Wednesday, December 4, 2013

To DIBs or Not to DIBs?

This question is now academic as developers are now barred from offering DIBs. Whatever you wanna say about DIBs, the scheme has certainly helped developers sell to the extent when the abolishment of DIBs was announced in the 2014 Budget, many developers tried to rush launches before the ruling comes in effect.

But is DIBs really good for you? Rather than try to tackle this question myself, I found this article which is very useful.


Question: Could you explain to me what is DIBS? Is it really buyer don’t need to pay a single cent to developer?



Our basic understanding is (a better clarification and explanation can be made by a banker or developer)  if you purchase a property under construction from a developer, let’s say Developer A which has DIBS, Developer A will bear the interests of the loan during the construction period.


You purchase your property for RM 300,000.00. You pay Developer A a minimum of RM 15,000.00 (as down payment of 5%, sometimes this can be 10% or more depending on your loan) and you borrow from a bank for the remaining RM 285,000.00. You opt for interest only loan package from the bank (that means, you only pay the interests but not the principal of the loan during the construction period).
Under DIBS, Developer A will pay the monthly interests until completion of the property. In other words you don’t have to pay anything to the bank until construction completes. You only start paying the bank instalments after completion of the property. So, you only pay RM 15,000.00 and you can secure the property during the construction period (2 years for example) without paying a single cent.


The only payments you need to be prepared are the down payment, legal fees and miscellaneous charges (either from the lawyer or the bank).


However, bear in mind that under DIBS, the principal amount owed to the bank is still RM 285,000.00 and logically, you are paying higher interests after completion date as interests are calculated based on amount owed. So in return of you securing the property with lesser amount during the construction time, you pay more in term of interests after construction completes. Do your calculation and decide whether DIBS is for you.
A higher down payment may be required if you cannot secure a 95% loan. Also, bear in mind that you need to get a loan to end finance your purchase once you sign the Sale and Purchase Agreement, not after completion of the construction.


We still encourage you to seek proper advice from a banker or developer regarding DIBS before you commit in your purchase.
We hope our explanation helps - Voon Legal


No comments: