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OTP in the property market does not mean ‘One-Time Pin’. It refers to ‘Options to Purchase’, a contract between the seller and buyer to sell/purchase the same property. In most cases, an OTP lasts for three weeks. After the OTP has lapsed and the buyer is not proceeding on with the property purchase, the OTP fee will be forfeited.
For HDBs, the OTP fee ranges from $1 to $1,000 (in most cases, it is $1,000). On the flip side, OTP fee for private properties ranges from 1% to 5%. The high OTP fees ensures that buyers will not back out at the last minute.
Re-issuing of OTP by Private Property Sellers
In the private properties market, it was once a common sight to see sellers re-issue OTP which have expired so that their buyers have additional time to gather the required amount and/or to sell their existing property. In order to have an OTP re-issued to them, buyers will have to make a small payment to the developers (around $300). At the same time, their booking fee will not be forfeited.
With effect from 28th September 2020, Urban Redevelopment Authority (URA) has published a circular which restricts private property sellers from re-issuing OTP for the same unit, to the same purchaser. This is said to be a cooling measure in the property market.
This restriction was implemented to encourage purchasers to have a greater financial discipline, especially in the weak economy. The practice of re-issuing OTP was also believed to inflate the prices of private properties. With the restriction in place, it will result in buyers exercising financial prudence, accurate home sales number, and a sales price that is more reflective of the current private properties market.
What happens after the OTP expires?
After the OTP expiration (three weeks), buyers can choose to exercise the purchase, allow the OTP to lapse, or extend the OTP (can be done before the expiry of OTP).
The OTP validity can be extended for up to 12 weeks by submitting the extension application to URA. Both the buyer and the developer must agree to the extension and submit their application with three documents/information – a copy of the OTP, OTP’s current expiry date, and reason(s) for the application.
In the event where the buyer decides to not exercise the OTP, 25% of the booking fee may be forfeited. This is estimated to be 1.25% of the total price of the property since the booking fee is usually 5% of the property price.
With this stricter regulation of no re-issuing of OTP unless approved by URA, it will eventually result in a more accurate sales number and property price. Buyers will also be more prudent before getting an OTP as it will expire at the end of 3 weeks.