In a circular published on Monday morning (Sept 28), the Urban Redevelopment Authority (URA) states that the reissue of purchasing options (OTPs) for the same buyer of the same unit is now forbidden to developers within 12 months of the expiry of the earlier OTP.
It is also forbidden to offer first-time contracts to customers to reissue OTPs, said URA. Both curbs will be implemented with immediate effect.
The latest change by the URA aims to curb the practice of the property market , which is expected to inflate private sales figures while at the same time promoting financial caution in home purchasing, amidst a weak economy and an uncertain job climate.
The reissue of OTPs relates to an arrangement with a developer for certain home buyers that OTPs will be re-issued indefinitely at expiry, by an agency, without any forfeiture of the reservation fee.
In the past, this can be done for up to one year, or even up to 18 months after the first OTP. For example, the idea is that the buyer should sell his real property in time.
In the current economic environment in which employers face labour market pressures, the need for greater financial flexibility in the purchasing of property is very significant. Purchasers can consent to buy property only if they can use the OTP during the span of validity, “said Ling Hui Lin, URA, in the circulary on Monday.
“Nevertheless, with effect from now on, the housing controller will enact new conditions for developer sales permits,” she said.
Under the normal terms of OTP, the option expires three weeks after the signature of the sale and purchase agreement and copies of the title acts are received from the intended purchaser.
Prior to the expiry of the sale agreement it will be necessary for the intended consumer to use the OTP and return it to the manufacturer. If the consumer does not follow the OTP, 25 percent of the booking price will be charged to the developer. As the booking payment is typically 5% of the price of the transaction, the missed balance amounts to 1.25 percent of the final house price.
The three week validity limit for the OTP is set to allow investors to exercise financial prudence and proceed to purchase properties only when they have the funds to do so. Without the necessary funds being receive in advance, consumers would be vulnerable to forfeiting 25% of reservation payments if they commit to new property purchases.
“Nevertheless, we have seen several cases where the same commodity is reissued by OTP multiple times to the same buyer(s), which substantially extends the length of the choice,” noted Ms Ling of URA.
The Controller agrees that while the present validity of the standard OTP is typically acceptable to certain customers, some customers will have more time to finalize the agreements needed before the OTP is exercised.
For eg, before purchasers exercise the OTP, the sale of their actual property might take more time, says Ling.
The Administrator, upon request from such buyers or developers, shall, as long as the parties (i.e. the buyer and the developing party) agree, be prepared to extend the period of validity of the OTP to 12 weeks from the date of the OTP.
Customers or developers who want to seek an OTP extension, a copy and expiry date, and grounds for more time to exercise the OTP may forward applications to URA. The applications may be submitted.
Ms Tricia Sing, Research Analyst, Colliers International, predicts that shifting URA would lead to more precise domestic revenue estimates.
We found that every month sales of developers have normally “returned” 100-130 units a month, she told The Straits Times, which could be due to the unspecified reissue of OTPs.
In July, 1.080 private homes outside ECs were declared to be sold by building firms. In August, there is a variance of 127 homes which seem to be repaid during the month, compared to July, in each project.
Of course, there are real needs where sellers can take some time to complete their current property before practicing OTP. In these cases, URA will now stretch the validity of OTP up to 12 weeks, with the permission of the creator and the buyer’s mutual consent,’ Ms Song pointed out.
If only true purchasers arrive, private developers have nothing to lose and get 25% of booking fees to earn, if purchasers give up their TOPs, she added.
The newest strategy on URA is to ‘delet the portion of customers that have no money for the second payment (up to 15 percent of the purchase price) within twelve weeks of the sale, and pay the stamp duties’ said Karamjit Singh, the CEO of Showsuite Consultancy.
URA has explained that the new guidelines do not retrospectively apply to pre-Monday OTPs in which developers deal with their customers. “It is a pleasant relief for both sides,” Mr. Karamjit said.
He believes that the new regulations would not dramatically dampen the new private domestic market , particularly in the competitive mass consumer sector.
Mr Karamjit pointed out that Penrose condominium was opened last weekend in Hong Leong Holdings. Of its 566 units, 341 were sold on Sunday, which accounted to about 60% of the total units which is considered pretty good in current Covid-19 market..
“This means that both buyers are planning to exercise their rights within 3 weeks of sales and purchase agreements being entered into,” he said. “Hong Leong has enforced an extensive non-reissue program.
