This comes as some private home buyers have been making arrangements with developers (via a property agent) to continually re-issue OTP agreements upon expiry, without the buyer forfeiting the option fee.
The Urban Redevelopment Authority (URA) has contacted some developers with existing projects “to discourage them from re-issuing Options to Purchases (OTPs)”, according to an exclusive report by The Business Times.
This comes as some private home buyers have been making arrangements with developers (via a property agent) to continually re-issue OTP agreements upon expiry, without the buyer forfeiting the option fee. URA said this practice has been inflating the home sales figures of private developers.
Though the typical option period is 14 days, BT noted that some of these arrangements can last between 12 and 18 months to provide buyer more time for financing the new home.
Whilst observers say that some genuine upgraders need more time before exercising the OTP, this process has been “gamed” by property investors and speculators who do not exercise the option, thus aborting the deal.
An OTP is usually re-issued to give a buyer time to sell an existing home or asset.
When contacted by The Business Times, a URA spokesperson said the agency regularly engages developers “to obtain and provide feedback”.
“As part of recent engagements, we have reminded developers to only grant the Option to Purchase to buyers who are ready to exercise them within the validity period,” said the URA spokesperson as quoted by BT.
CEL Executive Director Michael Ng said granting a re-issue of the OTP for a reasonable period of time may help genuine upgraders and buyers, saying it “may be the only way they can upgrade”.
However, he noted that doing so for a long period of time puts a developer under a higher risk of the buyer cancelling the deal once the market turns sour, said the BT report.
“This could leave the developer with a lot more unsold units close to the five-year deadline for selling all units in the project (as part of conditions for upfront remission of Additional Buyer’s Stamp Duty on the land purchase price granted to a developer),” BT quoted him as saying.
Meanwhile, URA’s move came as no surprise for CBRE Research Head for Southeast Asia Desmond Sim.
“While there may be genuine reasons for re-issuing OTPs in some cases, it would not be surprising if the authorities clamp down on the practice, given that it creates distortions in market perception, for instance, that developers have been posting strong private home sales in the past few months vis-a-vis the reality reflected in the economic indicators,” he said as quoted by BT.
“The authorities are ensuring there is enough prudence in Singapore’s property market,” added Sim.
Victor Kang, Digital Content Specialist at PropertyGuru, edited this story. To contact him about this or other stories, email email@example.com