The Basics Of Developer Interest Bearing Scheme (DIBS)
In the recently announced Budget 2014, it is stated that developers are no longer allowed to roll out property projects with features of DIBS, while financial institutions are also prohibited from providing final funding for projects involved in the scheme. Home buyers are advised to take note of this new stance by the Malaysian government.
In recent years, more and more property developers in Malaysia are offering Developer Interest Bearing Scheme (DIBS) for newly-launched property projects as a means to entice home buyers and investors. In this article, we’ll tell you what it is, how it works, and some of the things you need to take note of when purchasing a property which comes with it.
What is DIBS?
To put it in the simplest term, it is a scheme where a property developer absorbs the home loan interest of the home buyers during the construction period of a property.
If you buy a house that comes with the scheme, the developer will pay any home loan interest that is borne by you during construction (which is usually 36 months starting from project launch). Thereafter, you will service the loan interest as you would a normal home loan.
How does it benefit home buyers?
It takes away the need to service home loan interest during a property’s construction period, which frees up excess money (which would otherwise be used to service the interest) that can be utilised in many ways. These include:
- Using the money to invest in assets with the potential to grow more wealth during the construction period.
- Putting the money in a fixed deposit account to generate interest which could be used to pay off the home loan faster or renovate the home upon completion.
For investors (especially those looking to “flip” or offload the properties upon completion), properties that come with the scheme are commonly perceived as excellent investment choices as the investors are not required to cough out additional capital for the first few years of investment.
Where to find properties with DIBS?
More and more new projects now come with the scheme. To find one, simply look for brochures or advertisements stating “Developers Interest Bearing Scheme” or “DIBS”. In Malaysia, these are especially common in developed urban areas such as Kuala Lumpur, the Klang Valley and Penang.
A word of caution
In recent times, there have been cases whereby developers over advertised the scheme by stating in brochures and other marketing collaterals that “home buyers make no payment until due vacant possession of the properties” – a statement which is technically incorrect because the buyers’ home loans are still used to pay the developers as they construct the houses.
NOTE: If a home buyer makes absolutely no payment at all other than the initial deposit for a home during the construction period; that is known as the Built-Then-Sell (BTS) concept.
In BTS, the end-financing loans do not kick in until the properties are completed, the certifications obtained and vacant possession taken, resulting in the home buyers not being liable for any losses should a property project becomes abandoned midway during construction (because the loans are not disbursed).
In DIBS, the end-financing loans are disbursed to the developers in stages during the construction process hence, the buyers are left with partially disbursed loans to settle should the project becomes abandoned midway. This is something that all home buyers should take note of!