Problems of Deferred Payment Scheme (20 Dec 2008)

During the Asian financial crises, deferred payment on homes was adapted to stimulate the property market. With a little cash, a buyer could secure a property before it was in fact built. This scheme was later stopped because it encouraged widespread speculation.

As of 2008, there were 3350 deferred homes, with more partially “paid for” homes in 2009 totalling to 4,560 and in 2010 to 2,540. What becomes a problem with these 10,540 deferred payment homes is that the owners or buyers may not complete their payments in the foreseeable future, causing losses in a falling market.

These buyers already experience hard time borrowing money from the bank just to settle their balances. Now, the banks, wary of the foreseeable risk, are requiring more cash out on the part of the home owners before they will lend credit. If the home owners cannot raise their own money, as most are, and they cannot get credit, then they too will cut their loses by selling their deferred payment homes in an already falling property market.

One bright outlook however is that according to Mr. Tan Tion Chen of Frank Knight, buyers who bought in 2005 and 2006, when prices were not so high, have only a slim chance of defaulting on their payments.

This positive outlook was also shared by Mr. Chua Yan Liang of Jones Lang LaSalle. He said, “The 10,450 number seems large but…if buyers can get loans, the problem won’t be as severe as some people think (although) buyers may see it as a reason to bring prices down.”