S’poreans forfeit option fee on mass market units as cold feet take over

SINGAPORE: Buyers of 107 new private homes had a change of heart last month and returned their units to developers.

The numbers, contained in a report from Goldman Sachs, show that even in a hot market, some people get cold feet. The same report also stated that 100 homes were returned the month before.

That means these buyers have paid an option fee but have chosen not to exercise the option and go ahead to complete the purchase.

When someone buys a new condominium, they put down an initial option fee of 5% to “reserve” the unit.

After that fee is paid, the developer of the project has 14 days or more to issue the sales and purchase documents as well as the title deed. From then, the buyer has three weeks to exercise the option to purchase the unit. In some cases, this whole process could take up to eight to nine weeks.

If the buyer chooses to back out, he forfeits a quarter of the option fee, or 1.25% of the purchase price.That could mean forfeiting S$12,500 on a S$1mil unit, or a S$75,000 for a high-end one costing S$6mil.

The 107 units returned in March could have been bought in either January or February.

Analysts were not surprised by the high number of options lapsing, as the number of options lapsing tends to correlate to the number of sales made. Buyers bought 4,289 units in the first two months of the year.

In March, most of the returned units came from the mass market, but this could be because more projects were launched in the sector.

The Straits Times looked at a sample of 15 upcoming projects and found, for instance, 11 units were returned at the 689-unit Parc Rosewood in Woodlands.

Apartments at the 99-year condominium were sold for a median per sq ft price of S$994.

Watertown, a 992-unit mixed-use development in Punggol, had 17 units returned. Units were sold for a median per sq ft of S$1,341.

Bartley Residences, with average prices of S$1,240 per sq ft after discounts, and The Hillier, priced at about S$1,289 per sq ft, both had nine units returned.

The luxury homes sector, which is in the doldrums, also saw some units being returned.

For example, Skyline@Orchard Boulevard, where an apartment recently went for S$4,442 per sq ft, had one unit returned.

Prices there could easily exceed S$6.5mil, as the smallest unit is 1,744 sq ft in size.

The Scotts Tower also faced one cancellation. Earlier this year, a unit there fetched S$3,567 per sq ft.

Likewise, PropNex chief executive Mohamed Ismail noted that no new cooling measures had been introduced in the market since last December, which meant many buyers could be pulling out because of personal reasons.

“It's a glaring number but there's nothing to worry about. It's common to have a handful of units being returned every month of each project,” he said.

Nicholas Mak, head of research at SLP International Property Consultancy, also noted that the projects with the most units returned Watertown, The Hillier and Parc Rosewood included shoebox units.

“Sometimes, people are under peer pressure' at crowded showflats... They go home and speak to more people and decide not to buy it. They'd rather forfeit the 1.25% than regret buying it,” he said.

Ong Kah Seng, director at R'ST Research, shared similar sentiments, adding that some may have bought in haste.

By The Straits Times/Asia News Network