To save all future potential trouble, i would advise you to demand to see the tenancy agreement. This is to make sure whatever they claimed is true.
Currently , you will stand to lose that 1k deposit should you back out of the deal. HDB transactions are different from private properties where units can be sold with vacant possession or with tenancy. Should you decide to proceed with OTP, the owner will need to produce a handover inspection (subject to your agreement) prior to the second appointment date with HDB. If the unit is still not vacant, you can demand that owner takes the necessary steps to ensure vacant possession.
Hope this helps.