Discounts but is there any catch?

With the announcement of Additional Buyer Stamp Duty on 7 December 2011, many developers have come up with Stamp Duty Reimbursement for potential buyers. On top of that, some developers are offering furniture vouchers or cash rebates to buyers. Is there any catch behind the discounts? What should buyers take note of when they take up such discounts?

So the discounts offered do look enticing. Who could resist them? For example, you like a condo unit that is listed at S$1M. The developer gave you 3% stamp duty reimbursement, which works out to be S$24 600. On top of that, the developer gave you S$1000 furniture vouchers, in form of cash. After deducting the above discounts, the developer gave you an additional 1% discount for reasons such as 'star buy', 'ex-customers' or 'living near the vicinity of the project'. So in the end, you pay about S$965 000 for the unit. Good deal, you may think.

However do take note of the following when such 'discounts' are given by developers.

1) When you pay stamp duty for the purchase, which purchase price will be subjected to stamp duty? If you think it is S$965 000, you are wrong. IRAS may require you to pay stamp duty based on the price of S$1M. According to IRAS, "Stamp duty will be computed on the purchase price or market value of the property (whichever is the higher amount)."

2) Under MAS ruling, you need to declare any discounts received from developers when applying for housing loan. Therefore if you are eligible for 80% loan, you may only able to loan about 78% of the purchase price after taking into the consideration of the discounts given.
As stated by MAS, "A bank granting a credit facility for the purchase of Residential Property shall obtain a written declaration from the Borrower on:
(a) whether the Borrower is applying for the grant of the credit facility for his own use or for the benefit of any other party;
(b) whether the Borrower received any discount, rebate or any other benefit from the vendor or any other party (including the payment of legal or stamp fees for the purchase) which has the effect of reducing the true purchase price and the amount of such discount, rebate or benefit, as the case may be."

3) As you receive stamp duty reimbursement from the developers in form of cash, you are not allowed to use CPF to pay for the stamp duty.

Based on the above, you may need to fork out more cash upfront should you receive the above mentioned discounts. Think twice when developers offer such 'discounts'. There is no free lunch after all.

Source: IRAS website, www.iras.gov.sg
MAS website, www.mas.gov.sg