Your Handy BUC Loan Guide: How To Buy BUC Property

In this article, we’ll explore everything you need to know about purchasing a BUC property in Singapore. From understanding what defines a BUC property to interest-only payment periods and learning whether you can utilise your CPF for a BUC loan, this guide equips you with the insights needed to approach your property purchase confidently.

What Is a Building Under Construction (BUC) Property?

A Building Under Construction (BUC) refers to residential properties still in development and yet to receive a temporary occupation permit (TOP). Developers sell these before or during the construction phase, and buyers typically sign a sales and purchase agreement before the property is completed.

BUC vs Resale Properties

BUC properties differ significantly from resale properties, which are completed and available for immediate occupation.

Feature	BUC Properties	Resale Properties
Construction Status	Under construction	Fully completed
Payment Terms	Based on a progressive payment scheme	Lump sum or financed with a bank loan
Purchase Timeline	Requires waiting for completion	Immediate occupation possible

Pros and Cons of Buying BUC Property

Pros:

• Potential capital appreciation during the construction phase

• Flexible payment schedule via the progressive payment scheme

• Brand-new properties often come with modern amenities and warranties

Cons:

• Construction delays may prolong completion

• Financial risk if the developer faces issues

• Requires careful financial planning to manage the initial down payment and subsequent monthly payments

What Is a BUC Loan?

A Building Under Construction (BUC) loan is a specialised financing solution designed for buyers of residential properties still in the construction phase. Unlike traditional home loans for completed properties, BUC loans support property purchases where the building has not yet received its Temporary Occupation Permit (TOP).

These loans are not applicable for commercial properties and follow a progressive payment scheme where funds are disbursed in stages aligned with the construction progress.

Interest Rates

Interest rates for BUC loans may vary depending on factors such as the loan package chosen, the borrower’s financial commitments, and market conditions. These rates can be fixed, floating, or pegged to benchmark rates like the Singapore Overnight Rate Average (SORA) or a bank’s internal reference rate.

• Fixed Rates: Provide predictable monthly payments during a locked period

• Floating Rates: Fluctuate based on market conditions, offering potential cost savings when rates drop but increasing risk during rising rate environments

• SORA-Pegged Rates: Transparent rates that reflect overnight interbank lending costs

Loan Tenure and LTV Ratio

The loan tenure for a BUC loan typically spans up to 30 years, similar to loans for completed properties. The Loan-to-Value (LTV) ratio can go up to 75% for borrowers who meet the eligibility criteria and have no existing debt obligations affecting their borrowing capacity.

BUC Loans vs Completed Property Loans

Understanding how BUC loans compare to those for completed properties can help you assess which financing solution best suits your property purchase and financial planning needs.

Criteria	BUC Loan	Completed Property Loan
Disbursement	Staged during construction milestones	Full disbursement at loan approval
Loan Rates	May be higher initially	Potential for lower initial rates
Property Condition	Under construction	Fully built and operational
Cash Flow Management	Easier with staged payments	Immediate full monthly repayments

BUC Loans vs Traditional Home Loans

Comparing BUC loans to traditional home loans highlights crucial differences, including loan disbursement, interest rates, and repayment structures, which can help you select the most suitable option for your circumstances.

Features	BUC Loan	Traditional Home Loan
Construction Phase Funding	Yes	No
Interest-Only Payment Period	Available	Not typically offered
Payment Schedule	Progressive	Immediate full payments
Suitable for	BUC properties	Completed properties

BUC Loan Benefits

• Enables easier cash flow management during the construction phase

• Lower monthly repayments initially due to staged payments

• Flexibility to adapt financing to construction milestones

BUC Loan Risks

• Potential for rising interest rates over time

• Financial burden if construction delays occur

• Risk of property value depreciation before completion

What’s a Progressive Payment Scheme (PPS)?

The Progressive Payment Scheme is a financing structure for BUC properties. Under this scheme, payments are made in stages according to construction progress.

Progressive Payment Scheme Stages

The Progressive Payment Scheme (PPS) breaks down payments into stages based on the construction milestones of your BUC property. This staggered approach helps with cash flow management as payments gradually increase during construction.

Payment Stage	Percentage of Purchase Price	Description
Booking Fee	5%	Paid upon signing the Option to Purchase (using CPF or cash)
Upon Signing the Sales & Purchase Agreement (within 8 weeks of Option Exercise)	20% (less booking fee)	Includes the initial deposit Payable via CPF or cash
Completion of Foundation Works	10%	Payable after the completion of the foundation of the building
Completion of Reinforced Concrete Framework	10%	Payable after the structure’s main framework is completed
Completion of Brick Walls	5%	Payable after all the internal and external walls are completed
Completion of Roofing	5%	Payable after the full installation of the roof structure
Completion of Plumbing and Electrical Works	5%	Payable after plumbing and electrical works are finished
Completion of External Walls	5%	Payable after external walls are fully constructed
Completion of Carparks, Roads, and Drains	5%	Payable after essential external facilities like carparks, roads, and drains are ready
Issuance of Temporary Occupation Permit (TOP)	25%	Payable when the property is deemed ready for occupation by the authorities
Legal Completion of Sale	15%	Payable upon legal completion and transfer of ownership to the buyer

PPS Pros and Cons

Pros:

• Gradual payments reduce financial strain compared to paying upfront for a completed property.

• Early purchase prices may be lower than market rates at project completion.

• Buyers can spread out payments during the construction period.

Cons:

• Payment schedules depend on construction progress, and delays can affect financial planning.

• Buyers may need to service interest-only payments during early construction, increasing the total loan amount.

• Buyers receive no immediate rental income until project completion and issuance of temporary occupation permit (TOP).

Deferred Payment Scheme

An alternative to PPS, the Deferred Payment Scheme (DPS) allows buyers to defer payments until closer to house completion. This scheme offers flexibility but may come with higher costs or fewer financing options. While DPS can ease immediate financial pressure, it’s essential to consider its impact on long-term financial commitments.

What Is the Interest-Only Payment Period?

Many BUC loans offer an interest-only payment period. This feature allows borrowers to pay only the interest rates on their loans without reducing the loan amount (principal) during the construction phase.

This period continues until the property reaches key stages of completion, culminating in the issuance of the Temporary Occupation Permit (TOP). After this, full monthly repayments—including interest and principal—commence.

This feature aligns with the Progressive Payment Scheme, helping buyers better manage their cash flow while the property is still under construction.

Impact on Total BUC Loan Cost

While the interest-only payment period provides short-term relief, it can increase the overall cost of the BUC loan:

• Higher Interest Paid: Without reducing the principal during this period, borrowers may pay more total interest over the life of the loan.

• Extended Loan Tenure: Some borrowers may face extended loan terms as repayments begin fully after construction, which can increase total financing costs.

• Financial Planning: Careful financial planning is crucial to avoid unexpected financial burdens when full payments begin after the construction period.

Considerations During Interest-Only Period

• Plan for future predictable monthly payments by setting aside funds during this initial phase.

• Monitor construction progress closely to anticipate when full repayment will start.

• Consult a trusted mortgage broker or conveyancing lawyer to evaluate the long-term financial implications.

Balancing the short-term benefits with long-term repayment strategies can help ensure a smoother transition from interest-only payments to full loan disbursement management.

What Are the Different Packages for BUC Loans?

BUC loans offer different packages designed to suit various financial needs. Knowing your options helps you pick a plan that fits your budget and goals.

Fixed Rate

• Offers predictable monthly payments, making budgeting easier throughout the construction period

• Protects against rising interest rates during the lock-in period, providing stability in uncertain markets

Floating Rate

• Linked to benchmarks like SORA (Singapore Overnight Rate Average), ensuring a dynamic approach to interest calculations

• Rates fluctuate with market conditions, allowing potential savings when rates are low

SORA-Pegged

• Introduced as a replacement for the previous SIBOR system for improved market alignment

• Provides greater transparency and flexibility in rate adjustments, aligning with global financial trends

Fixed Deposit Rate

• Tied to the bank’s fixed deposit rate, offering a balance between stability and market responsiveness

• Ideal for those seeking moderate predictability in interest payments while allowing some flexibility

Board Rate

• Based on the bank’s internal reference, which may be subject to change without external benchmarks

• It lacks transparency, making it harder to predict future monthly payments, but it can sometimes offer competitive initial rates

What Do BUC Loan Rates Look Like?

Staying informed about current interest rates for fixed and floating-rate loans is vital for effective financial planning when purchasing a BUC property.

Bank	Loan Type	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6
OCBC	3-month SORA	3.30%	3.30%	3.30%	3.30%	3.60%	3.60%
DBS	3-month SORA	3.30%	3.30%	3.30%	3.30%	3.60%	3.60%
Maybank	3-month SORA	3.30%	3.30%	3.30%	3.30%	3.60%	3.60%
UOB	3-month SORA	3.30%	3.30%	3.30%	3.30%	3.60%	3.60%
DBS	FHR6	3.60%	3.60%	3.60%	3.60%	3.60%	3.60%

(Disclaimer: The information provided is accurate as of the time of writing but is subject to change.)

Can You Use Your CPF To Help Pay Your BUC Loan?

Yes, buyers can use their CPF Ordinary Account (OA) funds for the initial down payment, monthly repayments, and even to cover the remaining balance after a bank loan. Always check CPF usage limits for residential properties.

How Do I Get a BUC Loan?

Securing a BUC loan is a multi-step process that requires careful preparation and understanding of your financial standing. From meeting eligibility criteria to ensuring smooth loan disbursement, taking the right steps can help you navigate the journey successfully.

BUC Loan Eligibility

To qualify for a loan for building construction, buyers must meet specific requirements set by banks and financial institutions:

• BUC loans are exclusive to under-construction properties intended for residential use.

• Borrowers must generally be between 21 and 65 years old at the time of application.

• A stable income and clear documentation are required to demonstrate the borrower’s repayment capacity.

• A good credit score increases the chances of loan approval and may unlock more competitive loan terms.

• Borrowers with minimal existing debt obligations are more likely to secure a higher maximum loan amount.

BUC Loan Application Process

1. Compare loan offers from different banks to find the best mortgage loan packages for your needs.

2. Common documents include identity verification, proof of income, bank statements, and a copy of the sales and purchase agreement.

3. Complete the bank’s loan process and provide the required documentation for review.

4. The bank will assess your financial commitments, credit history, and income stability to determine the loan amount offered.

5. Upon approval, the bank will issue a letter of offer detailing the loan’s terms and conditions.

Facilitating Approval

Boost your chances of loan approval by taking these steps:

• Ensure timely loan repayment and manage credit card usage wisely.

• Minimise outstanding obligations to improve your eligibility for a higher maximum loan.

• Submit clear and truthful documentation to avoid delays.

• Consulting with a trusted mortgage broker can help you navigate the loan process and negotiate better terms.

Approval Timeline

The time taken for loan approval can vary:

• Pre-Approval: Typically within 5 to 10 working days.

• Final Approval: After the bank verifies your documentation and completes the necessary checks, final approval may take 1 to 2 weeks.

Loan Disbursement

Once the loan is approved, disbursement follows a Progressive Payment Scheme, releasing funds at key construction milestones such as foundation laying, structural completion, and finishing works. These staged disbursements help manage cash flow during the construction period.

By following these steps and maintaining proactive financial planning, you can secure a BUC home loan smoothly and set yourself up for a successful property purchase journey.

What Should You Know Before Getting a BUC Loan?

Purchasing a Building Under Construction (BUC) property requires strategic planning and careful consideration of several factors. Understanding the nuances of construction loans and being proactive in your approach can help you make better financial decisions and avoid unexpected complications.

Before Home Construction Completion

One of the biggest challenges with BUC properties is the extended construction period before the property is ready for occupation. During this phase, it’s essential to manage your finances effectively:

• Avoid delaying your loan process until the Temporary Occupation Permit (TOP) is issued, as banks may limit your financing options closer to the project’s completion.

• Familiarise yourself with the Progressive Payment Scheme, where monthly repayments increase in stages based on construction milestones.

• Maintain sufficient funds to handle ongoing payments and other financial obligations, such as the initial down payment and related fees.

Considerations Before Applying

When considering a BUC loan, keep these potential challenges in mind:

• Construction projects can face delays due to unforeseen factors like weather or supply chain issues.

• The bank’s fixed deposit or floating rates may change during construction, affecting your loan terms.

• Research the developer’s track record to gauge their reliability in timely delivering projects.

• Understand the risks of managing monthly payments for your existing property (if any) and the BUC property.

Planning and Preparation

A well-thought-out plan is key to a successful property purchase, particularly for Building Under Construction (BUC) properties. Proper preparation helps you secure suitable financing while controlling your cash flow and other financial obligations. Here’s how to prepare effectively:

• To cover costs beyond the initial purchase, begin exploring financing solution options early, including both BUC loans and renovation loans in Singapore.

• Research multiple banks to compare mortgage loan packages and secure the most competitive terms tailored to your goals, such as earning future rental income or managing other obligations like the Additional Buyer’s Stamp Duty (ABSD).

• Choose a developer with a strong reputation for delivering high-quality, timely projects.

• Evaluate your cash flow and financial commitments to determine your affordability before committing to a loan amount.

• For expert advice on legal and financial aspects, engage a conveyancing lawyer or mortgage advisory services.

Conclusion

Buying a BUC property in Singapore is an exciting step. Still, it demands meticulous financial planning and a thorough understanding of your financing options, such as the Progressive Payment Scheme and BUC loans. By staying informed, managing your cash flow wisely, and selecting the right mortgage loan, you can maximise the benefits of your property purchase while minimising potential risks.

For more insights and expert advice to guide you through the intricacies of property financing, visit OMY. From tips on choosing the best construction loans to navigating loan terms, we’ve covered you with practical solutions for your financial commitments. Start your property journey on the right foot with the tools and knowledge to secure your dream home confidently.