When buying a new home or property in Malaysia, you’ll likely come across the term progressive payment and progressive interest. For many first-time homebuyers, the idea of paying for a home that's still just a blueprint can feel daunting, leading to questions like "Why am I paying before I even get the keys?" or "What about the interest when nothing's even built yet?"

Relax, you’re not alone! This is a super common question, and in Malaysia, it’s actually the standard and most secure way to buy an under-construction property. 

These are components of the property-buying process, especially for homes under construction or developments financed with a loan. While they sound similar, they refer to different things. In this article, we’ll explain progressive payment and progressive interest in simple terms and why it’s important for both developers and buyers in Malaysia.

What is Progressive Payment?

Progressive payment is a structured payment schedule for new properties that are still under construction. Instead of paying the entire purchase price upfront, you make payments in stages, directly linked to the actual physical completion of different construction phases of your home.

This is difference from buying a subsale (completed) property, where you typically pay the full amount once the ownership transfer is finalised and the property is ready for you to move in.

Here’s step by step how progressive payment works in Malaysia:

1. Signing the Sale and Purchase Agreement (SPA): You'll typically pay 10% of the purchase price as your initial down payment.

2. Foundation Works: Once the foundation is certified complete, another portion (e.g., 10%) is due.

3. Structural Framework: As the main structure of the building rises, another payment (e.g., 15%) is required.

4. Walls, Door & Window Frames: Payment for walls, and the installation of window and door frames (e.g., 10%).

5. Roofing, Wiring, Plumbing, Cabling: When these critical components are done (e.g., 10%).

6. Sewerage & Internal/External Plastering: Payments for these essential works (e.g., 5% + 10%).

7. Drains & Roads: Completion of infrastructure surrounding your unit (e.g., 5% + 5%).

8. Vacant Possession (VP) & CCC: This is the exciting moment! Your property is completed, certified with the Certificate of Completion and Compliance (CCC), and ready for you to move in. A significant chunk (e.g., 12.5%) is usually due here, and your full loan instalments begin.

9. Strata Title & Subdivision (for strata properties): Payments linked to the formalisation of your ownership (e.g., 2.5% each).

10. Defect Liability Period: The final 5% (split into two 2.5% payments) is typically held back and paid after a specific period (e.g., 6 and 18 months post-VP). This is your 'warranty' period to identify and report any defects.

Each payment stage is only triggered when the developer’s architect or engineer issues a certificate confirming that the specific construction phase has been completed!

Why is Progressive Payment Used in Malaysia?

Paying for something that isn't fully built yet might seem unusual, but it’s a crucial system designed to protect both the developer and, more importantly, you.

For Developers: Keeping the Project Moving

• Steady Cash Flow: Construction is a costly process, and developers need funds to keep the project going. Progressive payment ensures that they have the necessary capital to fund the construction at every stage including the funds for materials, labour, and operational costs.
• Reduced Financial Risk: Developers don't have to secure massive, single loans for the entire project. This spreads out their financial burden and reduces their exposure to market fluctuations during a long construction period.
• Accountability: Because payments are tied to actual progress, developers are incentivised to complete stages on time to receive their funds.
• HDA Account Protection: All your payments go into a special Housing Development Account (HDA Account). This account is supervised by the Ministry of Housing and Local Government, ensuring that funds are only used for that specific development project. 

For Homebuyers: Protection for Buyers

• Legal Safeguard: The HDA and its standardised SPA forms (Schedules G & H) are your biggest protection. They prevent developers from implementing unfair clauses and ensure a regulated, transparent payment journey.
• Manageable Cash Flow: Instead of a single, huge payment, the cost is spread out over 2-3 years. This helps you manage your personal finances, especially if you’re also paying rent or other loans.
• Monitor Progress: Since payments are linked to tangible construction milestones, you get a clear way to track how your home is coming along. This transparency helps you see where your money is going.
• Lower Initial Loan Payments (Progressive Interest): If you take out a housing loan, your bank usually disburses funds to the developer in stages. This means you only pay "progressive interest" on the portion of the loan that has already been disbursed. Your full loan instalments only kick in when the property is completed and handed over, which can significantly lighten your financial load during construction.
• Reduced Abandonment Risk: While no system is 100% foolproof, the HDA's framework, including the HDA account and the Ministry's oversight, significantly reduces the risk of developers running away with your money for unbuilt work. Payments are released only upon certified completion of stages.

What is Progressive Interest in Malaysia?

Progressive interest refers to the interest payments on a loan taken out to finance a property under construction. In the case of a property purchase that’s financed with a loan, the buyer doesn’t pay the full loan amount upfront but rather in stages as the property is being built. The interest payments are calculated based on the amount of the loan drawn by the developer for each construction milestone.

Key Aspects of Progressive Interest:

• Interest on Drawn Loan Amount: Interest is charged on the amount of the loan that the developer draws down at each construction milestone.
• Paid During Construction: You pay interest on the loan as construction progresses, but you don’t typically pay the principal (the loan amount) until the property is completed.
• Increases Over Time: As the developer draws more from the loan to fund construction, your interest payments increase since they are based on the drawn amount.
• Loan Repayment After Completion: The full loan principal is repaid when the property is completed and handed over to you.

Example of Progressive Interest:

If you take out a loan to finance your property purchase, the developer may draw down parts of the loan as each construction milestone is reached. You will only pay interest on the amount of the loan that’s been used, and as construction progresses, your interest payments will increase.

Progressive Payment vs Progressive Interest

Although both progressive payment and progressive interest involve staged payments, they apply to different aspects of the property-buying process. Here's a breakdown of their differences:

Which One Applies to You: Progressive Payment or Progressive Interest?

In most property transactions in Malaysia, both progressive payment and progressive interest may apply to you if you're purchasing a property under construction with a loan. Here's how:

• Progressive Payment: If you're buying a property that’s under construction, you'll likely make payments at each construction milestone. These payments will be based on the value of the property, and the developer will set the schedule for these payments in the Sale and Purchase Agreement (SPA).
• Progressive Interest: If you’re financing the property through a loan, progressive interest comes into play. The lender will charge you interest on the loan amount that the developer draws down as each milestone is reached. You will only start repaying the principal of the loan once the property is completed and handed over.

Why Do I Have to Pay Before Receiving the Keys?

One of the biggest questions homebuyers in Malaysia ask is why they have to make payments before actually receiving the keys to their property. Here are some key reasons:

Funding Construction

Developers need money to build your property. Progressive payments help them finance each stage of the construction, making sure the project moves ahead smoothly. Without these payments, developers could face financial difficulties, leading to delays or unfinished projects.

Legal Requirements

Once you sign the SPA and pay the initial deposit, you are legally committed to paying according to the agreed schedule. This helps both you and the developer meet your obligations and avoid any legal issues or delays in handing over the property.

Developer Commitment

Paying in stages encourages the developer to stay on schedule. It creates an incentive for them to complete each phase of construction as agreed, ensuring your property is ready on time.

Quality Control

Paying progressively means that you can monitor the quality of the work at each stage. If there’s a problem with the construction, you can address it before the final payment is made.

Managing Your Finances

Paying in smaller amounts over time makes it easier to manage your finances. You don’t have to come up with a large sum of money upfront. Instead, you pay as the work progresses, making the process more manageable.

Timely Possession

The final payment is made once your property is completed and ready for you to move in. This ensures that the developer fulfills their promise to deliver the property to you on time.

Frequently Asked Questions About Progressive Payment and Progressive Interest in Malaysia

1. How much do I need to pay for a progressive payment property in Malaysia?
The typical payment structure for a progressive payment property in Malaysia involves an initial deposit of around 10% of the property price. Afterward, you will make payments at different stages of construction, which will be outlined in the Sale and Purchase Agreement (SPA).

2. What happens if there’s a delay in construction under a progressive payment scheme?
If there is a delay in construction, the developer may face penalties as per the terms specified in the SPA. You may also be entitled to compensation for the delay, depending on the clauses of the agreement.

3. Can I apply for a mortgage with progressive payment terms?
Yes, you can secure a mortgage for properties under a progressive payment plan. Many banks in Malaysia offer loans with progressive payment terms, which means the bank will disburse funds as the construction progresses.

4. When do I start paying progressive interest on my loan?
Progressive interest begins once the developer starts drawing funds from the loan to finance the construction. As more funds are released to the developer, the progressive interest will gradually increase, based on the outstanding loan balance.

5. When will I get possession of my property under a progressive payment scheme?
You will receive possession of the property once the final payment has been made, and the construction is complete. The developer will then grant you vacant possession and hand over the keys to your new property.

Progressive payment is a common practice in Malaysia’s property market. It allows buyers to pay for a property as it’s being built, ensuring they only pay for completed work. While it may seem unusual to pay before receiving the keys, it’s a necessary part of the process that helps developers get the funding they need and protects buyers by ensuring construction stays on track. By understanding how progressive payments work and taking the right precautions, you can make your property purchase smoother and safer.

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