Transacting homes off-plan in Singapore is a win-win proposition

Aug 15, 2022

2021 was a good year for housing developers in Singapore. Excluding executive condominiums, developers sold 13,027 private homes in 2021 as private home prices rose 10.6 per cent from a year ago, according to data from the Urban Redevelopment Authority (URA).

The private homes market turned more muted in early 2022 following the introduction of property cooling measures on Dec 16, 2021. But private home prices rose 3.5 per cent quarter-on-quarter in the second quarter of 2022 and transaction volume in Q2 rose from that of the previous quarter, according to URA data. Subsequently, private residential development, AMO Residence, the year’s first major new launch in the Outside Central Region, sold nearly all of its units by the first day of its launch on Jul 23.

New homes in Singapore are typically sold off-plan and paid for based on a progress payment schedule. Uncompleted new homes accounted for nearly 99 per cent of new homes sold by developers in 2021.



Take a housing development site bought from the Government Land Sales programme. A developer may launch the sales of its project around 12-18 months after being awarded the site. At this point, construction of the project could be at a very early stage.

Working with marketing agents, developers create buzz around their new launches. Lured by enticing marketing collateral and well-appointed show flats, buyers enter contracts to buy their new uncompleted homes.

Typically, within 8 weeks of receiving the option to purchase a new uncompleted condominium unit, a buyer will have paid 20 per cent of the price plus stamp duties. The next 40 per cent of the purchase price is then paid in stages based on various construction milestones, which could spread over a period of around 2 to 3 years.

Once the Temporary Occupation Permit for the project is issued, a buyer pays a further 25 per cent of the purchase price and collects the keys to the unit. The final 15 per cent is payable possibly some months later when the project obtains its Certificate of Statutory Completion.

There are risks to buying uncompleted homes off-plan. Among parties affected by debt woes of some Chinese developers, are home buyers in China who had made payments for uncompleted homes in stalled projects.

However, developers here generally have a good track record of delivering homes to buyers in a timely manner. Transacting new homes off-plan can be a winning proposition for both developers and buyers.

Developer’s view

Developers can achieve premium pricing from selling uncompleted new homes - new-sale units may fetch a premium of around 40 per cent over resale units.

Developers can opt to wait until they complete building the new homes before starting to sell the units, so buyers can appreciate the finished product and possibly pay more for a home that is in move-in condition. By selling completed units, developers gain from higher selling prices if prices rise over the time taken to complete a development.

However, few developers start the sale of new homes post-completion - an exception was Swire Properties, which sold homes at luxury development Eden, at 2 Draycott Park, in 2021, after completing the development in 2019.

Despite possibly giving up some pricing upside, developers tend to embrace selling projects off-plan due to financial and risk management reasons. Locking in strong sales around the time construction starts helps to de-risk a project.

Payments received from buyers can be used to help fund the building of a development. Financing costs, which are currently rising, are reduced as the size of the project loan drawdown is smaller. Also, some of the equity that has been put into the project may be recovered faster. The result is a better internal rate of return on a project where the net profit margin may be thin.

Once sales in a project are locked in, the business development team can work on buying new development sites as the revenue risk of the said project has been vastly reduced.

De-risking projects via locking in sales early matters, as housing developers here face a tight time frame to complete projects and sell inventory. For sites bought on or after Dec 16, 2021, housing developers pay 40 per cent additional buyer’s stamp duty (ABSD), of which 35 per cent ABSD may be remitted upfront subject to conditions including the need to complete and sell all homes within a period of 5 years from the date of purchase of a site.

Buyer’s view

Some buyers may opt for uncompleted new homes instead of existing homes in the resale market because they are drawn to getting a new product. New condominium developments may offer units with more efficient layouts, better configuration, more flexible design and better fittings. Also, new developments may offer modern facilities, sustainability features and curated environments, as well as leverage smart and green technology.

Another key driver behind the popularity of buying homes off-plan is that buyers pay for their homes progressively. A buyer of an uncompleted new home, who expects prices to rise, can lock in the price of his unit today, ahead of collecting the keys to the unit in say 3 years time.

If home prices rise by a few percentage points annually, a buyer of an uncompleted home could even see a double-digit price rise in home prices by the time he collects the keys to his new home. During this period, the buyer is yet to pay up the full purchase price of the unit.

A buyer may have much more time to make full payment for an uncompleted new home versus a completed resale home. Unlike with buying a completed resale home, the said buyer need not quickly draw down and service the full mortgage loan.

In sum, buyers and sellers have good reasons to engage in transacting new homes off-plan.

Still, buyers need to be aware that while buying homes off-plan is widely practised in Singapore, with possibly low risk of non-delivery of a completed product, one risks being disappointed upon receiving the keys to the dream home. One may be dissatisfied with the quality of workmanship, the speed at which defects are rectified, or the common facilities having less of a wow factor than was expected.

Buyers take a leap of faith when buying uncompleted new homes. Hopefully, developers, who value their reputations and are committed to building sustainable businesses, will do their utmost to repay the faith of buyers. Post collecting the keys to their pricey new abodes, may there be many happy homeowners.

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