The possibility of mass default by speculators who had booked their units under the now-defunct Deferred Payment Scheme (DPS) remains the Achilles’ heel of the new home market segment. When buyers default on payments, especially when a big group of them walk away from the sale contracts, it will have great impacts on the developers’ bottom-line; and the delay in payment may cost the developers millions of dollars in interest losses; and in the worst case scenario, may serious hamper the developers if they are unable to redeem their construction loans by the expected maturity date.

However, it is still too early to draw any meaningful conclusion from the isolated default cases. Firstly, probably for fear of encouraging more buyers to emulate the ‘no shows’, the aggrieved developers have kept the negotiations with the defaulters ‘hush hush’. As such, no discernable patterns can be deduced from the two default cases.

And, secondly, these are early days of ‘difficulties’ and only a small portion of the projected 10,000 newly completed condos/apartments have hit the sub-sale market. Hopefully, the global financial situation will improve when the massive supplies of new home units materialise by the final quarter of the year. Below are the brief facts of the default cases:

[B.3.1] China buyer unable to pay upon TOP at Fernhill

The China buyer, Concordia Overseas, who failed to make balance payment to MCL Land for 20 units at The Fernhill at the corner of Orange Grove and Fernhill roads when the project received its Temporary Occupation Permit recently has successfully sold 19 of the units.

Reportedly, the sub-sale price was about $1,180 per square foot, below Concordia's purchase price of $1,410 psf. However, market rumors had it that all the 20 units were sold to local investors for a lump sum of $39 million.

Concordia Overseas had earlier taken advantage of the DPS in January 2007 for all the 25 units at The Fernhill. It paid the initial 20% of the purchase price to the developer and later sub-sold five units to foreigners at an average price of about $2,200 psf.

[B.3.2] ‘Big-time buyer of The Suites @ Central unable to pay upon TOP

An unknown buyer of 51 units in the 157-unit The Suites @ Central project has been unable to make payment upon the project receiving Temporary Occupation Permit (TOP) in May 2009. The developers (i.e. Keppel Land and Chip Eng Seng) have since granted the buyer a six-month payment extension subject to monthly payment of $500,000 for the period of extension.

The big-timer had purchased the 51 units in a ‘package’ deal for an average price of $1,806 per sq ft under the DPS in June 2007 – just before the property bubble burst. Under the DPS, the buyer had paid the initial 20% down-payment, with the balance of $1,445 psf due after the project obtains its temporary occupation permit (TOP).

[B.3.3] 11 individual DPS buyers of RiverGate units defaulted

Buyers of 11 units at the 542-units RiverGate project have been unable to pay up upon the issuing of Temporary Occupation Permit (TOP) in March 2009.

The 11 units were sold separately to individual buyers under the DPS at the same time when more than 90% of the projects were sold under the same deferred payment scheme.

However, unlike the above two default cases where the properties were bought at the height of the market bull run in 2007, RiverGate, a 43-storey freehold project was launched in 2005 at an average price of $1,080 psf and later in 2006 at $1,600 psf on average.

Conclusion: The situation will be more telling when projects launched and sold at or near the height of the market bull-run in 2007 receive their TOP. As of this point, the threat of mass defaults by speculators is still potent given the current economic gloom.