Option to Purchase (OTP) For Private and HDB Properties in Singapore: What You Need to Know (2022)

In this era of online shopping, banking and well, pretty much everything, many of us are familiar with the acronym 'OTP'. But aside from meaning 'one-time password', did you know that OTP is also short for 'Option to Purchase'? 

In the property world, an Option to Purchase (OTP) is a legal agreement between the buyer and seller (or developer) for the sale of a residential property. When you sign the OTP agreement, you'll need to pay an option fee to 'reserve' the property. If you 'back out' of the purchase (i.e. you do not exercise the option by the expiry date), you forfeit the amount paid. 

Here's a guide to what is the OTP and its implications. 

Guide to Private Property and HDB OTPs

• An Option to Purchase (OTP) is a legal agreement between the buyer and the seller to buy a residential property 
• The buyer pays an option fee and is granted the rights to buy the property for the option period (three weeks)
• If the buyer does not purchase, the seller has the right to forfeit the option fees 

Need more detail? Here's our full guide to the Option to Purchase agreement, covering both the private property and HDB OTP processes. 

What’s an Option to Purchase Agreement? 

An Option to Purchase agreement is a legal contract signed between a buyer and a seller of a residential property and basically gives the buyer the exclusive rights to purchase a property from the seller in the future.  

After you and the seller have agreed on the terms and purchase price of the property, the seller will grant you the OTP document. To 'reserve' the property from the seller, you’ll need to first pay a small booking deposit, which is known as the Option Fee.

In exchange, the seller won’t look for potential buyers and cannot sell the property to another party during the agreed period of time stated on the OTP. This Option Period gives some time for both you and the seller to consider going ahead with the deal. 

In order to make the OTP agreement as complete as possible, the seller can hire a property lawyer to draft the document before sending it to you. 

On receiving the OTP, you can engage a lawyer to review, negotiate, and request to amend any of the terms before signing. 

To get a feel of how the document looks like, you can download a copy of the OTP for private property from CEA (Council for Estate Agencies) here. 

If you’re buying an HDB resale flat, you and the seller must use the OTP document prescribed by the HDB.  

Note: Bear in mind that as a buyer, you’re not obliged to buy the property from the seller after signing an Option to Purchase agreement. Rather, you can still consider whether or not you want to purchase the property while exploring other options.

What’s Within an Option to Purchase Agreement?

Be sure to read through the Option to Purchase carefully before signing

As mentioned previously, if you’re buying an HDB resale flat, you’ll have to use the Option to Purchase agreement from HDB. For private property, the seller’s lawyer or property agent may prepare the document. 

Related article: 73 Freshly MOP-ed HDB Resale Flats in Singapore to Expect in 2021/2022

The Option to Purchase agreement should typically cover these basic elements: 

1. Option Fee

To be negotiated with your seller, the option fee is usually 1% of the purchase price for private properties, or not more than $1,000 for an HDB resale flat. 

2. Option Period

Typically 14 days. However, this period is negotiable and can be extended to 2 months. For HDB resale flats, this will be 21 calendar days including Saturday, Sunday, and public holidays. 

3. Details of the Property Being Sold

Including the following: 

1. Purchase price 
2. Floor area 
3. Address

4. Details of Both Buyer and Seller

Including the following: 

1. Full names 
2. IC numbers 
3. Contact numbers 
4. Addresses

5. What Happens if the OTP Is Not Exercised Before It Expires

It should state whether or not the Option Fee will be forfeited. 

6. Whether the Property Is Furnished or Vacant

If the property is being sold together with its furnishings, the OTP should include an inventory list. 

7. Obligations of the Buyer and Seller

If you’re unsure of any of the terms stated in the OTP, be sure to clarify with your seller. You can also seek legal advice if needed. 

For more on the legal procedure of buying and selling property, see our guide to property conveyancing.

What Is the Process for Private Property Option to Purchase Agreement? 

This is usually how the signing of the OTP fits into the property buying process:

1. The seller lists the property on a property listing website. 
2. An interested buyer will view the property and negotiate the price and terms. 
3. After the buyer and seller have come to an agreement, the seller will hire a lawyer to draft an OTP document (in the case of private property) and send it to the buyer for review. 
4. Once both parties are agreeable to the terms, the buyer will pay the Option Fee to the seller, and the seller will sign the document. 
5. Once signed, the OTP becomes a legally binding document. An acceptance copy will also be sent to the buyer. 

What Is the Process for an HDB Option to Purchase Agreement? 

The above procedure outlines the basic steps involved in signing the OTP for a private property.

For HDB resale transactions, however, there are prescribed formats and rules for the HDB OTP. Some pre-requisites before you can kick start the HDB OTP process are:

1. The seller needs to have registered his Intent to Sell for at least seven days
2. The buyer needs to have registered her Intent to Buy
3. The buyer needs to have her home loan documents ready

If you’re buying an HDB resale flat, both you and the seller must register your Intent to Buy and Intent to Sell on the HDB resale portal respectively.

In addition, the seller can only grant the HDB OTP to you at least seven days after he's registered his Intent to Sell. There is no need to get a lawyer to issue an HDB OTP as you are to use the HDB OTP document furnished by HDB instead. 

If you wish to take an HDB Concessionary Loan, you’ll need to obtain an HDB Loan Eligibility (HLE) letter from HDB when the seller grants you the HDB OTP. 

If you’re taking a housing loan from the bank, you’ll need to get a Letter of Offer or In-Principle Approval (IPA) from a bank before reaching the HDB OTP stage. You’ll need this letter when you exercise the OTP. 

What Happens When the Buyer Chooses to Exercise the OTP?

The procedure is a little different for HDB resale flats and private property. 

Exercising an HDB OTP

You’ll first need to sign on the 'Acceptance' section, and have a witness sign the HDB OTP. The witness can either be: 

• A property agent
• A Singapore Citizen or Permanent Resident who’s at least 21 years old, and is not involved in the resale transaction

When you exercise the HDB OTP, you’ll also need to pay the seller a deposit, which you can negotiate with him or her. Do keep in mind that together with the Option Fee, this deposit cannot be more than $5,000. 

After that, both you and the seller will need to submit the resale application to HDB within the agreed number of days reflected in the HDB OTP. 

Do take note that both you and the seller will need to submit your respective portion of the application to HDB within seven days of each other. The resale application is only complete when HDB has received the application from both sides. 

Exercising a Private Property OTP

As with the case for HDB resale flats, you’ll need to sign the acceptance copy of the OTP and pay the deposit fee. What’s different is that the deposit fee is usually 5 to 10% of the purchase price, minus the Option Fee. 

In general, for both resale and private properties, you and the seller will agree on a date of completion for the sale. Typically, this is around 10 to 12 weeks from the signing of the OTP. 

What Happens After the Buyer Exercises the OTP?

As a buyer, you’ll also need to pay the Buyer’s Stamp Duty (BSD) within 14 days of exercising the OTP.  

Buyer's Stamp Duty Rates

Want to find out more about the Buyer’s Stamp Duty (BSD)? Read our guide here.

In addition, you may also need to pay Additional Buyer’s Stamp Duty (ABSD), depending on your citizenship status and how many residential properties you’ve bought. 

Additional Buyer's Stamp Duty Rates

Find out more about the property cooling measures announced in December 2021 and what it means for your property purchase. Do note these cooling measures apply to those whose OTP was granted on and after 16 December 2021. 

Related articles:

• How to Refinance HDB Loan to Bank Loan in Singapore (2022)
• Property Cooling Measures (Dec 2021): How the New TDSR Affects You
• Singapore Property Cooling Measures (Dec 2021): Is Your In-Principle Approval (IPA) Still Valid?

Important Note for Private Property OTPs: Re-Issuing is No Longer Allowed

Although sellers have the right to forfeit the option fee and put the property back up for sale when buyers do not exercise their option by the OTP expiry, there was reportedly been a growing trend of developers not enforcing this rule.

To incentivise buyers, some developers agreed to let buyers 'cancel' for free or re-issue the OTP, essentially extending the buying window for buyers. This was beneficial to those who wanted to 'lock in' early bird discounts but needed more time to decide and/or rustle up the cash for the purchase.

Previously, this was allowed and sellers could extend the OTP for up to 18 months. However, with effect from 28 September 2020, housing developers will no longer be allowed to exploit this loophole. The restrictions announced will... 

1. Stop developers from providing upfront agreement to purchaser(s) to re-issue OTPs
2. Stop developers from re-issuing OTP to the same purchaser(s) for the same unit within 12 months after the expiry of the earlier OTP
3. Require developers to inform purchaser(s) of these conditions upfront

This means that if you want to buy the property, you must exercise your option within three weeks (the OTP period). If you decide not the purchase and change your mind thereafter, the developer cannot re-issue (i.e. extend) your OTP, and you must wait for 12 months.  

If you really need more time, you can, however, formally apply for an extension by emailing URA. You can extend the window by up to 12 weeks from the OTP date, provided both you and the developer are agreeable. You can read more about this latest restriction by URA here: URA Restricts Re-Issue Of OTP.

Do note it's also illegal to backdate an OTP.

More FAQs about Option to Purchase

Still don't quite understand private property or HDB OTPs? Here are some frequently asked questions (and answers) on the Option to Purchase agreement and process. 

How Do You Get an Option to Buy?

The seller (could be the previous homeowner or housing developer) will grant it to you (the buyer), who must sign it and pay the option fee. 

Is OTP a Contract?

Yes, once signed by all involved parties and option fee paid by the buyer, the Option to Purchase agreement is a legally binding document. 

Does the Seller Keep the Option Fee?

Yes, the option fee is given to the seller. 

What Happens if the Buyer Decides Not to Buy the Property?

If you decide to 'cancel' the OTP by not exercising it within the Option Period, you’ll have to forfeit the Option Fee. Unless stated in the document, the seller will get to keep the Option Fee. 

After the Option Period has ended, the seller is allowed to put up the property for sale again. 

What Happens if Either Party Decides to Back Out After Signing the OTP?

If you back out after signing the document, you’ll have to forfeit the Option Fee. If the seller backs out of the deal and 'cancels' the OTP, he’ll have to refund the Option Fee to you.

For more property news, resources and useful content like this article, check out PropertyGuru’s guides section. 

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