Deferred Payment Scheme – An explanation on how they work for property investors (Updated)

Updated: Jun 10, 2021

how does the deferred payment scheme work in property investments
Is the deferred payment scheme a suitable option for you? Find out more below!

If you have been actively searching for an investment property in the past year, you might 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.

More recently, projects such as 8 St Thomas, Southbeach Residences, Brooks I and II, Reflections at Keppel Bay, The Crest and Nouvel 18 have all offered variations of this scheme that are creatively titled "Stay and Pay scheme", "Reserve and Stay Scheme" or "Reservation Scheme" among others.

But in essence they are deferred payment schemes, just with varying booking and option exercise fees and completion periods.

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 sell out, 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 usual key mechanisms of a DPS lies in the booking fee required, when the option needs to be exercised, and how long the completion period is deferred for.

Typically, a buyer would pay a 25 percent down payment (five percent in cash and 20 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 25 percent down payment, pay stamp duties within two weeks of exercising the option to purchase, and draw down on the remaining 75 percent loan within 10 to 12 weeks.

This means that he or she would begin servicing their monthly installments 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.