Absa | What are progress payments and how do they work?

Progress payments are the payments you make towards the construction work on your new home. But what are progress payments and how do they work? We’ve put together some information for you so that you can plan and budget to build your dream home.

Your building loan

A building loan can include the cost of vacant land, or, if you already own vacant land, just the cost of building. If your loan includes the purchase price of vacant land, then the land will be paid for when your bond is registered, and the rest of your loan will be paid by way of progress payments, as the construction work progresses.

Paying upfront costs

Your loan will be calculated on the market value (not replacement value) of your property as if completed.
Since the building loan will account for between 60% and 90% of the contract price, you will have to pay a deposit and the shortfall for some building costs.

These are the things you will have to pay for yourself:

The initial payment to your builder to start building - this can be an estimated 10% or more of your contract price.
Deposits for building materials, as these are not covered by your loan or progress payments. This could include deposits for kitchen cupboards, aluminium doors and windows, etc.
If you do not have a 100% bond, you will need to cover the shortfall yourself.

Requesting progress payments

Your builder will ask you for a progress payment when he/she needs funds.
You should first make sure that the required work has been completed and to a standard that was agreed upon between you and the builder.
You will complete the progress payments form from Absa and emailed directly to hlbuilding@absa.co.za.
The payment will be validated, and a valuer will be assigned to inspect your build.
Never complete more than one Progress Payment form at a time or sign any blank forms. This is for your security.

Making progress payments

Payments are made to you as work progresses. These are called progress payments.
Progress payments are authorised by yourself but made by us, your bank. In other words, you give us an instruction to make a progress payment to you.

It is important to remember that:

The amount of progress payments will be decided before you start building and are normally no more than 6 payments, your builder should be informed of this bank condition.
Because you are responsible for paying the builder, you must be 100% sure of the amount of work done, as well as the quality thereof before you make a payment to the builder.
Once a payment has been requested by you, we will send a valuer to your construction site to ensure that the building work complies with the Absa requirements and that the progress is sufficient to approve the progress payment.
The valuer will provide feedback to us, your bank, and we will confirm the amount. The progress payment will then be made.

Interest and progress payments

Interest will be calculated from when you make your first payment. Usually this is the registration of your land. This kind of interest is called interim interest.
Interim interest is calculated on your outstanding balance during your building period. As progress payments are made, the outstanding balance and your interest on the amount payable will increase.
Because of this, it is highly recommended that you pay your interim interest every month during your building period.
If you do not pay your interim interest then, after 9 months, your interim interest will be capitalised and added to your outstanding balance, reducing your available funds for building.
Your debit order will be activated after this 9-month period – this is why it is a good idea to pay your interim interest during your build period.

Your final progress payment

There are normally 6 progress payments on a project. The final progress payment will only be made once we have received an Occupation Certificate from you. This can be obtained from your local municipality.

Once your final progress payment has been made your dream home will be ready and waiting for you to move in!

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