Interest Absorption Scheme gains popularity but not all buyers satisfied

Private property developers are offering schemes to help Singapore’s homebuyers amid the current economic recession.

One of the schemes is the Interest Absorption Scheme (IAS). It sees developers paying the interest on home loans instead of buyers, until the project receives its Temporary Occupation Permit (TOP).

It is similar to the Deferred Payment Scheme which the Singapore government scrapped last year.

The IAS has gained popularity as it helps buyers manage their cashflow and can even result in cost savings. But some purchasers say they are surprised by an indemnity clause included in the scheme.

One homebuyer, who chose to remain anonymous, is worried about the consequences should developers fail to pay the interest.

He said: “It says that if the developer does not pay the interest, we will have to pay the bank. And if the developer defaults on paying the interest, we will have our credit standing affected. And we have to bear all indemnity losses, damages to the bank, which is ridiculous!

“We already took a bank loan. And in the bank loan’s terms and conditions, there is an indemnity (clause) already. So why is there a need to sign another form which basically relieves the developer from paying interest?”

But experts say the risks are low.

CEO of PropNex Realty, Mohamed Ismail, said: “The current practice is the bank charges interest to the purchaser’s lawyer, and the purchaser’s lawyer invoices the developer to pay for it…

“The IAS amount is so negligible in the overall cost of the project and I don’t think any reputable developer is going to not oblige the conditions. (This will) have a greater impact on their future launches.”

Most developers charge a three per cent premium for the scheme, although some have chosen to waive this, which means cost savings for buyers.

PropNex’s CEO said: “If a developer has only one price list… I will strongly recommend you seriously consider IAS, because there will be indirectly some cost savings in the interest until TOP. But before that, you may also want to check with the developer – are there any kinds of special discounts or anything if you’re not taking IAS.”

He added that if the developer has already factored the IAS into the pricing, then it can work out to be a good deal for buyers.

Source : Channel NewsAsia – 3 Mar 2009

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