Deferred Payment Scheme (DPS) essentially is to delay paying for a new condo launch for 3 years after you have put down the initial 20% downpayment. (Do note that some new Singapore condos only have 2-years DPS.) After 3 years, you would then start paying like any other private condo unit; that is your monthly instalments start to kick in only after the 3-year “free period”.
In today’s Singapore condo market, DPS can only be offered if the new condo launch has attained its Certificate of Statutory Completion, or in short CSC. The decision to adopt a DPS is very straight forward. Developers are a little urgent to ramp up the sales of unsold units, otherwise they would have to incur penalty if they cross the Qualifying Certificate deadline. It is purely a business decision, that is, maximizing profit or minimizing losses. For a large new condo launch, the penalty can easily run into tens of millions of dollars.
DPS is actually very attractive to home buyers, particularly if you are buying it as an investor. For example, a new launch condo unit costs $1,500,000 at the CSC stage. All that is needed is for you to make the downpayment of $300,000, plus the buyer’s stamp duty. And here comes the beauty – You absolutely do nothing for the next 3 years except to collect the monthly rental income!
Say your monthly rental is $4,500. After 3 years, your total rental income would be $162,000. Assuming you never spent a single cent from the rent received all these 3 years, you would have earned some decent interest as well.
The monthly mortgage instalment would have kicked in by now. Say you are servicing $6,200 per month. You thus need to top up $1,700 ($6,200-$4500).
Now, the $162,000 (not including interest earned) sitting in the bank effectively is able to service close to 8 years of $1,700!
The calculations are as follows:
$162,000 ÷ $1,700 = 95 months
95 months ÷ 12 = 7.9 years
Here is the sweetest of all – You have already enjoyed 3 initial years of payment holiday. Now you have another 8 years of “instalment free” period from the $162,000 accumulated rental income. In all, you have 11 years of payment holiday!!
One example of new condo offering DPS currently is OUE Twin Peaks. Enjoy a beautiful video on this new property which may become your prize catch any time soon: