With the recent announcement of the restriction on re-issue of Option to Purchase (OTP) for the same unit to the same purchaser(s), many have paid more attention to what has been happening behind the curtains all this while. Reissuing an OTP simply means to extend the validity of an option, from the initial 3 weeks to however long both parties of the sale wish.

 

WHAT IS THE OPTION TO PURCHASE?

Conventionally, an Option to Purchase is given from a seller to a buyer in exchange for the buyer’s consideration, usually in the form of 1% of the agreed price. The option is valid for 3 weeks, which allows the buyer to exercise within its validity period. In the event the buyer fails to exercise within the validity period, the option is said to expire and the buyer’s consideration aka deposit will be fully or partially forfeited. This is why it is strongly advised to consider carefully the buyer’s financial ability before putting down a deposit for a property, be it new launches or resale. Of course, there are instances when buyers have a change of mind and do not wish to proceed with the sale, they can simply let the option lapse and the property will be available for sale again.

 

WHAT DOES RE-ISSUING THE OPTION MEAN?

When the option validity is agreed to be extended multiple times every time the 3 weeks is up, it simply means there is no real need to exercise the option, therefore there is also no real need to consider the financial ability of the buyer. Now you may ask what is the rationale for sellers or buyers to do so?

For buyers, they can lock in their choice unit with a minimum deposit without having to prepare the full cost of financing the property, perhaps only until much later. For those who are chasing the status of owning multiple condos, it seems more achievable when again, the indefinite validity of the option allows them to worry about the finances much later.

For the sellers, especially property developers, who have multiple units to clear from their inventory, are more than willing to give buyers this flexibility of extending the option validity. This way, they can lock the buyer in and prevent the buyer from committing a deposit to a fellow competitor. Even more so with the impact of COVID-19, buying confidence has been affected tremendously. In order to promote confidence in the market, developers are in more tendencies to inflate their sales figures in order to create as much hype as possible.

 

WHAT DOES THE RESTRICTION AIM TO DO?

In some cases, the buyer may need a longer option period to gather funds but at the same time, do not wish to miss out on buying a certain property. The buyer or developer must apply to the Controller for formal approval for the option validity to be extended up to a maximum of 12 weeks. As the title suggests, this is not a total prohibition of the re-issuing of options. Rather, to allow those in circumstances where there is a genuine need for such a re-issuance.

From here, the property sales figures are more reflective of the actual real-time transactions on the ground. These transactions are backed by real demand with real financial capability and not a case of just deposits and paperwork.

Property hunters are not falsely hyped into believing the performance of certain property developments. They will take more prudence to plan a purchase rather than rushing in for the sale for the fear of missing out.