Understanding Building-Under-Construction (BUC) Loans in Singapore

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Understanding Building under Construction (BUC) Loans in Singapore

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The Pros and Cons Of Buying Building Under Construction(BUC)







The Pros:

•Grabbing the best units with regard to beautiful views, etc.

•Early purchases come with incredible savings like the absorption of stamp duties, a per-square-foot discounts, or other administrative discounts







The Cons:

•There are risks involved in purchasing an uncompleted house versus a completed one.

•The developer may go bust before the property sees the light of day







Whether you are buying a BUC or completed house, it is likely you will

finance it with a loan







What are BUC loans?

How are they useful?







Even with a loan, there are upfront payments

1. Buyer's stamp duty in cash and/or CPF 2. Down-payment of 20% of the transacted

price







For a first property purchase, the next flowchart summarizes the upfront payment

at the different stages .






Signing of Option to Purchase

Option Fee (Booking Fee) = 5% - 10% of Purchase Price(Cash only)

1. Sign and return S&P to developer

2. Down payment less booking fee (Some developer may allow this payment to be made within 8 weeks from the signing of Option to Purchase instead)

(Cash and/or CPF)

75% of booking fee is refunded

If option is not

exercised

S&P* will have to be delivered to buyer or his lawyer within 14 days from date of option

Option to Purchase becomes valid for 3

weeks after delivery of S&P

Within 14 days from the signing of S&P

1. Buyer's Stamp Duty = S$5,400 + 3% of (purchase price - S$360,000)

2. ABSD = 5% of purchase price or valuation, whichever is higher (PRs)

OR

ABSD = 15% of purchase price, whichever is higher (Foreigners and non-individuals)

(Cash and/or CPF)

* S&P stands for Sales and Purchase Agreement

If option is exercised within the validity period


What is a BUC Loan ?

A BUC loan has a progressive* payment schedule. Meaning, a particular percentage of the loan is paid out at each stage of the property construction.

*Unlike a completed property loan which is 100% paid out at one time

What is a BUC loan?What is a BUC loan?







Purchase Price: S$2,000,000

Loan Quantum: S$1,600,000

Example 1







Stage Month Disbursed Ratio Interest Rate Disbursed Balance Monthly Installment

Completion of Foundation 1 10% 1.250% S$200,000.00 S$666.50

Completion of Superstructure 7 10% 1.250% S$397,243.81 S$1,342.32

Completion of Brick Wall 13 5% 1.450% S$491,658.14 S$1,731.45

Completion of Ceiling/Roofing 17 5% 1.450% S$587,100.42 S$2,086.91

Completion of ElectricalWiring/Plumbing

21 5% 1.450% S$681,580.43 S$2,445.75

Completion of Roads/CarsParks/Drainage

25 5% 1.450% S$775,079.97 S$2,808.04

Issuance of Temporary OccupationPermit (TOP)

29 25% 1.450% S$1,267,580.46 S$4,637.19

Certificate of Statutory Completion 40 15% 2.750% S$1,534,842.41 S$6,759.05

Table 1: Disbursement Schedule for a BUC LoanSource: www.iCompareLoan.com








•At the first disbursement, the repayment of the loan starts

• The disbursed ratio is the percentage of the purchase price, not the loan quantum

• In the first month 10% is disbursed and in the seventh month, another 10% is disbursed, and so on.

•This schedule is only a guide, the actual completion time for each stage may vary in reality,but the amount payable at each stage should be the same.

Table Interpretation







What Are The Types Of BUC Loans?

• Fixed Rate Package• Variable (Floating) Rate Packageo Board rate (bank’s internal reference) – peggedo SIBOR-peggedo SOR-peggedo Combo SIBOR/SOR [recently introduced by Australia and New

Zealand Banking Group Limited (ANZ)]







Notes:

•The Government cancelled interest-only loans since 14 September 2009

•For fixed rate or variable rate package conversion, if allowed, is usually after TOP

• In case of loan redemption, be ready to pay a cancellation fee,normally 1.5 - 2.0% of the un-disbursed amount

•If the redemption is during the lock-in period, you will have to bear the cancellation fee on top of the lock-in penalty.







Interest rates for BUC loans are not necessarily higher than loans for completed properties

Hence buying under construction homes with a BUC loan has an advantage

During the initial few years, the loan amount is smaller

interest payment will be smaller







About Property Buyer Mortgage Consultants

Property Buyer Mortgage Consultants is a research focused independent mortgage broker. We emphasize a consultative approach where we match our client’s financial situation with the best fit mortgage loan, not simply a cheap loan.

We also help property buyers in their buying process helping them avoid pitfalls from unscrupulous property agents. (We are not property agents, therefore there is no conflict of interests.)

We also developed our proprietary home loan reporting tool which provides amongst other things, 23 years Sibor history as well as 6 years worth of SOR.

Our service is free to you as banks pay us a commission on loan deals completed. Banks in turn save on staffing cost as we are not on their payroll. www.PropertyBuyer.com.sg/mortgagewww.SingaporeHomeLoan.netwww.iCompareLoan.com/consultant/




http://www.icompareloan.com/consultant/

http://www.propertybuyer.com.sg/mortgage

http://www.singaporehomeloan.net/

http://www.icompareloan.com/consultant/




Understanding Building-Under-Construction (BUC) Loans in Singapore

Real Estate

Transcript of Understanding Building-Under-Construction (BUC) Loans in Singapore