BUC Building under Construction Loan: Everything You Need to Know
Introduction
When it comes to purchasing a property, one option that you may come across is a Building Under Construction (BUC). These are properties that are still in the construction phase and won’t be ready for months or even years. However, developers often offer these units for sale, giving buyers the opportunity to secure a property before it is completed. In this article, we will explore everything you need to know about BUC building loans and the process involved in acquiring them.
Understanding BUC Properties
A BUC property refers to any property that is still in the process of being built. It is important to note that until a building receives its Temporary Occupancy Permit (TOP), it falls under the BUC category. Despite being under construction, developers often start marketing these properties early, even before the first brick is laid. This is because developers have time limits to meet certain requirements, such as the Additional Buyer’s Stamp Duty (ABSD) and the Qualifying Certificate (QC). As a result, sales for BUC properties typically begin long before the construction is complete.
Key Differences in Buying a BUC Property
Purchasing a BUC property differs from buying a completed property in several ways. These differences include:
1. The Home Loan Process
When buying a BUC property, your home loan needs to accommodate a Progressive Payment Scheme (PPS). The PPS means that your loan repayment will gradually increase as the building progresses. This payment structure ensures that you only pay for completed portions of the property. As for the interest rates, they are neither higher nor lower for BUC properties. The interest rates depend on the loan package you choose.
2. Discounts and Incentives
One advantage of purchasing a BUC property is the potential for larger discounts. Many developers offer per-square-foot discounts or may even absorb the stamp duty for buyers. These discounts can result in significant savings ranging from 1% to 3% of the purchase price. Additionally, if you buy early, you have the advantage of priority purchasing. This means you can choose the specific unit you want to purchase, which can have a significant impact on its future resale value.
3. Buying Blind and Speculation
One downside of purchasing a BUC property is the uncertainty that comes with buying blind. Since the property is still under construction, there is no way to know exactly what it will be like. Developers often provide showflats as examples, but these may not accurately represent the final product. Each unit within the development can have slight variations. This uncertainty is one of the reasons why buyers receive discounts when purchasing BUC properties. Additionally, the value of under-construction properties is purely speculative. Rental yields and appraisal values may not be guaranteed, and there is a level of uncertainty regarding the potential returns on investment.
4. Waiting Period and Potential Delays
One significant factor to consider when buying a BUC property is the wait time. Most developments take approximately three years to reach completion, but there is always the risk of construction delays. Buyers should be prepared for the possibility of delays and have contingency plans in place if the TOP takes longer than expected. For landlords, the waiting period can be a drawback as they are unable to rent out the property until it is completed. This means potential lost rental income during the construction phase.
Is a BUC Property Right for You?
Deciding whether a BUC property is suitable for you depends on your individual circumstances and preferences. If you are a homebuyer, consider whether you are comfortable purchasing a property without being able to view the actual unit. Three years is a significant amount of time to remain uncertain about the property you are investing in. For investors, experience and market acumen play a crucial role in determining whether a BUC property is a good deal. Seasoned investors who can evaluate the potential value of an area may find BUC properties appealing. However, less experienced investors may prefer the stability and certainty of purchasing a resale unit.
Conclusion
Building Under Construction (BUC) properties offer buyers the opportunity to secure a property before it is completed. While there are advantages, such as potential discounts and priority purchasing, there are also considerations like buying blind and the waiting period. It is essential to weigh these factors and carefully assess your personal circumstances before deciding whether a BUC property is right for you. By understanding the intricacies of BUC properties and the loan process involved, you can make an informed decision and navigate the real estate market with confidence.
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