Handling Property Payments
The sums involved in any real estate transaction are quite hefty. As such, the associated risks are pretty high and one can easily stand to lose a lot if something goes amiss. Diligent efforts must, therefore, be put into thoroughly investigating and assessing the selected property developers before committing any finances to the property. In this section, we are going to discuss some of the risks that come with property payments and how best potential homeowners can navigate around them to avoid losing their savings at the hands of unscrupulous developers.
Mitigating the Risk of ‘Disappearing Developers’
One of the oldest real estate scam in history is that of developers who disappear after collecting payments from potential homeowners. There are thousands of such incidences all over the globe with similar patterns. However, it is worth noting that not all these developers are intentional scammers. Some of them genuinely face bankruptcy in the process, leading to losses on both the developer’s and the homeowner’s end.
Reports by Caixin China and Reuters indicated an alarming number of Chinese developers filing for bankruptcy. The slowing economy, borrowing restrictions, and the COVID-19 pandemic has led to more than half the registered developers closing shop due to financial constraints, hence raising fears that potential homeowners who had invested with the developers would lose their money. In such a harsh business environment, the flight risk of the developers has become too high to ignore.
By mid-2019, the number of bankrupt developers had gone up to nearly 300, shooting to nearly 500 by the end of the year. One of the victims hit by the crisis is the giant developer, Yinyi Group, who operates in Ningbo. The firm could not manage to repay a 300 million Yuan debt and had no other option but to file for bankruptcy in June 2019. The Chinese government saw it necessary to step in, to protect the interests and investments of home seekers by reducing the financial system’s risks. This move entails a number of credit control policies to ensure that developers don’t crumble down the line.
The property market research institute in China, CRE, reported a total of 459 confirmed bankrupt developers towards the end of 2019, which prompted tighter regulations with regard to money collected by developers from the off-plan homes’ sales. Xi’an’s government then indicated a new set of regulations that requires all home seekers to only pay their hard-earned money into highly-monitored and closely regulated accounts, a move that will protect them from disappearing developers.
Are there risks in purchasing Singapore property?
Every endeavour that involves the exchange of currency always involves several associated risks, and property purchase in Singapore is no exception to this. Understanding the risk better can, however, help you to navigate around them and avoid the common pitfalls that other home seekers have succumbed to before. With completed properties, these risks are quite minimal since the exchange is more or less direct and immediate; you pay as you move into the apartment or condo. As such, the main likely risks here would be partial disclosure of the property’s conditions and other minor issues that can be easily rectified.
New launches or under-construction buildings are, however, much trickier. Interestingly, the purchase of new-launch properties is quite common in Singapore. The demand for property is so high that developers are often quick to sell-out before they even start construction of the property and the home seekers often have to wait up to 5 years before moving into the new home. Let’s take a quick look at the three common risks that you have to endure when opting for such new-launch properties;
- The risk of poor delivery on promises and expectations.
New launch properties are marketed on paper, literally! This means that home seekers often have to rely on the visuals provided by the developer in theory or fancy showrooms. As such, it’s no surprise that all these presentations are often far removed from the reality of the actual product that will be eventually delivered. After all, what looks good on paper, in theory, or as a model does not always look good in reality.
The majority of new launch properties rarely turn out as advertised in the glossy and attractive brochures. You should, therefore, always keep this risk in mind. Your expectations will likely be too high especially with regards to interior spaciousness and quality of workmanship. One prominent case of such gross misleading by a developer is the upscale condo development popularly known as ‘The Aristo’. On completion, members were highly disappointed with the sub-par workmanship and a horrible excuse of a restricted pool instead of the sprawling infinity one that they had been promised and shown in the brochures.
- The risk of the developer becoming bankrupt!
Construction is very much like any other project that can meet financial hurdles in the process of completion. There are quite high chances of a developer filing for bankruptcy before completing the project due to a number of both valid and fraudulent reasons. A large chunk of developers in China actually went through such a crisis since mid-2019 as discusses earlier and many home seekers lost their down payments in the process.
Buying new launch property, therefore, means that you get to pay for something that doesn’t exist which is different from resale properties where you can actually inspect the property beforehand and make a decision based on tangible property. Of course, bankrupt developers do not necessarily always spell a total loss for home seekers but it definitely complicates the whole process and can be very stressful.
- The risk of being duped with marketing gimmicks
Land developers are essentially salesmen that are focused on pushing their product regardless of circumstances. As such, they often resort to a wide range of marketing gimmicks and offering a lot of misleading incentives and discounts to home seekers in an effort to convince them to join the development project.
The reality is that all these freebies, discounts, and incentives are just shiny objects being dangled to distract you from the reality at hand. Often, such discounts are made on inflated prices, to begin with, to make the ‘new’ discounted price seem like a great bargain. Also, the cost of all those ‘freebies’ such as furniture has probably already been factored into the cost of the unit. Simply do your own research before settling for any property to determine the true property value.
Singapore’s Strict Regulations for Developers
In response to home seekers’ concerns back in the 1960s, the Singapore Government came up with a comprehensive ‘Housing Developers (Control and Licensing) Act that is designed to look out for the interests of Singapore property buyers.
Among other stipulations, the Housing Developers Act dictates that ONLY licensed housing developers can undertake property development projects. This ensures that all such developers meet the required criteria for such undertakings. It also helps to establish traceable identity and residency records for easy location in the event of any surfacing issues so that they can be answerable and responsible for home seekers’ funds. As such, this assures home seekers that every developer who holds a valid license from the authorizing Controller is fit and capable of such an undertaking.
The government’s Controller issues licenses to developers as per his or her discretion with as many conditions that he/she may deem necessary to protect the interests of home seekers. As such, the developer is obliged to comply with all such conditions otherwise risk losing the developer license as well as be liable to breaching offences that attract up to $100 000 in fines or even a 3-year jail sentence.
The Housing Developers Act also subjects all aspiring developers to very close scrutiny to ensure that they have no association with criminal elements. The developer license is automatically void or denied if the aspiring developer himself or any involved organizing member has links to previous fraudulent elements, whether locally in Singapore or elsewhere in the diaspora. The act also requires certain security deposits to be made before the license is issued as a way to secure home seekers’ funds.
After successful licensing of a developer, the Act provides for circumstances that can lead to the revocation of the same license for any reason that puts home seekers’ funds at risk of loss. These conditions range from illicit conduct, insufficient assets that can cover the developer’s accrued liabilities, up to any acts that are deemed to violate the conditions set by the Controller etc.
To ensure continuity in the monitoring of developers during projects, the Controller requires scheduled updates on progress by every licensed developer. This protects the home seekers who can be quickly alerted whenever such scheduled updates are not made by the developer. The developer is also mandated to update the Controller on any changes in any aspect of the project to allow necessary adjustments in the governing regulations.
The Singapore Government, through the housing minister, retains the right to make rules for the regulation of developer advertising, the purchase of units by home seekers before or during the construction of the said units, the initial deposit amounts required from home seekers, the stage of construction at which each instalment shall become payable, the requirements to be fulfilled before a licensed housing developer can require a purchaser to pay an instalment which is due, and the amount of the purchase price, expressed as a percentage of the total price which the purchaser shall not be required to pay before the certificate of statutory completion is issued. These Ministry reserves the control of these requirements to protect home seekers from overzealous developers who may want to demand large sums before making any progress with the project.
Finally, the Housing Developers Act reserves power for the Housing Minister to direct the Auditor-General or any other public servant from accounting to investigate all the books of accounts belonging to any developer at any time that he or she so wishes for any reason that he/she may deem necessary. This provision is designed to encourage all developers to keep track of all their financial activities and always stay on top of their books of accounts for the greatest accountability that can safeguard the interests of the home seekers.
Key Housing Developers’ Operating Rules
The Housing Developer license rule safeguards the interests of home seekers the most by setting very strict criteria before any developer can be issued with a developer license. This, therefore ensures that all licensed developers have satisfied the necessary quality standards which makes them trustworthy. The license is a pre-requisite for all developers with 4+ units in the project. It is a great starting point for home seekers to verify whether the developer is operating legally or not. The license is also further accompanied by building plan approvals before any units are sold to home seekers.
To check the authenticity and validity of the developer’s license, simply visit the Singapore Government portal for housing and query the details on the provided license. Each unit to be sold must have adequate documentation as laid out in the licensing rule namely; the Option to Purchase (OTP) and the Sale and Purchase Agreement (S&PA). Once the project is complete, the developer license will then be revoked.
Another key aspect of the licensing rule governs the construction quality assessment system (CONQUAS) scores and the quality mark (QM) ratings. These indicators are critical in evaluating the performance of the developer based on the developer’s past projects. Reputable developers subject their work to BCA for assessment and subsequent scoring on workmanship and the overall quality of the work in contrast to what was initially promised or planned. Those performance sores are, therefore, made available on the BCA website where any interested party can access them. Before engaging a developer, it is, therefore, wise to ask for a listing of their past and complete projects then visit here to take a look for yourself.
The Housing Developers (Show Unit) Rules also help to safeguard home seekers by ensuring full disclosure of the property under development so that each individual is fully aware of the state of the unit being sold. The developer is required to accurately depict the units’ plans and models. The units must also in full harmony with the approved building plans. The rules require the developer to show the specifics of the location and site plan with finer details such as scales, street names, and real-life references i.e. nearby buildings to the site of the project. Other details such as building facilities such as gardens, pools, and community halls must also be clearly indicated and modelled to scale.
The project model is considered a critical element of the developer’s project hence the Housing Developers (Show Unit) Rules require it to be built accurately and to scale as a proper miniature version of the complete project. The same applies to the unit model, both models also showing all facilities to be provided, the scale used in the construction, as well as the building plan approval number and approval date. Home seekers must ensure that the show unit model is the correct one that matches the project plans. Simple cross-references will help you to establish this using simple reference details such as street names and unit dimensions.
The developer is mandated to open and maintain at least one Bank account as a ‘Project Account’ through which all transactions are conducted under strict supervision by the controller’s office. This includes all the various categories of money paid by home seekers to purchase units on the project (instalments, mortgage loans, booking fees etc.) hence establishing a traceable money trail for home seekers. This account safeguards the home-seekers’ funds and ensures that the project runs smoothly.
To further protect the interests of home seekers, the developer is not allowed to make any withdrawals from the Project Account without proper authorization as stipulated by the Housing Developers (Control and Licensing) Act. Even then, all withdrawals must be directed to meeting the expenses incurred in the construction of the property such as labour costs, loan interests, and marketing costs etc. any other personal expenditures must be approved by the Controller and have a solid bank guarantee. This enhances accountability and transparency for every cent deposited by the home seekers. Also, all the funds in the Project Account remain separate property from that of the developer such that any creditor who has a claim against the developer cannot, under any circumstances, claim such funds for reimbursements.
The Progressive Payment Flow
The Progressive Payment Scheme for new launch properties is a gradual payment system that is tailored to suit the common trend of buying in-progress properties in Singapore. As implied by its name, the scheme enables home seekers to make gradual or stage-based payments for their new launch properties instead of forking out the full amount upfront before the property is complete.
Buildings Under Construction, sometimes known as BUC properties, are often sold out before completion in Singapore via the progressive payment scheme. The Housing Developers Rules take into cognizance the existence of the scheme and has clearly laid-out regulations on the matter which developers must follow. This helps to regulate the payment schedule across different projects from different developers although some slight variations may be present.
Since the payments are stage-based, they highly depend on the progress of the project. If delays in construction are experienced, they similarly translate to delayed payments. As such, this scheme often proves to be highly motivational to the developer to stick to the development schedule. Once a particular stage is completed, the developer notifies the home seeker’s lawyer who will then prompt the release of the payment, either from the bank or from personal funds depending on your choice of financing.
The scheme requires the payment to be made within 2 weeks from the time of notification by the developer. Failure to do so often attracts late penalties. Let’s take a quick look at a typical payment schedule for a condo unit under the Progressive Payment Scheme.
|STAGE||% of PURCHASE PRICE|
|On signing the Agreement OR Within 8 weeks from the Option date||20% (includes 5% booking fee paid in cash earlier)|
|Once the developer/seller submits a copy of the Agreement to purchase to the lawyer, the following progress payments are due, allowing 2 weeks from the date of notice of completion:|
|Reinforced concrete framework||10%|
|Door sub-frames / door frames, window frames, electrical wiring (without fittings), internal plastering and plumbing||5%|
|Car park, roads and drains serving the housing project||5%|
|Building, roads and drainage and sewerage works in the housing estate, connection of water, electricity and gas supplies|
(The Temporary Occupation Permit can often be released at this stage and the home seeker can move in)
(due once the Certificate of Statutory Completion has been issued)
The Progressive Payment Scheme does not interfere with mortgages and other financing loans. The repayment terms remain the same once the bank releases the funds. In the event that the developer submits notices of completion for more than one stage, the buyer must release payments for all as per the scheme. Similarly, buyers who purchase BUC properties under the scheme may be required to pay for all the completed stages to catch-up soon after signing the Sales and Purchase Agreements.
Sealing the Deal
With all these protections in place to shield you when buying private property, the journey becomes much more manageable. Let’s just quickly go over the process again which kicks off with the issuance of a blank cheque, signifying your interest to purchase the property. Remember, the cheque is not at all a commitment and must, therefore, be returned to you if you decide not to go through with the purchase as outlined by CEA guidelines.
Once you express interest, the developer will furnish you with full details of the project’s features such as site plans, floor plans, building specs (facilities, number of units etc.), applicable conditions/restrictions that are associated with the property, and any approved changes to the S&PA. This is also the right time to request for the developer’s list of past projects so that you can evaluate their CONQUAS scores and QM rating. If all that is found to be satisfactory, you can then pay the booking fee (ranges between 5% & 10% of the total unit price) to reserve your unit at which point the developer will issue the Option to Purchase (OTP).
Once the OTP is in your possession, the developer will then liaise with your lawyer and deliver the S&PA as well as the title to the unit before 2 weeks lapses from the OTP date. Once these essential documents have been delivered to your lawyer, you have 3 weeks from their delivery date to exercise the option by returning signed copies of the S&PA to the developer and paying the down payment, normally 20% of the purchase price (the booking fee counts as part of that 20%). The deadline for the down payment can often be extended to 8 weeks from the option date as per the developer’s discretion.
Should you decide against the purchase, be sure to notify the developer in writing of your wishes hence promptly lapsing the option. This will help you to avoid the 25% penalty on your booking fee which the developer is entitled to in the event that an OTP expires without the buyer taking any action. If you’re proceeding with the purchase, be sure to scrutinize the S&PA before signing it and remember that any amendments to it must always be approved by the Housing Controller.
Take special note of the Vacant Possession Date which is the day on which the agreement entitles you to access to the unit and the developer is obligated to hand you the keys. Failure to do this entitles the buyer to claim liquidated damages. Also note, however, that any occupancy must be supported by the issuance of either the Temporary Occupation Permit (TOP) or the Certificate of Statutory Completion (CSC). Of course, the progress of the project can affect the occupancy date, making it earlier or later than stated in the OTP or the S&PA.
In conclusion, property payments should never be taken lightly even with strict regulation in place. The best way to ensure a smooth process is to enlist the assistance of a competitive real estate agent who best understands your personal needs and can walk you through the whole process. Property development agents also come in handy when it comes to evaluations, whether it’s giving the property a price tag or determining the legitimacy of any property deal. As such, never compromise when it comes to securing your property purchase payments. It is a risk that can easily turn into a nightmare and rob you of the chance to own personal property in the beautiful nation of Singapore.