Reissue of Option-To-Purchase, How Does That Affect You?
The latest release from the Controller of Housing might have left homebuyers confused, and left with a few questions.
“What was the panic all about?” “How will this affect me? I’ve just bought a new launch condo!”
Below are some of my thoughts on the subject matter.
Resale Private Property Buyers
Throughout the process of the sales agreement, this will not affect resale property buyers.
Unless there is some private arrangement between both the sellers and buyers. However, such practice within the resale market is unheard of and not widely conducted.
The only effect that this will have on the resale market is that this might entice more home buyers towards this housing segment, as resale private units are more affordable than Building Under Construction (BUC) units.
Resale Landed Property Buyers
The main reason for the reissue of OTP is to allow homebuyers to acquire more funds for their property purchase.
Landed property buyers do not face this issue as these properties are in a different price bracket. Granted, there are some landed properties which might be within a similar price bracket. Yet, these properties require rebuilding or addition & alteration (A&A) works, which can cost upwards of $300k.
This might make landed purchases, not within reach.
I don’t expect much of an impact on this housing segment.
Resale HDB Buyers
This housing segment will be impacted the most, and I strongly believe this will result in an increase in resale HDB flat transactions.
Allowing the OTP to lapse “buys” the buyers time for their new launch purchase in order to get funds required for their purchase. Usually, the case is for these upgraders to have their HDB flats sold. This releases the funds (cash/CPF) that had been locked in the asset.
Without reissuing the OTP, current HDB owners might be hard-pressed for their new launch purchase and might opt for another resale HDB instead.
New Launch Buyers
Under this mode of payment called the reservation scheme, home buyers are able to secure their interest in a new launch unit, by simply placing an option fee on the property. The option period is made to lapse after a certain time, and a fresh new option is issued for these buyers.
Reissuing of option is beneficial for both parties, namely the home buyer and developer. For the home buyer, issuing an option with the intention of letting it lapse allows them to lock in the price and discounts given by the developers at that point in time.
In addition, it provides the home buyers more time to settle the funds required for the eventual full payment of the unit.
For the developers, this practice shows for a greater commitment from the home buyers and it gives greater reassurance to the developers in two ways.
Marketing Efforts are Working
These alternatives to potential home buyers provide insight and assure the real estate developer that their development is of interest to the housing market. This removes the payment scheme as a confounding variable. I.e. the Option fee is too expensive.
Furthermore, it provides the real estate developer with more data on the Singapore market for future developments that they will be undertaking.
Looming ABSD Dateline Penalty
The penalty is 25 percent of the land price plus 5 percent interest per annum. Even if one unit is left unsold, this penalty still applies. Reissuing OTP gives developers greater control over expected sales.
Once an option, is issued, it is likely that the sale will be completed. Even if the sale is not completed, the option fee provided is non-refundable and will provide for additional cash flow for the developers.
Why This Practice is Stopped?
The Controller of Housing has placed restrictions on OTP reissue to prevent over-leveraging of home buyers that are making a purchase before they are ready. In addition, this reduces the overstimulation to the Private Residential Property Price Index, and have an overall cooling effect on the private housing market.
For those that have already been reissued OTP, take heart that this restriction will not apply retrospectively.
The Singapore government has to constantly find ways to ensure that our housing market is making sustainable growth. The implementation of this restriction allows this growth to be well managed, and not result in spikes in the overall market.
New launch buyers shouldn’t look at this new restriction with dismay, as this restriction will ensure vibrancy in our markets for a long time to come.
With this restriction set in place with immediate effect, we should see an increase for resale condo and resale HDB flat transactions.
Need further help deciding which are the best investment properties for you? Contact me (Joshua) at +65 96329840 or send your queries to firstname.lastname@example.org! My consultations do not have a charge, and it is a service outreach! I will not be pushing any products. Let us discuss the steps that you can take to achieve your property investment goals.
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