Build then sell (BTS) vs Sell then build (STB)

The build-then-sell (BTS) concept is based on a 10:90 concept whereby the property buyer just need to pay 10% of the purchase price, then pay the remaining 90% of the purchase price upon the completion of the property.

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The conventional approach – sell-then-build (STB) require the buyer to pay 10% of the purchase price upon the signing of the Sale & Purchase agreement (SPA) and the remaining 90% is progressively paid to the developer in accordance to the stages of construction. The property buyer can choose to pay the developer either by cash or housing loan. In the other words, the property buyers get the loan from bank to finance the developer during the construction of the project.

In the BTS concept, the developers will not get to be financed by the buyers and thus they will have to obtain financing aid from the bank in order to finance the project up to the completion stage. So, the bank will definitely have to play a major role in providing the additional financing up to the completion stage and this will inevitably increase the bank’s risk exposure. From conventional point of view, bank usually will more prefer to lend money to individual buyers in many smaller parcels rather than lending it to the developer in one parcel.

Hence, those companies that have just started to venture into the property development business will find it difficult to convince the bank to get financing as they do not have any track records in the past. In my opinion, the BTS system will probably mean that only the fittest ones will survive. This also means that the projects will be undertaken by financially sound, reputable developers rather than fly-by-night ones. At the end of the day, we as the consumers are on the winning side.

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