You are here
URA restricts re-issue of option to purchase for same unit
PRIVATE housing developers have been restricted from re-issuing options to purchase (OTPs) to the same buyer for the same unit within 12 months of expiry, the Urban Redevelopment Authority (URA) said on Monday.
These developers are now also restricted from providing upfront agreements to purchasers to re-issue OTPs, the authority noted.
"The need for greater financial discipline in making property purchase decisions is especially pertinent given the current economic situation, where workers are facing uncertainties in the labour market," URA said.
The authority added that purchasers should only commit to a property purchase when they are ready to exercise the OTP within the validity period.
Last month, The Business Times reported that the URA has been tightening its monitoring of a property market practice that may be inflating the home sales figures of private developers.
This refers to an arrangement some private home buyers make with a developer, via a property agent, to continually re-issue OTPs upon expiry - without any forfeiture of the booking fee. This can be done for up to a year - or even as long as up to 18 months - from the date of the first OTP. The idea is to give the buyer time, for instance, to sell his existing home.
Typically, a developer of a private residential project issues an OTP after a buyer has paid a booking fee of 5 per cent of the purchase price of a property.
Within two weeks from the OTP date, the developer has to send the sale and purchase agreement (SPA) to the buyer. Within three weeks of receiving the SPA, the buyer is required to exercise the option by signing the SPA and returning it to the developer.
The purchaser has to pay the buyer's stamp duty and, if applicable, also the additional buyer's stamp duty (ABSD) within 14 days of exercising the option, that is, the date of signing the SPA. The remainder of the downpayment to the developer - 15 per cent of the purchase price - has to be paid within eight weeks from the OTP date.
If the buyer does not exercise the option by the stipulated deadline, a quarter of the booking fee - which works out to 1.25 per cent of the purchase price - will be forfeited to the developer.
In its statement on Monday, the URA said the three-week validity period for the OTP is put in place to “encourage purchasers to exercise financial prudence and commit to purchasing a property only when they have the financial means to do so”.
However, the authority has observed that there have been instances where the OTP is re-issued multiple times to the same purchaser(s) for the same unit, which lengthens the option period significantly.
That said, URA noted that while the current validity period in the standard OTP is generally sufficient for most purchasers, there are some who might require more time, including those who need to complete the sale of their existing property before exercising the option.
Therefore, upon application by such purchasers or developers, the authority is prepared to extend the validity period of the OTP up to 12 weeks from the OTP date, provided that both the purchaser and the developer are agreeable. Those who wish to apply for an extension of the OTP validity period may submit their application to firstname.lastname@example.org with a copy and expiry date of the OTP, along with reasons for requiring more time to exercise the option.
Lee Sze Teck, director of research at Huttons Asia, noted that URA’s latest move may have more of an impact on Housing Development Board (HDB) upgraders and could cause spillover demand to the executive condominium (EC) market.
Added Mr Lee: “The sale of a HDB flat will take more than the three weeks given under the terms of the OTP. HDB upgraders will try to sell off their existing HDB flat, so that they do not have to stump up the ABSD upfront. Effectively now, the HDB upgrader has to come up with almost 40 per cent cash and central provident fund within three weeks if they want to buy a private residential unit.
“Conversely, there is no requirement to pay ABSD for an executive condominium unit as legally no one is allowed to own both a HDB and EC at the same time."