How Progressive Payment Works When Buying a New Home

Buying a new home that is still under construction can look deceptively affordable.

The advertised price is attractive. The developer may offer a low downpayment, legal fee incentives, rebates or other promotional packages. There is also the appeal of getting a brand-new property without inheriting someone else's renovation choices, wear and tear or maintenance problems.

For many buyers, however, the financial planning stops at the downpayment. That is where the real problem can begin.

An under-construction property does not usually require the entire housing loan to be released on day one. Instead, the bank releases the financing progressively as the developer completes different stages of construction.

This is known as progressive payment or progressive disbursement. At first, the monthly commitment may look surprisingly small. But as construction progresses and more of the loan is released, the interest charged to the buyer increases.

Eventually, after the property is completed and vacant possession (VP) is delivered, the buyer generally moves into the full loan repayment phase.

So the important question is "Can I afford the property at every stage, including the full instalment after completion?"

What Is Progressive Payment and Why Does It Exist?

Definition

Progressive payment is essentially a staged release of the housing loan. Instead of the bank paying the entire approved loan amount to the developer immediately, funds are released according to the construction progress of the property.

For example, a buyer may have a RM500,000 housing loan. The bank does not simply release RM500,000 on the day the SPA is signed.

As the developer completes the relevant construction milestones, the developer's appointed professionals certify the work. The bank then releases the corresponding amount according to the payment schedule.

The buyer therefore pays financing costs based on the amount that has actually been disbursed. This is why someone buying an under-construction property can have a relatively small monthly commitment at the beginning. Only part of the loan has been drawn.

The Rationale

There is a practical reason for this arrangement. The progressive payment mechanism links payment to construction progress. The developer does not receive the entire purchase financing before the property has been built. Instead, payment follows the agreed construction milestones.

For buyers, this provides a degree of protection because the payment schedule is connected to actual stages of development rather than simply the passage of time.

For developers, it provides construction cash flow. Building a condominium, landed development or mixed-use project requires substantial capital long before the final buyer receives the keys. Progressive disbursement allows funds to flow into the project as construction progresses.

For banks, it also creates a mechanism where financing is released against certified progress rather than blindly releasing the full loan at the start.

Different From Full Disbursement

This is the main difference between buying an under-construction property and buying a completed property.

With a completed property, the financing is generally disbursed in a much shorter period because the asset already exists and the transaction can proceed towards completion. With an under-construction property, the financing is drawn progressively.

That means the buyer's financial commitment grows over time. And that creates an important planning issue: the monthly payment you see at the beginning is not necessarily the payment you will eventually have to live with.

The Payment Schedule — What Gets Paid When

The 10:90 or 5:95 Structure

Buyers will often hear terms such as "10% downpayment" or "5% downpayment" when looking at new launches.

The actual payment structure depends on the project, developer, financing arrangement and terms of the Sale and Purchase Agreement (SPA). Some developer promotions may also make the initial cash requirement appear lower through rebates or incentives.

But buyers need to look beyond the headline figure. Even if the initial payment is manageable, the remaining purchase price will still need to be financed and progressively disbursed according to the contractual payment schedule.

A promotional package can change when you pay, but it does not necessarily change how much the property ultimately costs. This is why buyers should distinguish between a genuine reduction in purchase cost and an arrangement that simply defers part of the financial burden.

The Standard Stages

For a typical residential development governed by the relevant statutory sale-and-purchase framework, the payment schedule is linked to construction milestones.

Depending on the type of property and applicable SPA, stages can include work relating to earthworks, foundations, structural framework, walls, roofing, internal and external works, electrical and plumbing installations, roads and drains, and ultimately completion.

The exact schedule matters. A buyer should know not just the total purchase price but also roughly when the financing is expected to be drawn. This allows the buyer to anticipate how monthly interest costs may change during construction.

For example, the early stages may involve a relatively small portion of the loan. Several months later, a substantial portion may have been released. By the time the development approaches completion, the amount outstanding and therefore the interest being charged may be significantly higher.

The Legal Framework

The payment schedule is not something the buyer and developer casually negotiate after construction begins. It is set out in the SPA and depends on the applicable legal framework.

For residential properties covered by the Housing Development (Control and Licensing) Act 1966 and its prescribed SPA, buyers are generally dealing with a statutory payment schedule. However, not every property transaction falls under exactly the same framework. Certain commercial properties, some serviced apartments and other non-HDA transactions may operate under different contractual arrangements.

Buyers should never assume that the payment schedule for one project automatically applies to another simply because both are marketed as "property". If the payment schedule is unclear, get the conveyancing lawyer to explain it before signing rather than relying entirely on the sales gallery's verbal explanation.

The Borrower's Cash Flow Reality — Interest-Only vs. Full Service

Interest-Only During Construction

One of the biggest misconceptions about progressive payment is that the buyer starts paying the full mortgage immediately. Generally, during construction, the buyer's financing cost is based on the amount that has already been disbursed.

So if only RM50,000 of a RM500,000 facility has been released, the financing cost is calculated based on that disbursed amount, subject to the terms of the loan. As construction progresses, another tranche may be released. The amount outstanding increases, so does the interest.

This is why progressive payment can start very comfortably and become increasingly noticeable over time.

The "Payment Shock"

The biggest financial adjustment usually comes after completion. During construction, buyers are generally servicing interest on the progressively disbursed amount.

After the property reaches completion and the financing is fully drawn, the buyer typically enters the normal repayment phase, where both principal and interest are paid.

The monthly commitment can therefore jump significantly. Consider a simplified example. A buyer takes a RM500,000 loan. During the early construction stages, only a small portion has been disbursed, so the monthly interest cost might be relatively modest.

As the development reaches later stages, perhaps RM300,000 or RM400,000 has been released. The monthly interest is now calculated on a much larger amount.

Then, after full disbursement, the buyer's regular instalment could be several thousand ringgit depending on the interest rate and loan tenure. This is why a buyer who says, "I can comfortably pay the progressive interest," may still be financially unprepared for the completed mortgage.

The progressive payment period should be treated as a transition period, not proof that the property is affordable.

The Grace Period Misconception

Progressive payment is also sometimes mistaken for a payment holiday. Actually, the loan starts costing money once the bank has disbursed funds, according to the financing agreement.

The fact that the property is not yet ready to move into does not automatically mean the financing is free. This creates a particularly awkward situation for some buyers. They may be paying rent for their current home while simultaneously paying progressive interest on a property that is still being built.

There can therefore be a period where the buyer is effectively carrying two housing-related expenses. That is perfectly manageable for some households.

For others, it can become a serious cash-flow problem.

Developer Interest-Bearing Schemes (DIBS)

Buyers may also come across promotions that promise something along the lines of "no payment during construction".

Historically, Developer Interest Bearing Schemes (DIBS) were marketed as a way for developers to absorb certain interest costs during the construction period. However, buyers should not assume that a current "zero payment" promotion is automatically the same thing.

The actual terms matter.

· Who is paying the interest?

· For how long?

· Is the amount built into the purchase price?

· Is it a genuine subsidy, rebate or another form of incentive?

· Does the promotion cover the entire progressive interest period?

The sales brochure may use simple language. The SPA and financing documents are where the actual obligations sit.

When Payments Are Made — The Role of the Architect's Certificate

The Certification Process

The bank does not simply rely on a developer saying, "We've completed the next stage." Construction progress is generally certified by the relevant professional, such as the architect, in accordance with the applicable SPA and financing arrangements.

Once the relevant stage has been certified, the developer can make the corresponding claim and the bank releases the appropriate amount of financing. This is what creates the progressive nature of the payment system. For buyers, understanding this process is useful because the timing of loan disbursement affects the amount of interest they pay.

Delays in Construction

Construction does not always move according to the original marketing timeline. Weather, labour shortages, supply-chain issues, regulatory matters, financing problems and contractor issues can all affect a project. A delay may slow the release of later financing tranches.

That sounds positive from the perspective of a buyer trying to minimise progressive interest. But there is another side.

The buyer may also be waiting longer for the property to be completed. If the buyer is currently renting, the rental expense continues. If the property was intended as an investment, the expected rental income is delayed.

And if the developer exceeds the contractual completion period under an applicable SPA, the buyer may potentially have a claim for Liquidated Ascertained Damages (LAD), subject to the relevant terms and legal requirements. This is an area where buyers should refer to their SPA and seek legal advice rather than relying on informal assurances.

The Risk of Defective Works

Getting the keys is not necessarily the end of the process. It is the beginning of another important stage: inspection.

New does not automatically mean perfect. Buyers should inspect their property for defects during the applicable Defect Liability Period (DLP) and notify the developer of issues according to the procedures set out in the SPA. This can include problems with finishes, fittings, doors, windows, plumbing, electrical installations or other workmanship.

The important point is that progressive payment is not a guarantee that every aspect of the final property will be flawless. The buyer still needs to take an active role after VP.

The Developer's Perspective — Why They Prefer Progressive Payment

Progressive payment is not designed solely around the buyer. It is also fundamental to how many property developments are financed.

Cash Flow Management

Construction requires money long before the developer receives the full purchase price from buyers.

· Contractors need to be paid.

· Materials need to be ordered.

· Professional consultants need to be engaged.

· Infrastructure and site works need funding.

Progressive payment creates a flow of funds as construction advances. For a large development, this can make a substantial difference to the developer's working capital position.

Cross-Subsidisation

Property development is rarely as simple as calculating the cost of one house against the selling price of that same house. A development may contain different property types, sizes and price points.

Higher-margin units can contribute to the overall economics of a project while more affordable units serve a different market segment. Land acquisition, infrastructure, financing and marketing costs also need to be recovered across the development.

This is one reason developers pay close attention to sales velocity. A project that sells steadily during construction creates a very different cash-flow profile from one where units remain unsold.

The Overhang Problem

Unsold inventory is expensive. Every completed but unsold unit represents capital tied up in property that has not yet generated its intended return.

Early sales therefore matter to developers because they can improve visibility of future revenue and reduce inventory risk. For buyers, this is another reason to look beyond the launch brochure. A heavily marketed project may have strong sales momentum.

Another project may have attractive incentives precisely because the developer is trying to move remaining stock. Neither situation automatically makes the property good or bad. But understanding the developer's incentives helps buyers read the sales strategy more critically.

Risks to the Buyer — What Can Go Wrong?

Buying during construction comes with a different risk profile from buying a completed home.

Abandoned Projects

One of the most serious risks is project abandonment. A buyer can end up with a loan commitment and years of uncertainty while the promised property remains incomplete.

Government agencies and industry bodies have mechanisms for monitoring and addressing problematic developments, but buyers should still conduct due diligence before committing. The developer's track record, financial position, past projects and current development status are worth examining.

Defective Work

A newly completed property can still contain defects. The fact that financing has already been progressively released does not mean the buyer should simply accept poor workmanship.

The DLP exists for a reason. Buyers should document defects carefully, submit them through the appropriate channel and keep records of correspondence.

Underestimated Costs

This is one of the most common practical mistakes. Buyers budget for the deposit and monthly instalment but forget everything around it.

During construction, there may be:

· Existing rental payments

· Progressive interest

· Insurance or takaful

· Legal and administrative expenses

· Renovation savings

· Furniture purchases

· Moving costs

· Utility deposits

The property can be affordable on paper while still putting pressure on monthly cash flow.

Interest Rate Changes

For floating-rate financing, changes in the applicable reference rate or lending spread can affect the monthly repayment. A loan that looks comfortable under today's rate should ideally be stress-tested at a higher rate.

This is especially important when the property is still two or three years away from completion. Nobody can predict exactly where interest rates will be when VP arrives. You can, however, make sure your budget has some breathing room.

Completion Delays

The longer a project takes, the longer the buyer may need to wait before occupying or renting the property. For owner-occupiers, this can mean continuing to pay rent. For investors, it can mean delayed rental income and delayed portfolio plans.

The advertised completion date should therefore not be treated as a guaranteed moving date until the contractual position is understood.

Mitigating Risks — What You Should Do

Budget Conservatively

Budget only what you can afford. The best way to look at progressive financing is to disregard the low starting number. Instead, consider what the total monthly payment will be once the loan is fully utilized.

Then question whether you can handle the payment if the rates go higher. If the answer is negative, then the property is probably not worth the price. This is especially relevant for young families whose earnings and expenses can vary during the period of construction.

Understand Your SPA

Never sign a multi-hundred-thousand-ringgit SPA after reading only a brochure.

· Know the payment schedule.

· Know the date of completion.

· Know the details of the DLP.

· Understand the provisions of LAD.

Know whether there is an HDA framework that governs the transaction or if it is done in a different type of contract. And if you do not understand something, ask your lawyer.

The job of the sales consultant is to sell the property. It is the lawyer's job to inform you about the legal document.

Monitor Progress

After you buy the property, don’t vanish until you reach the stage of a VP. Make sure you monitor the progress of construction and the proceeds of the loan regularly. Check your bank statements in order to see how much of the loan has been given out and how much of an interest you repaying.

This will help you to have a clearer understanding of what is coming. If you see that the progressive interest increased from RM300 to RM800 to RM1,500 in a month, it means that you have to pay attention to this issue. It gives you an insight on what to expect in terms of financing.

Factor in Hidden Costs

Prepare an entire budget for ownership. Don’t just calculate Mortgage = RM2,000.

Mortgage = RM2,000

Carry out calculations which take into account the following: Mortgage + maintenance + sinking fund + insurance + utilities + repairs + renovation + other commitments.

And if the property is still under construction:

Add current rent + progressive interest.

That is the real cash-flow picture.

Consider MRTA/MLTA

Mortgage protection is another consideration as the loan commitment grows.

MRTA and MLTA are different products with different structures, coverage and costs. Buyers should understand exactly what is being offered and whether the coverage is appropriate for their circumstances.

The point is not to buy insurance simply because the sales agent recommends it.

It is to consider what happens to the outstanding mortgage if something happens to the borrower. A property loan can last decades. Protecting that liability deserves the same attention as getting the interest rate right.

Conclusion — Progressive Payment Is Not a Payment Holiday

Progressive payment can make an under-construction property feel more manageable during the early stages, but it can also create a false sense of affordability. The initial payment may be small because only part of the loan has been disbursed. As construction progresses, more financing is released and the interest commitment increases. Once the property is completed, the buyer generally moves into the full repayment phase. That is why affordability should not be judged based on the first few months of payments, but on whether you can comfortably handle the full monthly instalment after VP, while maintaining an emergency fund, meeting other financial commitments and absorbing reasonable interest-rate changes.

Ultimately, buying an under-construction property is not just about having enough money for the down payment. It is about having enough financial breathing room to carry the property from the first construction milestone through to completion and for many years after receiving the keys. If you can only afford the property while a temporary low-payment arrangement is in place, that may be a warning sign. The smartest buyer is not necessarily the one who gets the lowest entry cost, but the one who understands what the property will really cost over time and is comfortable carrying that commitment long after the excitement of the new launch has disappeared.