Of property options and market distortions

However, given the recession and uncertain jobs market, some of these potential buyers could end up having to abort the deal eventually. They would then forfeit a quarter of the 5 per cent booking fee - amounting to 1.25 per cent of the property purchase price.

The scheme netted impressive sales for the developers, and in herd-instinct fashion, their competitors soon joined the bandwagon. However, the strategy is also thought to have had the effect of distorting developers' sales figures, since there is no certainty that all of the continually re-issued options would eventually be exercised, whereas the impression given to the public in the interim is that the units have been sold.

Clamping down on the practice should reduce associated distortions - at least until market players find new loopholes to exploit. However, when a sale is done through an arrangement where the developer repeatedly re-issues the OTP over a prolonged period, the developer does not receive follow-through cash flow, beyond the initial 5 per cent booking fee - unless the buyer eventually exercises the OTP, says Mr Tan.

Still, even those developers who frowned upon the practice had to acquiesce to such requests at times - or risk losing buyers to developers who were more keen to indulge them with this scheme. Following COH's Sept 28 circular, most analysts expect some moderation in developers' sales as potential buyers do their sums more carefully before entering into a deal.

Moreover, some folks here may be in sectors that are still growing and, having benefited from strong income growth in the past decade, have the wherewithal to seize opportunities to buy their dream home or pick up an investment property. CBRE's Mr Sim suggests that demand for new private homes will also be buttressed by a recovery in resale markets for both private homes and HDB flats. This will help to unlock capital for the purchase of new homes.Some have been busy over the past week, thinking of ways to potentially exploit loopholes under the new rules.

"These increases come during very challenging times; so that's why the authorities are concerned about the prudence of Singapore property buyers."WHILE the authorities' move to put curbs on developers re-issuing options to purchase should help reduce some distortions in the private housing market, another source of distortion persists.

As commissions are captured under a developer's cost of sales, they do not affect the headline price that the developer has to report to the authorities. In short, prices are inflated. Not all property agencies allow their agents to engage in this practice, though they risk losing them to rivals who are willing to turn a blind eye to agents indulging in this practice.

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Of property options and market distortionsIT emerged early in the year that private property developers were re-issuing options to purchase (OTPs) to buyers upon expiry, effectively extending the option period for buyers who might not have had their financing lined up for the purchase. Read more at The Business Times.
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