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SINGAPORE – Developers are now restricted from reissuing purchase options (OTPs) to the same buyer of the same unit within 12 months of the expiration of the previous OTP, the Urban Redevelopment Authority (URA) said in a circular. issued Monday morning. (September 28).
They are also restricted from providing initial agreements to buyers to reissue OTPs, URA added. Both changes are effective immediately.
This latest move by the URA aims to curb a real estate market practice that is believed to be inflating private home sales figures, while encouraging financial prudence in home purchases amid a weak economy and a climate uncertain employment.
OTP reissue refers to an agreement that some private home buyers make with a developer, through a real estate agent, to continuously reissue OTPs upon expiration, without the reservation fee being lost.
In the past, this can be done for up to one year, or even up to 18 months, from the date of the first OTP. The idea is to give the buyer time, for example, to sell their existing house.
“The need for greater financial discipline in making property purchase decisions is especially pertinent given the current economic situation, where workers face uncertainties in the job market. Buyers should only commit to buying a property when they are ready to exercise OTP within the validity period, ”said Ms. Ling Hui Lin, home controller, URA, in Monday’s circular.
“Therefore, the Housing Comptroller will impose new conditions on the sales licenses issued to developers effective as of today,” he said.
Under the terms of a standard OTP, the option will expire three weeks after the purchase agreement and copies of the title deeds are provided to the prospective buyer.
The potential buyer will have to exercise the OTP before it expires by signing the sales contract and returning it to the developer. If the buyer does not exercise the OTP, the developer may lose 25 percent of the reservation fee. Since the reservation fee is typically 5 percent of the sales price, the amount lost equals 1.25 percent of the total home price.
The three week validity period for the Prosecutor’s Office is set to encourage buyers to exercise financial prudence and commit to buying a property only when they have the financial means to do so. Buyers will be exposed to the risk of losing 25 percent of their reservation fees if they commit to buying a new property without securing the necessary finances in advance.
“However, we have observed that there have been cases where the OTP is reissued multiple times to the same buyer (s) for the same unit, which significantly lengthens the option period,” said URA’s Ling.
While the current validity period in the standard OTP is generally long enough for most buyers to exercise OTP, the Controller acknowledges that there may be some buyers who may require more time to finalize the necessary arrangements before exercising OTP.
For example, buyers may need more time to complete the sale of their existing property before exercising OTP, Ling said.
At the request of such buyers or developers, the Controller is prepared to extend the validity period of the OTP up to 12 weeks from the date of the OTP, provided that both parties (i.e. the buyer and the developer) agree. .
Buyers or developers who wish to request an extension of the validity period of the OTP can send their request to URA, with a copy and the expiration date of the OTP; and reasons for requiring more time to exercise the Office of the Prosecutor.
Tricia Song, head of research at Colliers International, believes the URA move will lead to more accurate home sales figures.
“We have observed that monthly developer sales typically have between 100 and 130 units ‘returned’ each month, probably due to indefinite reissue of OTP,” he told The Straits Times.
“In July, it was reported that the developers sold 1,080 private homes, excluding the EC. In August, if we compare the sales count for each project with that of July, there is a discrepancy of 127 units that appear to have been returned during the month.
“Of course, there are real cases of need, such as that buyers may need more time to complete the sale of their existing property before exercising the OTP. For these cases, URA now allows the extension of the OTP validity for up to 12 weeks, subject to the request and mutual agreement of the developer and the buyer, ”Song said.
Private developers have nothing to lose if only genuine buyers show up and pocket 25 percent of reservation fees if buyers give up their OTPs, he added.
Karamjit Singh, CEO of Showsuite Consultancy, said URA’s new leadership “will eliminate a segment of buyers who do not have the ability to make the second payment (which amounts to 15 percent of the purchase price) within 12 weeks. after purchase and pay stamp duty. ”
URA also said the new restrictions do not apply retrospectively to OTPs issued before Monday, when developers have an existing reissue agreement with buyers. “This is a relief for both parties,” Karamjit said.
He believes the new rules are unlikely to be a major deterrent to the market for new private homes, especially in the affordable segment of the mass market.
Karamjit pointed to Hong Leong Holdings’ launch of the Penrose condo last weekend. Of its 566 units, 341 were sold through Sunday, representing 60 percent of the development.
“Hong Leong practiced a strict ‘no reissue’ policy. This means that all buyers would have to exercise their options within 3 weeks after the notification of the buy and sell agreements, ”he said.
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