Singapore’s busy real estate market is constantly buzzing, you will constantly see news of record transactions across various types of properties in Singapore.
Among all the different terms and processes, there’s one important thing to know: the Option to Purchase (OTP).
In this article, let’s take a closer look at the Option to Purchase for resale residential properties. I’ll talk about why it matters and how it protects both the seller and buyer.
Understanding Option to Purchase (OTP)
The Option to Purchase (OTP) is like a special agreement between someone selling a property and someone who might want to buy it.
It gives the buyer an exclusive chance to buy the property within a certain time, usually about two weeks.
During this time, the seller can’t sell the property to anyone else, so this protects the buyer giving the buyer an exclusive period to consider whether to exercise the OTP.
However the buyer has to pay an option fee, which in turn protects the seller for the time given to the buyer to consider.
OTP is used for both HDB and private properties.
HDB OTP vs. Private Property OTP
| Area | HDB OTP | Private Property OTP |
|---|---|---|
| Duration | Usually valid for 21 days. | Usually valid for 14 days (negotiable) |
| Form / Agreement | In order to utilize the HDB’s OTP form, the seller is required to submit their Intent to Sell on the HDB Resale Portal a minimum of 7 days prior to issuing an OTP to the prospective buyer. | The seller will provide the OTP to the buyer once an accord on the fundamental terms and purchase price has been reached by both parties. |
| Option Fee | Paid by buyer, option fee not more than $1,000. | Paid by the buyer to the seller upon granting the OTP. Usually 1% of the agreed purchase price. |
Key Aspects of OTP:
Exclusive Opportunity: The OTP provides the buyer with a chance to secure the property without worrying about other buyers swooping in during the option period.
Option Fee: Buyer pays a non-refundable option fee to the seller for issuing the OTP.
Completion of Sale: If the buyer decides to proceed, the OTP is exercised, and both parties move forward to complete the sale within the stipulated timeframe.
Benefits of Using OTP:
Time to Decide: The OTP period gives buyers the necessary time to finalise their decision without the pressure of immediate commitment.
Financial Planning: Buyers can use the OTP period to arrange financing, secure a housing loan, and plan their budget.
Negotiation: Buyers can negotiate terms and conditions during the OTP period, providing flexibility for both parties to come to a mutually agreeable arrangement.
What happens if the buyer decides not to proceed?
The option fee is forfeited to the seller. Seller can then offer the property to other potential buyers.
How much is required to exercise the OTP?
Private Property
For private properties, buyer who choose to exercise the OTP will need to pay the remaining 4%, along with the 1% option fee that has been paid, to make up the typical 5% deposit.
Stamp duty is payable within 14 days of exercising the OTP.
HDB Flat
For HDB flats, total deposit cannot exceed $5,000 hence buyers will have to top up $4,000 on top of the $1,000 option fee that has been paid.
Buyers taking a home loan from a bank must have a Letter of Offer before they can exercise the OTP.
Do I need professional assistance when dealing with OTP?
It’s highly recommended to seek professional advice when dealing with OTP and property transactions.
Engaging a real estate agent and a lawyer can help ensure a smooth and legally compliant process.