URA Clamps DownOn Re-issue Of Option To Purchase For Private Homes

When a buyer decides that he/she wants to purchase a private property, an Option to Purchase (OTP)​ will be exercised where the buyer will be required to pay the Option Fee (5 % of the property price). The buyer is expected to exercise the agreement within the stated validity period (usually 14 days, but may be negotiated and stretch up to 12 and 18 months). If the purchase is not done within the stipulated agreed time, the option fee will be forfeited.

A common practice between the developer and buyer is the re-issuing of OTPs upon expiry where the validity period refreshes, so that the buyer does not have to forfeit the option fee.

However, in a recent exclusive report by The Business Times, URA has reached out to a handful of private developers ​to discourage them from re-issuing ​OTPs. Why is this so and how does this affect homebuyers?

When developers are allowed to continually re-issue OTPs, buyers will have more time to decide whether they genuinely want to purchase or not. Over time, this will inflate the reported new home sales figures, which in turn sets to distort market perceptions, driving prices sky high.

In one of the worst case scenarios where the investor and/or speculator decides to back out and drop the deal down the road, developers will also be put to disadvantage due to the large inventory of unsold units.

How does it affect home buyers then? Singapore being the 2nd most expensive housing market in the world will come with a hefty Additional Buyer Stamp Duty (ABSD) premium if you, a Singaporean, own more than 1 residential property or you, a Permanent Resident/Foreigner, is buying your first or subsequent residential property. The amount is standing at 5% to 20% of the property’s value. Which means for a $1Million property, the ABSD payable can be as much as $200K!!!

For HDB upgraders, in order to not be liable for ABSD, you have to sell your first property within 6months of purchasing the new property. Now with the clamping down on re-issuing of OTPs, genuine HDB Upgraders will have a tighter timeline to adhere in order to avoid the hefty ABSD premium.

For first-time homebuyers, we know that a private property comes with a huge price tag. In order to exercise the OTP agreement, you will need to secure an Approval in Principle (AIP) with the respective bank or financial institution (okay, we know paying the lump sum on the spot is cool but let’s be real, not many will have at least $1Million sitting in the bank, and even if you really have it, you are highly unlikely ready to shell it out).

So in any case something went wrong and you’re not able to purchase the property, the Option Fee will be forfeited. If you are still really keen to purchase a unit in the development, you will need to pay the Option Fee again and risk not getting the unit you wanted. Keen to find out more on how recent market news and trends will affect you as a buyer? We are Pamela & Shirley from Wonderhomes.sg! Click comment below or drop us a PM & we will get back to you soonest!