Will the clampdown on OTP re-issuance rein in private housing market distortions?
Of property options and 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.
Source: BT ILLUSTRATION: TEOH YI-CHIE
While 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.
Source: The Business Times
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