New Launches and Developer Sales Market Practice - URA monitoring the Repeated Issue of Option to Purchase by Developer

Commonly adopted Developer Sales Market Practice
Under Scrutiny again by URA?

URA has announced that they are stepping up to monitor this "not-so-new" market practice that has been used by Developer during new launches .........

The repeated issue of Option-to-Purchase

Business Times 28th August 2020

https://www.businesstimes.com.sg/real-estate/ura-steps-up-tracking-of-repeated-issue-of-otps

When the developer or seller grants a buyer the right to buy a property in return for a fee, the buyer (ie, the holder of an option-to-purchase - OTP) has 5 weeks to exercise the option.

The Typical Option Validity Period of New Launches

From the point, the buyer has booked the unit during the new launch, Property Details Information (or ‘PDI)’ documents – (a set of floor plans, rules and regulations and information regarding the unit) and the OTP will be given to the buyer.  Within 2 weeks of providing you with the Option, the developer will deliver the Sales & Purchase Agreement (S&P) within 2 weeks of issuing OTP to the buyer.  Following which, the buyer will have 3 weeks to sign it and exercise the Option.

What happens if the Buyer is not able to exercise the Option within the Validity Period?

If the buyer fails to do so, the developer or issuer of the OTP has the right to forfeit part of the deposit. This means the buyer would have to forgo 1.25% of the purchase price.

Now, rather than enforcing the fee forfeiture, some developers have been re-issuing OTPs upon the expiry of the original OTP upon mutual agreement.

Genuine buyers have been able to snag early bird discounts of new launches by buying more time!!

While this practice of re-issuing Options by the Developers have indeed helped genuine buyers buy more time (a year or even as long as up to 18 month from the date of the first OTP issued!!) and lock in good deals during new launches, this has also muddied and distorted home sales figures and analysis.

"Gaming the property market is not encouraged"

With URA stepping in to monitor this practice, this is no doubt a sensible and prudent move to prevent impulse buying.

On the other hand, I do foresee genuine buyer having less flexibility to buy time to lock in any units in the near future.

If we look back at the fundamentals of ensuring affordability before committing to a home purchase, then rightfully, Developers should only grant the Option to Purchase to buyers who have worked out their financials and are ready to exercise the OTP within the validity period.

After all, it will not do any good for Developers to end up with many returned units at the end of the day!

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Source: Business Times, URA