What is DIBS (Developer Interest Bearing Scheme)
DIBS (Developer Interest Bearing Scheme) is a mean that the developer of the project will bear the interest charge by bank during the whole construction period, buyer no need to do any installment until the construction complete.
This is a very common marketing strategy that use by developer to market their new launch project nowadays. This is something good to the purchaser to have a better cash flow while the property you bought is still under construction.
Make it simpler
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.
What do you need to pay under DIBS?
The only payments you need to be prepared are the down payment, legal fees and miscellaneous charges (either from the lawyer or the bank).
The downside of DIBS?
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.