What is an option to purchase (OTP)?
An OTP is an agreement between a buyer and seller of a property. It is a way for both parties to enter a legal contract for the sale and purchase of a residential property and has a 3-week validity period. After signing an OTP agreement, a buyer reserves the right to purchase the property by placing a booking deposit, which is usually 5% of the purchase price for newly launched private housing units.
What does the new restriction cover?
As of 28 September 2020, developers are no longer allowed to re-issue OTPs to extend the buyer’s validity period of 3 weeks without approval from the Urban Redevelopment Authority (URA).
What does this mean for buyers?
Buyers, who are buying a residential property for the first time, will be least affected by these restrictions.
However, for buyers who are looking to upgrade their homes from HDB flats to private housing, they will only have 5 weeks, instead of 12 months, to sell their existing home and gather the funds needed for their new property purchase.
From the date of unit booking, the Sale and Purchase Agreement (S&P) will take 2 weeks to reach the buyer. Hence, including the 3-week OTP validity period, the buyer will have a total of 5 weeks to exercise an OTP and avoid paying the 12% additional buyer’s stamp duty (ABSD).
Potential consequences for buyers?
If the buyer fails to exercise their OTP and causes it to expire, this may result in the forfeiting of 25% of their booking deposit to developers, which is equivalent to 1.25% of the property price.
Since developers can no longer re-issue a new OTP for the same unit that has expired less than 12 months ago, buyers will not be able to repurchase the same unit within that time frame.
However, URA understands some buyers may require more time to complete the sale of their existing property.
They are prepared to extend the OTP validity period up to 12 weeks from the OTP date, provided that both parties such as the buyer and the developer are agreeable. However, these extensions are not to be taken for granted and will only be approved on a case-by-case basis.
Those who wish to apply for an extension of the validity period may submit their application to URA, with a copy of the OTP, expiry date and reasons for requiring more time to exercise it.
Our Thoughts & The Impact On Singapore’s Property Market
Following the implementation of the new restrictions, buyers must either have the sufficient funds or be confident in selling their existing houses, prior to exercising their OTPs. With most of the current sales being 1 to 2 bedroom units, this indicates that the majority of these buyers are actually investors. The slower take-up of 3 bedrooms or larger correlates with the impact of new private housing sales that plunged 51.7% in October 2020 – immediately after the measures were implemented. Hence, signalling that homeowners are being more prudent and careful in their property purchases and decisions.
Overall, the measures have achieved its objective and we see this as a part of the government’s efforts to ensure stability of prices in the property market.