

‘There is definitely a reluctance from developers to give deferred payments now,’ Mr Ku observed.

Source : Straits Times - 13 Apr 2007