What is Option to Purchase in Singapore?
Purchasing a property is one of the major milestones in your life. If you’re planning to buy your own property in Singapore, you should know what Option to Purchase or OTP is. This is a legal agreement that is given by the property seller to the buyer so they have the option (but not the obligation) to purchase a property at the agreed price.
In the property industry, signing the OTP means that you need to pay the option fee to reserve the property that you want. If you don’t push through with this purchase, you can’t get the amount back – think of it as a convenience fee you pay to sellers for locking in their property for a specific period.
If you want to know more about OTP meaning and how it works, keep on reading.
Here at OMY Singapore, you will discover the following:
What is an Option to Purchase Agreement?
As mentioned above, an OTP is a legal contract that involves the buyer and seller of residential properties. It gives the buyer the exclusive right to purchase the property from a seller.
This agreement can only be signed once the buyer and seller have agreed on the purchase terms and property price. A small booking deposit must also be paid to reserve the property. This is called the Option Fee.
When the buyer pays this fee, the seller is not allowed to look for other potential buyers or sell the property to another person during the agreed period on the OTP. This is important to give buyers time to consider the deal before going through with the purchase.
The seller’s lawyer can draft the OTP agreement (for private properties), and the buyer’s lawyer can review and negotiate what’s in the contract before the buyer signs it.
Keep in mind that buyers who sign the OTP are not required to purchase the property from the seller. Instead, they can use this time to lock the property for their purchase while they find a more suitable option.
It’s also worth noting that a witness is required for OTPs. This can either be a salesperson or any Singapore Citizen or PR that is 21 years old and above. This witness should not be part of the transaction.
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Information Needed for Option to Purchase Agreement
Here is the various information required for an Option to Purchase.
This needs to be negotiated by the buyer and the seller.
The Option to Purchase agreement should include the price, floor area, and address of the property. Aside from that, it should also include if the property is vacant or furnished. If so, an inventory list should be included.
Buyer and seller details
This should include full names, contact numbers, IC numbers, and addresses.
Conditions of the OTP if not followed
The OTP should state whether the Option Fee will be forfeited or not.
What’s the Difference Between OTP for Private Properties And OTP For Resale Flats?
Take a look at the table below to understand OTP better.
|Private Property OTP
|Drafted by the seller’s lawyer
|OTP form by HDB
|OTP signed buy the buyer and the seller after they agree on the property price
|HDB OTP granted by the seller at least one week after registering the Intent to Sell on the HDB resale portal
Then, it will be signed by the buyer
|1% option fee, with option to negotiate
|HDB Option to Purchase Option fee should not exceed S$1,000
|14 days option period, can be extended up to 2 months
|21 days option period (including public holidays, Saturdays, and Sundays)
What Sellers and Buyers Need to Know About Option to Purchase
Obviously, a seller can only grant one HDB OTP or private property OTP at a certain point, per property.
However, there’s no law that requires buyers to only have one HDB OTP or private property OTP. Buyers can secure multiple OTPs from various sellers and properties even if they don’t have any intention of buying the property.
So can a buyer back out after exercising OTP? Yes. That said, it’s uncommon for private property buyers to back out from an OTP because the option fee can be quite expensive. For instance, the option fee for a S$1 million property is S$10,000.
Meanwhile, backing out from an HDB OTP is common since the HDB Option to Purchase Option fee is only S$1,000. Only the buyer can back out from an OTP. Sellers cannot do this.
It’s also important to keep in mind that reissuing is not allowed anymore for private properties. Buyers who want to get the property must exercise the option to purchase only within the OTP period, and if they change their mind, the OTP cannot be re-issued or extended. Buyers must wait 12 months before this can be done. If buyers really need to extend, they can formally email URA to apply for an extension by 12 weeks from their OTP date.
Process for Option to Purchase
Wondering how an option to purchase agreement works? We’ve outlined the steps below.
- The seller lists the property.
- An interested buyer contacts the seller to view the property and negotiate its terms and price.
- Once buyers and sellers come to an agreement, the sellers typically get a lawyer to draft the OTP. This will be sent to the buyer so their lawyer can review it.
- After all parties have agreed to the terms of the OTP, the buyer can pay the option fee to the seller.
- Once the document has been signed, it will become legally binding. The buyer will then get an acceptance copy.
- For HDB properties, the seller must register an intent to sell for at least one week.
- The buyer must also register an Intent to Buy.
- The buyer must have loan documents ready.
- The buyer and seller must use the OTP document by HDB.
For those who want to take an HDB Concessionary Loan, they must get the HDB Loan Eligibility or HLE letter from HDB where the seller will grant the HDB OTP. Meanwhile, those taking a housing loan from a bank must secure a Letter of Offer or in-Principle Approval or IPA from a bank before they can get an OTP.
OTP Process After Buyer Exercises the Option to Purchase
Want to know what happens after buyers exercise the option to purchase HDB or private properties? We’ll take a look at it below.
First, the buyer must sign the acceptance copy of the OTP and pay the seller a deposit fee (higher than HDB properties). Generally, the seller and buyer must also agree on a completion date for the sale, which can be around 10 to 12 weeks from the OTP signing.
First, the acceptance section should be signed by the buyer and the witness. After this has been signed, the buyer needs to pay the seller a deposit. The amount can be negotiated. After this step, the seller and buyer must submit the resale application to HDB based on the number of days in the OTP.
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Keep in mind that both the sellers and buyers must submit their respective portion of applications to HDB within one week of each other. The resale application will only be complete when HDB receives the application from the buyer and seller.
What Happens After?
Once the private property or HDB OTP has been signed, the buyer must settle the Buyer’s Stamp Duty within two weeks of exercising the OTP. Take a look at the rates for BSD below.
|Purchase price/market value of property
|BSD rates (residential property)
Depending on your citizenship status or if you already own a few properties, you may also need to pay the Additional Buyer’s Stamp Duty or ABSD. Here are the rates:
|ABSD rates (residential property)
|Singapore Citizens who want to buy their second residential property
|Singapore Citizens who want to buy their third and subsequent residential property
|Permanent Residents who want to buy their first residential property
|Permanent Residents who want to buy their second residential property
|Permanent Residents who want to buy their third and subsequent residential property
|Foreigners who want to buy any residential property
|Entities (such as company or association) who want to buy any property
|35% (if the entity is a housing developer, additional 5%; this is non-remittable)
|Trustees who want to buy any residential property
A Word from OMY
Now that you know more about Option to Purchase, you can better navigate your journey to becoming a property owner. Keep in mind that while the OTP does not require you to purchase the property, it’s still important to carefully consider it before signing to ensure you don’t waste your option fee, especially when it comes to private properties.
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