SINGAPORE (EDGEPROP) - In a bid to encourage homebuyers to exercise financial prudence in the purchase of a home, Controller of Housing (COH) announced today (Sept 28) that the Option to Purchase (OTP) of a property will expire three weeks after the Sale and Purchase Agreement and copy of the title deeds are delivered to a potential homebuyer.
Under the new ruling which takes effect today, homebuyers will risk forfeiting 25% of their booking fees if they commit to new property purchases without securing the necessary finances upfront.
“The three-week validity period for the OTP is put in place to encourage purchasers to exercise financial prudence and commit to purchasing a property only when they have the financial means to do so,” says COH, as it has observed instances when the OTP was re-issued multiple times to the same purchaser for the same unit, which lengthened the option period significantly.
“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,” adds COH.
In addition, with effect from today, developers will no longer be able to re-issue OTPs to a potential homebuyer for the same unit within 12 months after the expiry of the prior OTP.
Those who wish to sell their HDB flats and use the proceeds towards the purchase of a private property may be impacted by the new restriction (Photo: Samuel Isaac Chua/EdgeProp Singapore)
"The COH moves are to remove the excess fluff in the sales process," says Alan Cheong, Savills Singapore head of research. "An excessive number of OTP reissue cases can potentially lead to an over-reading of the price index. However, I am confident that the COH is still pro business and would let genuine cases through the door."
Developers have been willing to provide more time for buyers to exercise the OTP for two main reasons, says Karamjit Singh, chief executive of Showsuite Consultancy. First, the buyer would need to pay stamp duty on the purchase when exercising the OTP. "If the buyer is seeking to sell an existing home but has not managed to do so at the time they are required to exercise the option, the buyer would be liable for higher stamp duties in the form of Additional Buyer’s Stamp Duty [ABSD]," he explains. The second reason is cash flow: "Under mortgage rules, a buyer cannot borrow from banks for the first 25% payment towards the purchase of a home, hence the buyer would need sufficient cash and/or CPF funds," he adds.
HDB owners who are planning to upgrade to private homes may qualify for a refund of ABSD paid for their new purchase, if they sell their HDB flat within six months from receiving the keys to the new private flat, which could take years -- depending on the stage of construction, adds Singh.
However, those who wish to sell their HDB flats and use the proceeds towards the purchase of a private property may be impacted, comments Lee Sze Teck, director of research at Huttons Asia. “Effectively now, the HDB upgrader has to come up with almost 40% cash and CPF within three weeks if they want to buy a private residential unit,” he says.
The new directive that takes effect from today, "would remove a thin layer of demand for new homes from the segment of purchasers who clearly do not have the capacity to make the second payment -- amounting to 15% of the purchase price -- within 12 weeks of the purchase, and pay for stamp duties", says Showsuite Consultancy's Singh. "Such purchasers should therefore defer their purchases until a time they are financially ready in terms of their equity position or a sale of their existing homes."
Showflat of a four-bedroom unit at Penrose, where 351 out of its 566 units were sold as at yesterday evening [Sept 27], representing 60% of the development (Photo: Hong Leong Holdings)
However, for genuine buyers who can prove that they are able to sort out the sale of their existing home within 12 weeks, the COH is prepared to consider extending the three-week option period to 12 weeks, notes Singh. "This would naturally be helpful for the buyers to navigate the transition and for the developer to secure the sale," he adds.
The Real Estate Developers' Association of Singapore (REDAS) said in a statement that is "heartened" by the flexibility to extend the validity period of the OTP up to 12 weeks from the OTP date to allow genuine buyers more time to exercise the OTP before it expires. "With strict TDSR [total debt servicing ratio] in place, we understand that most buyers do exercise financial prudence for property purchase before they take up the OTP and buy only within their means," according to REDAS.
The new COH guidelines do not apply retrospectively. Pre-existing commitments towards re-issuance of options between developers and buyers made prior to these new guidelines are not affected. "This would come as a welcome relief to both parties," says Singh.
As such, Singh does not expect this new directive to be a major dampener on new home sales, especially in the affordable mass-market segment. A case in point is last weekend’s successful launch of Penrose condominium by Hong Leong Holdings, he says. Out of its 566 units in the development, 341 units were sold as at yesterday evening [Sept 27], representing 60% of the development.
According to Singh, "Hong Leong Holdings practised a strict ‘no-reissue’ policy. This means all the buyers would be required to exercise their options within three weeks of being served the Sale and Purchase Agreements." The registration of interests, bookings and signing of booking documents were carried out digitally using Showsuite’s digital booking platform.
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