New Reporter
29-09-20, 16:51
URA clampdown on option re-issue may have some cooling effect on property market
Tue, Sep 29, 2020
Rachel Mui
https://www.businesstimes.com.sg/real-estate/ura-clampdown-on-option-re-issue-may-have-some-cooling-effect-on-property-market
THE Urban Redevelopment Authority (URA) has curbed private housing developers from re-issuing the option to purchase (OTP) to the same buyers of the same unit with immediate effect, amid worries that "financial discipline" is slackening despite the recession.
URA's Controller of Housing has imposed new conditions in the sale licences issued to developers. These include restricting developers from providing upfront agreements to purchasers to re-issue the OTPs, restricting developers from re-issuing OTPs to the same purchasers for the same unit within 12 months after the expiry of the earlier OTP and requiring developers to inform purchasers of this condition upfront.
While some analysts predict a slight cooling effect on market activities, others believe the impact of URA's latest directive remains to be seen.
Said Citi analyst Brandon Lee: "While it is hard to estimate the contribution of re-issued OTPs to sales, the move suggests it is a reasonable number, hence we expect primary sales to slide to a normalised 600 to 800 units per month, versus 1,000 to 1,200 in the past few months." He also expects a knee-jerk negative reaction on developers.
But ERA Realty Network key executive officer Eugene Lim was not as certain. "What's driving the market now is a very attractive housing loan rate. Liquidity is high, loans are cheap and there is sizeable en-bloc money that has yet to flow back into the market," Mr Lim told The Business Times.
Christine Li, Cushman & Wakefield's head of business development services for Singapore and South-east Asia, said the new measures would have a slight cooling effect on market activities in Q4 2020 as the authorities "close this loophole".
Buyers, she said, could adopt a more cautious stance as they now face a non-extendable deadline to make a purchase. Meanwhile, the affordability of homes could be affected due to salary reductions or retrenchments amid the Covid-19 pandemic.
That said, Ms Li added that market activities could remain relatively healthy overall as there is genuine demand driving the private residential market from both owner-occupiers and investors.
Developers in Singapore sold 1,256 private homes in August. This was 16 per cent more than in July and represented a fourth consecutive month of increase in monthly sales since April's circuit breaker. The buoyant recovery has led some analysts to project that 2020 transactions may exceed 2019's sale of 9,912 homes.
Karamjit Singh, chief executive of Showsuite Consultancy, also believed URA's initiative would not significantly dampen sentiment in the new homes market, citing the example of Penrose condominium in Sims Drive, where 60 per cent of the development was sold during its launch last weekend.
URA's announcement comes after BT highlighted in June that OTPs could be among the factors propping up private home sales figures.
This market practice refers to an arrangement between private home buyers and developers, via property agents, to continually re-issue OTPs upon expiry without any forfeiture of the booking fee. This may be done for up to 18 months from the date of the first OTP. The idea is to give the buyer time, perhaps to sell his existing home.
Typically, a developer of a private residential project issues an OTP after a buyer has paid a booking fee of 5 per cent of the purchase price of a property. Within two weeks from the OTP date, the developer has to send the sale and purchase agreement (SPA) to the buyer. Within three weeks of receiving the SPA, the buyer is required to exercise the option by signing the SPA and returning it to the developer.
The purchaser has to pay the buyer's stamp duty and, if applicable, the additional buyer's stamp duty (ABSD) within 14 days of exercising the option. The remainder of the downpayment to the developer - 15 per cent of the purchase price - has to be paid within eight weeks from the OTP date.
If the buyer does not exercise the option by the stipulated deadline, a quarter of the booking fee - which works out to 1.25 per cent of the purchase price - will be forfeited to the developer.
In its circular on Monday, URA said 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".
The authority said, however, that it has observed instances where the OTP is re-issued multiple times to the same purchaser(s) for the same unit, which lengthens 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," said Ling Hui Lin, URA's Controller of Housing. She added that purchasers should only commit to a property purchase when they are ready to exercise the OTP within the validity period.
The URA further noted that while the current validity period in the standard OTP is generally sufficient for most purchasers, there are some who might require more time, including those who need to complete the sale of their existing property before exercising the option.
Therefore, upon application by such purchasers or developers, the authority is prepared to extend the validity period of the OTP up to 12 weeks from the OTP date. In the past, OTP validities could be extended for up to eight weeks or re-issued upon expiry.
The Real Estate Developers' Association of Singapore (Redas) on Monday said it is heartened by the government's 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 option before it expires.
"With strict 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," added Redas.
Tue, Sep 29, 2020
Rachel Mui
https://www.businesstimes.com.sg/real-estate/ura-clampdown-on-option-re-issue-may-have-some-cooling-effect-on-property-market
THE Urban Redevelopment Authority (URA) has curbed private housing developers from re-issuing the option to purchase (OTP) to the same buyers of the same unit with immediate effect, amid worries that "financial discipline" is slackening despite the recession.
URA's Controller of Housing has imposed new conditions in the sale licences issued to developers. These include restricting developers from providing upfront agreements to purchasers to re-issue the OTPs, restricting developers from re-issuing OTPs to the same purchasers for the same unit within 12 months after the expiry of the earlier OTP and requiring developers to inform purchasers of this condition upfront.
While some analysts predict a slight cooling effect on market activities, others believe the impact of URA's latest directive remains to be seen.
Said Citi analyst Brandon Lee: "While it is hard to estimate the contribution of re-issued OTPs to sales, the move suggests it is a reasonable number, hence we expect primary sales to slide to a normalised 600 to 800 units per month, versus 1,000 to 1,200 in the past few months." He also expects a knee-jerk negative reaction on developers.
But ERA Realty Network key executive officer Eugene Lim was not as certain. "What's driving the market now is a very attractive housing loan rate. Liquidity is high, loans are cheap and there is sizeable en-bloc money that has yet to flow back into the market," Mr Lim told The Business Times.
Christine Li, Cushman & Wakefield's head of business development services for Singapore and South-east Asia, said the new measures would have a slight cooling effect on market activities in Q4 2020 as the authorities "close this loophole".
Buyers, she said, could adopt a more cautious stance as they now face a non-extendable deadline to make a purchase. Meanwhile, the affordability of homes could be affected due to salary reductions or retrenchments amid the Covid-19 pandemic.
That said, Ms Li added that market activities could remain relatively healthy overall as there is genuine demand driving the private residential market from both owner-occupiers and investors.
Developers in Singapore sold 1,256 private homes in August. This was 16 per cent more than in July and represented a fourth consecutive month of increase in monthly sales since April's circuit breaker. The buoyant recovery has led some analysts to project that 2020 transactions may exceed 2019's sale of 9,912 homes.
Karamjit Singh, chief executive of Showsuite Consultancy, also believed URA's initiative would not significantly dampen sentiment in the new homes market, citing the example of Penrose condominium in Sims Drive, where 60 per cent of the development was sold during its launch last weekend.
URA's announcement comes after BT highlighted in June that OTPs could be among the factors propping up private home sales figures.
This market practice refers to an arrangement between private home buyers and developers, via property agents, to continually re-issue OTPs upon expiry without any forfeiture of the booking fee. This may be done for up to 18 months from the date of the first OTP. The idea is to give the buyer time, perhaps to sell his existing home.
Typically, a developer of a private residential project issues an OTP after a buyer has paid a booking fee of 5 per cent of the purchase price of a property. Within two weeks from the OTP date, the developer has to send the sale and purchase agreement (SPA) to the buyer. Within three weeks of receiving the SPA, the buyer is required to exercise the option by signing the SPA and returning it to the developer.
The purchaser has to pay the buyer's stamp duty and, if applicable, the additional buyer's stamp duty (ABSD) within 14 days of exercising the option. The remainder of the downpayment to the developer - 15 per cent of the purchase price - has to be paid within eight weeks from the OTP date.
If the buyer does not exercise the option by the stipulated deadline, a quarter of the booking fee - which works out to 1.25 per cent of the purchase price - will be forfeited to the developer.
In its circular on Monday, URA said 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".
The authority said, however, that it has observed instances where the OTP is re-issued multiple times to the same purchaser(s) for the same unit, which lengthens 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," said Ling Hui Lin, URA's Controller of Housing. She added that purchasers should only commit to a property purchase when they are ready to exercise the OTP within the validity period.
The URA further noted that while the current validity period in the standard OTP is generally sufficient for most purchasers, there are some who might require more time, including those who need to complete the sale of their existing property before exercising the option.
Therefore, upon application by such purchasers or developers, the authority is prepared to extend the validity period of the OTP up to 12 weeks from the OTP date. In the past, OTP validities could be extended for up to eight weeks or re-issued upon expiry.
The Real Estate Developers' Association of Singapore (Redas) on Monday said it is heartened by the government's 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 option before it expires.
"With strict 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," added Redas.