A loophole in the private property market has been plugged to make sure that buyers do not end up committing to new homes they cannot afford. The move is aimed at encouraging financial prudence amid Singapore’s worst recession and rising job losses.
Starting yesterday, developers will no longer be able to re-issue a prospective buyer’s option to purchase (OTP) a residential unit for multiple times on their own.
Under a standard OTP, new home buyers get around three weeks in which they reserve their rights to purchase a property in return for a booking fee. If they fail to exercise the option to purchase at the end of three weeks, they risk forfeiting 25 per cent of their booking fees – or 1.25 per cent of the total home price – analysts said.
Some developers have been continually re-issuing OTPs to prospective home buyers for months on end, without forfeiting any portion of their booking fees, while these buyers try to secure finances to complete the purchase.
Under the new guidelines, developers can no longer re-issue an OTP to the same buyer for the same unit for 12 months after the earlier OTP expires. They also have to inform buyers of this condition upfront. This move will weed out those who are less confident of committing to a purchase, analysts said.
“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. Purchasers should commit to a property purchase only when they are ready to exercise the OTP within the validity period,” Ms Ling Hui Lin, controller of housing at the Urban Redevelopment Authority, said in yesterday’s circular.
The URA 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”.
Ms Tricia Song, head of research at Colliers international, said: “This will probably instil greater financial discipline to home buyers in property-buying decisions with the following messaging: Do your sums first before you commit – if you are not able to get a loan or pay for it in three weeks, you probably should not agree to buy it now.”
However, Mr Karamjit Singh, chief executive of Showsuite Consultancy, said that for genuine buyers who can prove that they can sell their existing home within 12 weeks, the controller of housing is prepared to consider extending the three-week option validity period to 12 weeks. This is an increase from the eight weeks previously given.
URA also said the new guidelines do not apply retrospectively to OTPs issued before yesterday where developers have an existing re-issue agreement with buyers.
Meanwhile, the practice of reissuing OTPs had also raised concerns about whether data in the new home sales market could be distorted if many such buyers end up aborting the deals.
To ensure the accuracy of the developers’ sales data, which is based on the number of OTPs issued to buyers, URA told The Straits Times that the sales data “excludes any OTPs re-issued to the same purchaser(s) for the same units”.
Colliers’ Ms Song said genuine buyers are more likely to step forward under the new guidelines, which would suit developers too.
Showsuite Consultancy’s Mr Singh believes the new rules will not likely be a major dampener for the new homes market, especially in the mass-market segment.
He pointed to last weekend’s launch of Penrose condominium by Hong Leong Holdings. Of its 566 units, 341 were sold as at Sunday.
“Hong Leong practised a strict ‘no re-issue’ policy. This means all the buyers would be required to exercise their options within three weeks of being served the sale and purchase agreements,” he said.
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