Deferred Payment Scheme – An Explanation on how they work for property investors

If you have been actively searching for an investment property in the past year, you should have come across several developers offering different Deferred Payment Schemes (DPS), a popular marketing scheme that was previously abolished in October 2007 due to the upswing in the economy and the property market.

The return of DPS is yet another interesting and creative loophole that developers are using to incentivise buying in projects that have been slow to move, or burdened by the upcoming Qualifying Certificate (QC) and Additional Buyer’s Stamp Duty (ABSD) penalties for not selling all units within a stipulated period.

In the past, such schemes were only offered in new project launches, and payment of up to 90 percent of the purchase price could be deferred until the Temporary Occupation Permit (TOP) date.

The latest versions of DPS are different from what they were previously, as they are now only allowed after the Certificate of Statutory Completion is issued, and the project is delicensed and no longer under the purview of the Controller of Housing.

What are the benefits of buying a DPS project?

The essence of a DPS lies in when the option needs to be exercised, and how long the completion period is deferred for.

Typically, a buyer would pay a 20 percent down payment (five percent in cash and 15 percent in cash or Central Provident Fund (CPF) savings) for a new unit, pay for stamp duties within two weeks of exercising the option to purchase, and start paying progressively increasing instalments within six to nine months as their housing loan starts disbursement. A buyer would also not be able to re-assign their option to purchase to another buyer without incurring the Seller’s Stamp Duty (SSD).

In a resale purchase scenario, a buyer would also pay the 20 percent down payment, pay stamp duties within two weeks of exercising the option to purchase, and draw down on the remaining 80 percent loan within 10 to 12 weeks. This means that he or she would begin servicing their monthly instalments upon completion as their loans are fully disbursed. In addition, a buyer would be able to resell the option prior to exercise if there were a provision of “And / Or Nominee(s)” in it.

The beauty of DPS lies in the flexibilities developers have upon delicensing their projects. Payment schemes can be tweaked to incentivise different groups of buyers with different needs.

Case study: Singaporean owner-occupier seeking to upgrade

John Tan faces difficulty in upgrading his family home as he has an outstanding loan for his current property. According to the Monetary Authority of Singapore’s (MAS) financing guidelines, he would need 25 percent in cash for the down payment, another 25 percent in cash or CPF savings, and be eligible for only a 50 percent maximum loan. He would also be liable for ABSD.

In his case, a DPS where the developer allows a longer deferred completion period would address his obstacles and reduce his down payment to 10 percent in cash, offer him the flexibility of moving into a new home early, ample time to sell his previous home and therefore qualify for an 80 percent loan.

One example of this is the DPS introduced at CapitaLand’s The Interlace and d’Leedon projects.

Case study: Property investor keen to get into the market and feels there is potential upside in the next two years

Dylan Lee would like to buy into properties with ready cash flow, but feels that the ABSD could be revised in the next two years. He however, does not want his funds to remain idle in the meantime, and wants to start deploying them to work.

In his case, a DPS that allows him to own a property with minimal cash down, a deferred exercise and completion date means he could possibly pay less ABSD if the rules are tweaked in the near term.

As an investor, he would also enjoy the flexibility of being able to sell the property anytime during these two years without incurring any SSD.

As such, a project like The Peak @ Cairnhill I and II, with its own version of the DPS, is suitable as it allows investors to take possession and rent out their units and exercise the option only 18 to 24 months later. The option between the developer and the buyer also has a nomination clause that allows the option to be exercised by another buyer should the market improve and the initial investor decides to sell.

This unique arrangement means that an investor experiences a higher return on equity before the completion, as he can start collecting rental income by putting down only 20 percent in cash and having no instalments to service for that same period. At the same time, the rental returns also lower the absolute entry price of his property, giving him an extra safety net.
That said, buyers would be prudent to do their due diligence on whether a project offering a DPS is marketed at a reasonable price today. Some projects have fewer discounts due to this scheme, and it would be wise to make a comparison between the normal payment scheme and the DPS. If the discount range is significant and the financial aspects make sense, it could be a wise choice to go with the norm instead.

Alternative Financing Strategies for Property Investors

It's always an awesome feeling to see my writings published and read by keen real estate investors and fellow industry agents! A Huge Shoutout and Thank you to the Team (Sandy Goh, Sabrina Tan, Romesh Navaratnarajah, Denise Djong, Agnes Goh!) at PropertyGuru for the coverage! 

Here's the full unabbreviated article below! 


Singaporeans love properties. Let's face it. We love the idea of speculation, of long term capital growth of our savings and dream of one day retiring upon the comfortable monthly rental paychecks that we receive from our tenants. And once our time is up, this dream fulfilling portfolio can be passed down generations after to provide inflation beating income that our loved ones can comfortably rely upon. 

This passion for property might be an understatement for some families i know of who own rows of shophouses and acres of land in downtown Singapore and yet are always suffering the itch of accumulating more. Not that it is a wrong mindset though. After all, these families were first hand eyewitnesses to how, over the course of our 51 years as a nation, their parents and grandparents have seen their wealth skyrocket by buying into our national soil and airspaces early on in their lives. This belief becomes in-built in our culture and property becomes the natural vehicle many of us aspire to put our hard earned wages into. 

The appetite for property investments though can be both a blessing and a curse. While a healthy appetite for properties can stimulate the economy through job creation and infrastructure spending, over consumption can wreak financial havoc upon individuals and spiral easily into a nation wide crisis. Something that we witnessed not too long ago in the Subprime crisis in the US.  

Hence that is in part, the reason for the current climate of cooling measures we all face today. 

With the various restrictions imposed on us by the Monetary Authority of Singapore for the purchase of properties, alternatives have been commonly sought by investors keen to get started on their investing journey.


In this article, we will examine 3 common alternative property financing strategies that different types of investors can ponder upon to aid in building their own dream fulfilling portfolios. 


Co-Investment Strategy

Many singles may have insufficient funds to buy their first property, and so one potential strategy is to jointly co-invest with another single friend. They can combine their cash and Central Provident Fund (CPF) savings to start investing immediately, instead of waiting several years to accumulate more savings while facing the prospect of a shorter loan tenure.

The main issue with co-investing is that if either party were to get married, they would not be able to apply for a Build-To-Order flat or executive condominium unit, unless they dispose of their investment property at least 30 months beforehand.

If they were to buy a private property as a matrimonial home, they would have to set aside half of the Full Retirement Sum ($83,000 at the time of writing) in their CPF Ordinary and Special Accounts before the excess savings can be utilised, and will not qualify for an 80 percent mortgage loan if they have an outstanding loan. They will also be liable for Additional Buyer’s Stamp Duty.

Also, this method is only suitable for life-long good friends whom have been through much ups and downs with you as you would require their consent and blessing too should you need to sell the property in the future. Take special note that in the event you were to settle down within the next 3 years and need to offload this investment property, you will also be liable for Seller Stamp Duty and not to mention, a potentially very upset buddy. So tread carefully if you decide to do so.


Equity Loans

Equity loans, sometimes called Term Loans or Gearing Up, are commonly used forms of financing that allows a property owner to withdraw equity that has built up over time from his property and use it for his short term cash flow needs such as acquiring of inventory or upgrading of machinery. Some would use it as a low interest credit line (Rates are similar to mortgage loan rates) to pay off higher interest loans such as credit card and car loans. 

The official stance on Equity Loans is that they are not allowed to be used for property investments. However, it is commonly known among savvy investors and without a doubt, the authorities themselves, that this is not actively enforced. 

Individuals and families with property portfolios with low or no leverage typically employ this strategy in order to free up equity and recycle them into other investments. This helps them to optimize their Return on Equity (It's a REALLY Important factor. Discussed in another post. Go read), take advantage of low interest rates and redeploy the funds into higher yielding assets. 

The caveat of using Equity Loans as an alternative financing approach is present and investors do face a risk from breaching the terms of the loan agreement. Apart from that, it is important to highlight that CPF cannot be used to finance the monthly mortgage of the term loan and that the purchaser would need to do so entirely in cash (Yes, no CPF can be used in this case.). 


Assets Pledging

In the past, asset based lending were rife and investors who could show a couple of hundred thousands in the bank were eligible for multi-million dollar loans. All without the need for ascertaining their loan servicing ability. All these were put to a halt with the introduction of the TDSR measures in June 2013. The days of easy credit were over and investors griefed. Assets pledging are categorized into 2 types. Liquid assets such as Sing Dollar deposits and savings and others such as stocks, bonds, foreign currency deposits and gold. 

This strategy of property financing works when the buyer has no or insufficient income to support his loan application. In such scenarios, although he may be cash rich, the lack of an income proves to be an obstacle for banks to grant him a loan. Hence, asset pledging helps to augment his income to levels that are acceptable by TDSR criteria and qualify him for purchasing a property which he otherwise might not be able to. 

Assets that are pledged for at least 4 years are taken at 100% of its value while if it is pledged for any less than 4 years, an immediate haircut of 70% of its value is applied. 

As a guideline, for an unemployed person, for every $100,000 loan applied for, $36,000 in liquid assets has to be pledged for 4 years or $120,000 if it is pledged for less than 4 years. 

Hence, to employ this strategy, a buyer would have to have a significant amount of savings, assets or financial support. 

To summarize, optimizing use of funds and structuring of financing strategies is an area that investors should continually explore to put their savings to work as early as possible. There are various creative methods that are shared at investment networking events that would be too intricate to be described in detail in this short article. Property Investment is a life long journey of learning and fine-tuning of strategies which pays huge dividends for the avid investor. I wish you all the best in your journey and may your investment portfolio prove lucrative and sustainable.


CPF Accrued Interest – Will it REALLY come back to haunt me if i use it to finance my property?

CPF Accrued Interest – Will it REALLY come back to haunt me if i use it to finance my property?

Recently, i have read articles citing the negative impact that results when CPF is used to finance a property long term. The articles call for HDB owners to sell their homes and restructure into private properties before they enter into a ‘negative’ sale scenario where low/no cash proceeds are returned to their pockets when they sell. 



CPF Vs Bank Loan Vs HDB Loan. If you’re buying a property, which should you use more of and why?

When we buy a private property or HDB in Singapore, we have a choice between using Cash, CPF and Banks/HDB loans.

Since time unknown, there has been debates between different camps about whether it is financially wiser to take a higher bank loan, HDB loan or to maximise CPF usage when buying a property.


ROE vs ROI – A Critical Factor that Serious Property Investors need to Know

When it comes to property investments, one of the critical things you have to understand is the difference between ROI (Returns on Investment) and ROE (Returns on Equity). That’s because property investments allow you to borrow money from the bank which increases your returns dramatically.