Would you ever buy a product that doesn't exist yet? I'm sure most people would say no. I mean, why would you? And yet that's what's happening in real estate. People are buying Building Under Construction (BUC) properties, placing their trust in showflats (and developers) rather than an actual unit.

It might sound risky, but in Singapore's highly regulated property market, buying a BUC can be seen as a strategic move since you get a lower price. So, should you take the early bird opportunity or wait until the project is completed?

1. You get to choose a unit before everyone else. Since the development is completed yet, you'll have a wider selection of units. So you'll have more flexibility in choosing a certain floor level, orientation, or proximity to amenities.
2. Early bird discounts. Developers often offer introductory prices or attractive discounts to incentivise buyers. These can include psf discounts, absorption of stamp duties, or other financial perks, meaning you pay a lot less than those who will buy the same unit once the project is completed. However, prices may rise as sales gain momentum. This means the earlier you buy, the lower the price and the higher the returns.
3. Lower interest rates. BUC loan rates can be lower than those for completed properties, which brings me to my next point:
4. Progressive payment. Instead of making one big purchase, you can spread the cost of the BUC over multiple smaller payments, making it more financially manageable.

Unlike loans for completed homes, which are disbursed all at once, BUC loans are a bit different. There is a deferred payment scheme, which allows buyers to delay most of their payments until the construction of the property is complete.

Then, there's the progressive payment scheme, which I've briefly touched upon earlier. It just means you pay in stages as the property gets built, starting with cash, then CPF savings, and finally your bank loan.

First, you'll need to pay 5% of the purchase price in cash as the Option to Purchase (OTP) fee. After that, the remaining 15% down payment can be paid using cash or CPF when signing the Sale and Purchase Agreement (S&P). Once these are completed, the bank loan will progressively be disbursed based on the construction milestones.

Repayment and interest will only start after the first loan disbursement. Plus, BUC loans often come with no lock-in period, meaning you have the freedom to pay down your loan partially or fully anytime. It's a flexible payment plan that also acts as a safeguard to ensure that you do not pay more than what the developer has done for the project.

Usually, the progress payment schedule looks like this:

To illustrate, the payment schedule for a $1.5 million BUC would look like this:

There are also many BUC loans that come with an Interest-Only Payment Period during the initial stages. During this phase, borrowers only need to pay the interest on the amount disbursed until a key milestone, like for example, when the TOP is reached. Although it reduces financial strain early on, do remember that it does not reduce the principal loan amount.

Everything has its ups and downs. For BUC properties, it's obvious that there are risks involved, much like any other investments.

First, there could be project delays, which can arise from unforeseen circumstances like the COVID-19 pandemic. There could also be some issues with construction, or maybe the developers haven't hit their sales targets, causing them to push things back, or even worse, cancel the entire thing. Though they are rare, cancellations can happen if developers face significant financial or regulatory hurdles. This will leave buyers in a difficult position of financial losses and legal challenges.

The Sycamore Tree and Laurel Tree projects are very good examples of developers going bust. Both projects were supposed to reach TOP in 2016. However, both developments ended up being abandoned due to financial issues, affecting approximately 183 buyers.

There are also some quality concerns with any BUC property since the final product often varies from the showflats you toured. Materials, finishes, or even structural aspects may differ, leaving room for discrepancies between expectations and reality.

On top of that, transfers aren't allowed. Unlike resale properties, you can't transfer your BUC purchase rights to someone else. If you want to change or add names on the title, you'll need the developer's approval.

When a project, especially a BUC, is overseas, you might have some concerns. What if they take off with your money, right? But not to worry because the Council for Estate Agencies (CEA) has set a stringent guideline to ensure consumer protection and maintain professional standards. This includes:

1. Due diligence on the vendor to verify the developer's legitimacy, financial standing, and track record. basically, ensuring they are reputable and capable of delivering the project as promised.
2. Verification of project details to confirm that the property has obtained the necessary approvals from local authorities in the country of origin. accuracy of claims made about the property's features and benefits are also assessed.
3. Analysing legal and financial implications involved in purchasing the property, including ownership rights, taxation, and any restrictions on foreign buyers. payment structure and financing options are also evaluated to ensure they are transparent and fair.
4. Comprehensive training of salespersons on the specific foreign property, including its legal, financial, and procedural aspects, to provide accurate information and guidance to potential buyers.
5. Clear marketing materials, meaning that all promotional content is transparent, accurate, and not misleading. This gives potential buyers a realistic understanding of the property.

When choosing a developer, it's important to consider their track record, which reflects their ability to deliver quality projects on time. Look for a developer with an established reputation, supported by successful past projects and positive customer feedback. Awards and industry recognition can further indicate their expertise. Innovation is key, so select developers who integrate sustainable practices, smart home technology, and future-proof designs. Additionally, transparency in communication about project progress, potential delays, pricing, and customer concerns is essential for building trust and ensuring satisfaction.

Another important factor to consider is the transformation and rejuvenation plans in the area where you're buying, as these can offer valuable insights into future property prices and growth potential. A great resource for this is the Urban Redevelopment Authority's (URA) Master Plan, which is updated roughly every five years and outlines the direction for Singapore's medium-term development over the next 10 to 15 years. Notable examples of such transformations include the Jurong Lake District, Punggol Digital District, and Paya Lebar Sub-Regional Centre. These developments often lead to job creation, which in turn drives demand for housing in the area, helping to increase property values.

Selecting a property with a solid entry price is crucial, but equally important is having a well-defined exit strategy-a factor that should never be overlooked. Too often, investors only begin to think about their exit plan after making the purchase, when in reality, it should be a primary consideration from the very beginning. Your exit strategy will naturally depend on your financial goals and stage in life. Whether you're pursuing short-term gains, medium-term growth, or a long-term hold, the property you choose must align with your broader investment objectives.

Here's a golden rule to remember: if you don't know what to do with the proceeds after selling, it's better not to sell at all. Instead, put that capital to work to continue generating wealth. That's the mindset of a savvy investor. Therefore, a well-thought-out exit strategy is absolutely essential.

Well that depends on your risk appetite and long-term goals. But like any investment, buying a BUC property comes with both risks and rewards. The lower entry price, progressive payment scheme, and potential for capital appreciation make BUCs an attractive option. However, delays, quality concerns, and lack of flexibility in transfers are some factors you need to consider.

The key to making a smart BUC purchase is due diligence. That means choosing a reputable developer, understanding financing options, and keeping an eye on upcoming developments in the area. But let's be real, you can't do everything alone. Having the right guidance is just as important and you'll want to approach an agency with strict governance. So, if you come across a project you're unsure about, feel free to check in with us. We can help you navigate the process and filter out unreliable projects. If done right, a BUC property could be the jackpot you've been waiting for.

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