Introduction
Looking forward to the day when you can sell your privatised EC for a game changing $400k profit ? While it may seem out of reach for you now, it is achievable, if you were to apply some grit and press on to overcome the challenges that await.
If you are looking to make the leap and upgrade from a HDB flat to an EC or simply looking to purchase your first EC, financing both its down payment and mortgage is a challenge that you will most probably face.
Enter the EC deferred payment scheme.
Focus of this article
The EC deferred payment scheme is a well received approach that many EC buyers have used to reduce their initial down payment and deferred bulk of the payment, 3 years down the road when their EC TOP.
In this article, we will touch on everything you needed to know about the EC deferred payment scheme. We will touch on how it works, its pros and cons and particularly how a HDB upgrader can benefit from the payment scheme.
A little bit about ourselves
To assure you that you are reading reliable and updated information for the next 5 mins, let us first qualify ourselves.
We are a team of property investors turned realtor. We personally went through the journey of purchasing an EC, profited from it and are grateful to now own a multi property portfolio today.
We have helped over 57 clients from all walks of life purchase their new EC till date and look forward to helping you do the same.
If reading is not your thing, simply drop us a text and we will clarify your doubt over text or call.
What is a deferred payment scheme ?
Deferred payment scheme is a financial arrangement between a property buyer and the developer. It seeks to offer greater flexibility in payment timeline for the buyer, by deferring bulk of the payment for the property towards the complete construction of the property.
The deferred payment scheme is often used in conjunction with a EC bridging loan by HDB upgrader to help overcome the financial hurdle of financing the EC purchase, while concurrently managing the sale of existing HDB flat.
Developers offer this option in hope of driving greater sales and faster take up for its properties.
Deferred payment scheme a privilege for EC buyers
Since 2007 the government have tightened regulations to disallow deferred payment scheme for new launch condominiums, due to concerns of private property price inflation.
Till date deferred payment schemes are only available for new launch EC and completed private condo developments awaiting its certificate of statutory completion status.
Two payment schemes available for EC buyers
As an overview, EC buyers can choose from the following two payment schemes.
Progressive payment scheme (default)
This is the default payment option, whereby EC buyers are first required to pay a 20% down payment and make subsequent payment in accordance to the stages of construction completion, across an estimated 3 to 4 year construction period.
Deferred payment scheme
This is the topic of today’s discussion. Under this payment scheme, similarly buyers are required to first pay a 20% downpayment. But the remaining payment can be deferred till the property achieves its temporary occupation status (TOP), after an estimated 3 year time frame.
A price premium to be charge for EC purchased using the deferred payment scheme
An important point to note as we move forward is that EC units sold under the deferred payment scheme will normally cost 2-3% higher than a unit purchased under the normal progressive payment scheme.
How does the EC deferred payment scheme work ?
The table below compares the payment timeline of an EC deferred payment against a normal progressive payment scheme.
For the deferred payment scheme, you will be required to pay a 5% booking fee in cash on the booking day and a 15% down payment in cash or CPF, 9 weeks from the date of booking.
The crux lies in the remaining 65% of the payment, instead of having to pay progressively throughout the 3 year construction phase, the entire payment is deferred till the property achieves its TOP status 3 year down the road.
Payment schedule EC deferred payment scheme vs normal progressive payment scheme
| Stages of Construction Completion | Timeline | Normal Progressive Scheme (% of Purchase Price) | EC Deferred Payment Scheme (% of Purchase Price) |
|---|---|---|---|
| Booking of unit | Option date | 5% (cash) | 5% (cash) |
| Payment of resale levy (when applicable) If the 1st subsidised flat already been sold. Pay at the HDB Branch, before EC Buyer signs the S&P. If the 1st subsidised flat is not sold yet, pay upon the sale of the 1st subsidised flat, within six mths from the date of TOP | To be determined | To be determined (cash) | To be determined (cash) |
| Upon signing of Sales and Purchase Agreement (S&P) | 9 weeks from option date | 15% (cash or cpf) | 15% (cash or cpf) |
| Payment of buyer stamp duties | 2 weeks from signing S&P | To be calculated amount defers based on property value (cash of CPF) | To be calculated amount defers based on property value (cash of CPF) |
| Completion of foundation work | 6 - 9 months | 10% (out of 10%, 5% to be funded by cash or CPF, 5% to be funded by cash or cpf or bank loan) | 0% |
| Completion of reinforced concrete framework | 6 - 9 months | 10% | 0% |
| Completion of brick walls | 3 - 6 months | 5% | 0% |
| Completion of roofing/ceiling | 3 - 6 months | 5% | 0% |
| Completion of electrical wiring internal plastering, plumbing and installation of door and window frames | 3 - 6 months | 5% | 0% |
| Completion of car park, roads and drains servicing the housing project | 3 - 6 months | 5% | 0% |
| Notice of vacant possession | TOP | 25% | 65% ( out of 65%, 5% to be funded by cash or CPF, 60% to be funded by cash or CPF or bank loan) |
| Legal completion date | CSC | 15% | 15% (cash or cpf or loan) |
Illustrating the deferred payment scheme with an example
To better understand how the deferred payment scheme can be applied in an actual EC purchase scenario. Let’s illustrate it with an actual example of a couple leveraging the deferred payment scheme to upgrade from a HDB flat to an EC.
Context
John and Sally own a 4 bedroom HDB flat in Sengkang.
They have been looking to upgrade from the current property to a new launch EC in Punggol. They aim to purchase a 3 bedroom EC with a purchase price of $1.4milion.
They opt to purchase the unit using the deferred payment scheme.
Under the EC deferred payment scheme the unit will be priced 3% higher than its usual selling price. The property price after a 3% price premium is $1,442,000, it will cost the couple a $42,000 premium to purchase the unit under the deferred payment scheme as compared to a normal progressive payment scheme.
Payment Schedule – Cash and CPF
They will be required in accordance to the following payment schedule
- Booking fee – 5% in cash – $72,100 on the booking day itself
- Down payment – 15% in cash or cpf – $144,200, nine weeks after booking day
- Buyer stamp duty – $40,600
- Legal Fee – $3,000
- Mortgage Duty – $500
John and Sally would have to first fork out $260,400 in cash and cpf to cover the initial down payment and related transaction cost.
Deferred payment
After this, no further payment is required for the next few years, the next 65% of the payment will only be due when the property achieves its TOP status. And the remaining 15% will only be required when property achieves its CSC status, 12 months after its TOP date.
Advantage of deferred payment scheme
Let’s summarise some of the key advantages associated with the deferred payment scheme.
No need to maintain two mortgage for buyers holding on to their current HDB while purchasing EC
One of the key challenge that many HDB upgraders will face when purchasing EC is the fact that they will have to continue maintaining the mortgage obligation for their existing property, while undertaking a second EC loan.
This creates the issue, the buyers may have a challenge securing the maximum loan quantum for their EC purchase.
As the mortgage servicing ratio requirement states that the overall monthly debt obligation of the applicants must not exceed 30% of their combine income.
The combine mortgage payment of their existing home loan coupled with the new EC loan may significantly reduce their eligible loan quantum.
Under the deferred payment scheme, the EC buyers will be able to defer all the payments to be funded by loan towards the TOP of the property. This allows the buyers to relieve themselves from the existing HDB loan obligation and only take up one loan for the EC.
This reduced monthly mortgage requirement from servicing one loan will allow buyers to be eligible for a bigger loan quantum for their EC purchase.
If you are wondering if you still can take up a full 75% loan on the new EC purchase while holding onto a existing mortgage for your current HDB. The good news is you will be able to do so, this is a special condition offer to eligible EC buyers. Refer to Q&A below, where we provide further detail on this.
Less cash flow burden
With 65% of the new EC payment deferred to the tail end of the construction phase, buyers will have a much easier time managing monthly cashflow. Essentially no further payment is required till the EC achieve its TOP status 3 years later.
Hedge from high interest rate
Assuming you are looking to purchase the EC during a high interest rate environment, opting for a deferred payment scheme will shelter you from the high monthly interest expense.
And ideally when payment resumes after the property TOP, interest rate will swing back to its cyclical low.
Disadvantage of deferred payment scheme
Incurring a price premium when opting for deferred payment scheme
One significant disadvantage of opting for the deferred payment scheme is the 2 to 3% price premium that is tagged to the EC unit.
To put things into perspective, a $1.4 mil EC would cost $42,000 more, factoring a 3% price premium.
Incurring greater overall interest expense due to larger quantum purchase
Inline with the price premium applicable when purchasing under the deferred payment scheme, you will also be looking to incur greater overall interest expense as the loan quantum to be take has to be larger to cater for the 3% price premium.
Missed saving on interest expense during low interest rate environment
The downside to adopting a deferred payment scheme during a low interest rate environment results in you missing out savings on interest rate.
During these periods of low interest rate allows you to clock in greater principal paydown and less interest expense, under the normal payment scheme.
Consideration on when you should use deferred payment scheme
In this section, we shall discuss the factors that you should consider when deciding whether you should opt for the deferred payment scheme.
Consider if the 3% higher entry price is still advantageous compared to resale Condo
Ecs are known for providing buyer’s with an entry price advantage due to it being sold at a lower price to eligible applicants, as compared to comparable condos.
Hence, when opting for the deferred payment scheme we must consider if the 3% entry price still make sense in comparison with surrounding private condo.
If the price gap between the EC and private condo is very close after the price premium, it may make more sense to purchase the private condo that does not come with a 5 year minimum occupancy period.
Consider the interest rate environment
Inline with earlier discussion the deferred payment scheme can work to your advantage or disadvantage in relation to the prevailing interest rate environment.
Under a high interest rate environment, it may make sense to hedge against the higher interest rate by deferring the bulk of your payment to the future.
But under a low interest rate environment, you would want to consider the normal payment scheme and start paying down your loan with a lower interest expense.
Consider if you can find alternative place of lodging and avoid the 3% price premium
One of the key reasons why many HDB upgraders opt for the deferred payment scheme would be due to the need to retain their current place of lodging, while purchasing the EC.
Weighing this against the cost of paying a 3% price premium for the EC, you may want to consider if you can find an alternative place of lodging. Given that you can get your lodging covered, the option to first sell your HDB flat and purchase your EC with the normal payment scheme and saving 3% price premium could pay off.
Final words
This sums up our article on everything you needed to know with regards to EC deferred payment scheme. Given that you could be planning for your EC purchase, you could also be interested to find out more about EC grants and restrictions with regards to EC rental.
FAQ
How does Deferred Payment Scheme work for EC ?
The EC deferred payment scheme allows EC buyers to first pay a 20% downpayment, with 5% in cash and 15% in cash or CPF. The bulk 65% of the payment will then be deferred till the EC achieve its temporary occupation permit (TOP) status.
Can HDB buyers upgrading from HDB take the full 75% bank loan when purchasing an EC, while holding on to their existing HDB flat ?
Yes, HDB owners currently servicing a HDB or private bank loan for their HDB flat can still take a 75% loan on a new EC purchase and service two loan concurrently. This is a special allowance offered to eligible EC buyers. Under normal circumstances, property owners with a existing loan on hand can only take up a 45% loan on the mortgage for a “2nd Property”.
This meant that HDB upgraders looking to purchase a new EC, do not need to fully pay down their existing HDB loan in order to be eligible for the full 75% loan for the EC. But there will be a need to sign a letter of undertaking as a legal assurance to sell off the HDB flat, within 6 months from EC achieving its TOP status.
What is the difference between a progressive payment scheme and a Deferred Payment Scheme?
A normal payment scheme would require the buyer to make payment in accordance to the different stages of completion for the property. While a progressive payment scheme allows a buyer to defer 65% of the payment till the property achieve its temporary occupation permit status.
