PDF versionSingapore, - The Urban Redevelopment Authority (URA) released today information on private
housing units sold under the Deferred Payment Scheme (DPS). Under this scheme, developers could
offer to purchasers of uncompleted private residential properties the option to defer progress
payments due after the initial downpayment of 10% to 20% of the purchase price of the home to a
later date. The plan had allowed homebuyers to postpone taking out mortgages equivalent to as much
as 90 percent of the property values until the properties are completed.
There is some concern in the property market that a large number of the uncompleted homes sold under the DPS could be disposed at distress prices in 2009 and 2010 as the buyers are required to pay the balance of the purchase price when the projects are completed and some of the buyers may not wish to do so as property prices weakened. Such distress sales could further depress real estate prices.
The statistics released today showed that 2009 and 2010 will be the years, when the construction of
the majority, about 68%, of the remaining uncompleted 10,450 private homes that were bought with
DPS are expected to be completed. In 2009 and 2010, about 4,560 and 2,540 private home would be
completed respectively. These 10,450 units were sold in 2005 to 2008.
In addition, among the 10,033 private homes that are expected to be completed in 2009, 45% have been sold with DPS. The corresponding figure for 2010 is 30%.
The Singapore property market started to recover at about mid-2004. In 2005 and 2006, average prices of private homes were still relatively low. In 2007, home prices increased sharply and reach apeak in mid-2008. There was also a construction boom, which resulted in some shortages of construction resources and the delay of the start of some development projects.
Most of the units that are scheduled for completion in 2009 and 2010 were probably purchased in
2005 and 2006 at prices that are still relatively lower than today's level or the level in 2009. Even if the
property market continue to weaken in 2009, the owners of these 4,560 units bought under the DPS
could either lease out the homes at relatively good returns or sell the homes at their breakeven level
or with a profit. We expect the property market to stabilize in 2010 and may show some signs of
recovery. Therefore most of the owners of the 2,540 homes that are expected to be completed in 2010
would not be under pressure to sell at distress prices.
Homes that were bought in 2007 and 2008 are likely to be completed after 2010, and will be able to
benefit from a possible recovery in the economy and property market by then. Therefore, there would
also be an absence of a large number of distress sales of DPS units after 2010.
Furthermore, some projects that are under construction may be delayed
In addition, based on a complete property cycle, from 1998 to 2008, the new demand of occupied private homes is about 7,200 units per year. This new demand should be able to provide investment opportunities for owners of homes bought with DPS and which will be completed in 2009 and 2010. As such, owners who are not faced with extreme financial difficulties should be confident to hold the homes for investments. Moreover, newly completed homes, especially those in Core Central Region (CCR), are usually more preferred in the leasing market and can enjoy rental premiums. For residential units that are located outside the prime CCR, they are less at risk of default because a relatively higher proportion of these homes were bought for owners' occupation.
In conclusion, our analysis of the residential statistics on the Deferred Payment Scheme shows that the scenario of a large number of owners of uncompleted homes that were bought with the DPS giving up or repudiating their purchases as they do not wish to take possession of these homes due to a weak property market is unlikely to occur. Instead, we believe that most of these owners would choose to complete the purchase of their properties when they are completed as it makes more financial sense to do so.
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