Of property options and market distortions
OF PROPERTY OPTIONS AND MARKET DISTORTIONS: Will the clampdown on OTP re-issuance rein in private housing market distortions? Source: BT ILLUSTRATION: SIMON ANG
After months of trying to persuade private housing developers not to indulge in the continual re-issuance of options to purchase (OTPs) upon expiry, effectively allowing buyers to defer their purchase and payment, the authorities finally clamped down on the practice on Sept 28.
OF PROPERTY OPTIONS AND MARKET DISTORTIONS: Will the clampdown on OTP re-issuance rein in private housing market distortions? Source: BT ILLUSTRATION: TEOH YI-CHIE
the newly introduced restrictions on options are aimed at fostering greater financial prudence for buyers, the move also curbs use of a scheme that encouraged sales for developers.
Before the change in rules, a
developer could keep re-issuing the OTP each time it expired, to the same buyer and for the same unit. This allowed buyers to avoid any forfeiture of the booking fee if they did not exercise the option within three weeks.
The re-issuing could go on for an extended period - say, six months, 12 months or 18 months, and in some cases even longer - from the date of the first OTP.
This could tempt buyers who lacked the upfront finances required to nevertheless commit to a property purchase in the hope that they would be able to secure the funding later.
"Next year, if there is no follow-through momentum in terms of recovery in the jobs market and household incomes, reality will come back to the fore and we may see prices starting to lose steam in Q1 2021." - Alan Cheong, Savills Singapore executive director (above).
CBRE’s Mr Sim says removing the re-issuance of OTP situation gives a better conversion rate, that is, the conversion of an OTP to a true sale.
DBS’s Derek Tan notes that selling properties on a re-issuance of OTP scheme can give a developer a “false sense of achievement”.
With income increase far outstripping home price increase (from 2010-2019), buyers find residential properties much more affordable today, says JLL’s Mr Ong.
"The latest COH action is not unexpected. It is to curb too much 'forward buying' activities which can lead to distortion in sales numbers and market trends." - CEL Development executive director Michael Ng.
Source: The Business Times