DPS scrapped

The government last night scrapped the deferred payment scheme (DPS) that allowed homebuyers to postpone payments on new property. Buyers now have to make progressive payments (PPS) in steps with the construction process and the 20% downpayment upon signing the Sales and Purchase Agreement (SPA) becomes mandatory.

It is a response to the overheating in the market, especially the excessive speculation. As an indicator for speculative activities, subsales -- owners selling uncompleted properties -- accounted for 12.7% of total deals (21.6% in the core central region), as compared to 28% in 1996. Overall prices rose 8.3% in the 3rd quarter that brings the price growth so far this year to 22.9%. I think it's good to cool the market at some extends so that its growth is more healthier and sustainable.

PPS: it calls on buyers to pay progressively at various stages of construction. Here is the typical scheme:

• 5% booking fee upon obtaining the Option to Purchase
• 20% (incl. 5% having been paid) downpayment upon excising the option & signing SPA
• 10% upon completion of the foundation work
• 10% upon completion of the reinforced concrete framework
• 5% upon completion of the brick walls of the unit
• 5% upon completion of the ceiling of the unit
• 5% upon door & window frames in position and completion of electrical wiring & plumbing
• 5% upon car park, roads & drains completed
• 25% on issuing the Temporary Occupation Permit (TOP)
• 15% on legal completion date

DPS: introduced in Oct 1997, it offers the homebuyers to postpone payment other than the initial 20% downpayment till TOP. The downpayment was further reduced to 10% in Nov 2001. It is believed to encourage speculative activities as a flipper only needs to fork out as little as 10% of the purchase price and has typical 2-4 yrs to find a new buyer of his speculating unit.