ADVISORY: DIBS story explained


DIFFERENT: Developer Interest Bearing Scheme (DIBS) is NOT the same as Build-then-Sell system


Of late, there have been several housing developers proudly advertising that sales of their products offered are with ‘Interest payment borne by Developers’ or otherwise known as DIBS (Developer Interest Bearing Scheme). A particular one boldly states that house buyers make no payment until vacant possession of the said houses is delivered! It entices potential house buyers that all they need is to pay the requisite down payment of 10 per cent upon signing the Sale and Purchase Agreement (SPA) and the balance thereof will be financed by their panel Banks/ Financial Institutions and some even had the audacity to equate the scheme with the 10:90 concept of the Build-Then-Sell (BTS) system. One even went as far as advertising the mode of payment as 5:95 model! The connotations in all these advertisements are that buyers do not make any progressive payments until the houses are completed and ready for vacant possession.
Loan packages, in fact
All the advertised ‘schemes’ of payments are nothing more than loan packages. Although the advertisement states “no payment until vacant possession”, in reality the buyers’ loans are ‘locked-in’ with panel Banks/ Financial Institutions and hence, buyers’ housing loans are used to pay the developers as they construct the houses.
It is based exactly on the current Sell-then-Build (‘STB’) or progressive payment formula. This formula has got so many house buyers into trouble when the houses they bought are abandoned by the developers! The only difference in the advertised system is that the interest towards the progressive payments are shouldered, absorbed and borne by the developers. Buyers still have to secure their end-financing housing loans as soon as they sign the Sale & Purchase Agreements. Buyers are still responsible to the Banks and Financial Institutions for the loans whether the houses are delivered or not.
BTS 10:90 model
This is far different from the real Build-then-Sell (BTS) 10:90 concept put in place and encouraged by the Government, whereby the buyers truly do not make any payment, save and except the deposit of 10 per cent, until vacant possession because the end financing loans do not kick in until the houses are completed with all the certifications obtained and keys with vacant possession are available. It is a far safer mode of buying houses and this is precisely why the Government is encouraging it and furthermore offering incentives to developers who opt to adopt this mode of selling their products. But it fell short of compelling the industry to adopt this BTS 10:90 concept currently. However, the Minister of Housing & Local Government has reiterated that the BTS 10:90 will be made mandatory come the year 2015.
Vital differences
The vital difference between the advertised DIBS abbreviation and the Government-encouraged BTS 10:90 model is that, in the advertised DIBS or 10:90 or 5:95 model, should the developer abandon the project (for whatever reason), buyers are left with a partially disbursed housing loan to settle. The amount varies in accordance with the amount of disbursements made.
The primary borrower is still the buyer and that it is the sole responsibility of the borrower/buyer to continue with the proper conduct of his loan from the Financiers. Banks have not been known to be sympathetic to victims of abandoned projects. The loans still have to be settled, house or no house! This is the predicament presently faced
DIBS story explained
DIFFERENT: Developer Interest Bearing Scheme (DIBS) is NOT the same as Build-then-Sell systemby tens of thousands of naïve and innocent buyers when the houses that they have bought were abandoned by their developers. Don’t naïvely think, for a minute, that the Financier will write off the loan payable by the Borrower/ Buyer.
Thus, the various advertisements for DIBS abbreviation or 10:90 or 5:95 or 0:100 connotations are merely marketing tools and are not the same as the BTS 10:90 concept that is put in place under the Housing Development (Control & Licensing) Act and Regulations. These advertisements are open to misunderstanding and confusion. In this period of soft market in the housing industry, it is natural that more and more innovative sales strategy will come in. We do not oppose that but are of the stand that advertisements should not have any element of misrepresentation or misconception and should not give rise to misunderstanding and confusion.
Housing Ministry to be vigilant
The Housing Ministry’s Licensing Department should also take a close and serious scrutiny at the contents of such advertisements in their brochures before granting them Sales & Advertisements Permits. To allow such advertisements is in effect an injustice to naïve and innocent first time potential house buyers. Please be reminded that all developers’ marketing materials and brochures have to obtain the prior approval and consent from the ‘Bahagian Perlesenan’ of the Ministry of Housing & Local Government. Has the Ministry erred in their duty for those advertisements that have escaped their attention or they too did not manage to spot the difference?
We would like to categorically state that we are by no means implying that the advertised project is likely to be abandoned. This article is  aimed only to inform potential buyers on the differences between the advertised DIBS or 10:90 or 5:95 or 0:100 mode of purchase vis-à-vis the government-encouraged BTS 10:90 concept. Be an informed buyer and empower yourself with information to make an informed decision.
How to spot the differences?
On the side of caution, the Buyer needs to check if he has bought into a STB 10:90 loan package ‘Scheme’ or a BTS 10:90 concept. The differences between the two models are already explained above. An easy way to know what he has bought is to refer to the Sale & Purchase Agreement. If the contract is a Schedule H or Schedule G, the scheme is a STB. If the contract is a Schedule I or Schedule J, the scheme is a BTS 10:90 variant.


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