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Mon, September 28, 2020 – 11:06 am
UPDATED Mon, Sep 28, 2020 – 3:53 pm
PRIVATE home developers cannot reissue purchase options (OTPs) to the same buyer for the same unit within 12 months of expiration, the Urban Redevelopment Authority (URA) said Monday.
These developers are also now restricted from providing initial agreements to buyers to reissue OTPs, the authority noted.
“The need for greater financial discipline when making property purchase decisions is especially pertinent given the current economic situation, where workers face uncertainties in the job market,” said URA.
The authority added that buyers should only commit to buying a property when they are ready to exercise OTP within the validity period.
Last month, The Business Times reported that the URA has been tightening its grip on a real estate market practice that may be inflating the home sales figures of private developers.
This refers to an agreement that some private home buyers make with a developer, through a real estate agent, to continuously reissue OTPs at maturity, without the reservation fee being lost. This can be done for up to a 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.
Typically, a developer of a private residential project issues an OTP after the buyer has paid a reservation fee of 5 percent of a property’s purchase price.
Within two weeks from the date of the OTP, the developer must send the sales contract (SPA) to the buyer. Within three weeks of receiving the SPA, the buyer must exercise the option by signing the SPA and returning it to the developer.
The buyer must pay the buyer’s stamp duty and, if applicable, also the buyer’s additional stamp duty (ABSD) within 14 days after the exercise of the option, that is, the date of signing the SPA. The remainder of the initial payment to the developer, 15 percent of the purchase price, must be paid within eight weeks of the date of the OTP.
If the buyer does not exercise the option within the stipulated time, the developer will lose a quarter of the reservation fee, which is 1.25 percent of the purchase price.
In its statement Monday, the URA said the three-week validity period for the OTP was set to “encourage buyers to exercise financial prudence and commit to buying a property only when they have the financial means to do so.”
However, the authority has observed that there have been cases where the OTP is reissued multiple times to the same buyer or buyers for the same unit, significantly lengthening the option period.
That said, the URA noted that while the current validity period in the standard OTP is generally sufficient for most buyers, there are some who might require more time, including those who need to complete the sale of their existing property before pursuing the option.
Therefore, upon request of such buyers or developers, the authority is willing to extend the validity period of the OTP up to 12 weeks from the date of the OTP, provided that both the buyer and the developer agree. Those who wish to request an extension of the validity period of the OTP can send their request to [email protected] with a copy and the expiration date of the OTP, along with the reasons why they require more time to exercise the option.
Lee Sze Teck, research director at Huttons Asia, noted that the latest URA move may have a greater impact on the Home Development Board (HDB) upgraders and could cause a spillover of demand in the executive condo market ( EC).
Mr. Lee added: “The sale of an HDB condo will take more than the three weeks given under the terms of the OTP. HDB upgraders will try to sell their existing HDB floor, so they don’t have to change the ABSD in advance. Sure enough now, the HDB upgrader has to raise nearly 40 percent cash and a central provident fund in three weeks if they want to buy a private residential unit.
“By contrast, there is no requirement to pay ABSD for an executive condominium unit, since legally no one can own a HDB and an EC at the same time.”
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