The major concern is that many projects may end up abandoned if the OTP is not properly thought out and implemented, defeating the very purpose for introducing it in the first place.
On May 7, housing and local government minister Nga Kor Ming said the government is mulling a plan to introduce an OTP clause in the Real Property Development Bill to prevent developers from abandoning housing projects.
A real estate agent said that to safeguard the developer’s interests, there must be provisions to ensure prospective buyers do not walk away after construction begins.
Siva Shanker, a director at real estate agency Rahim & Co Chestertons, said if buyers withdraw midstream, projects could stall.
“This can undermine financial certainty during construction, effectively recreating the same problem (of abandoned projects),” he told FMT.
He said that to ensure all parties’s interests are protected, there must be clarity on issues such as when a buyer may withdraw regardless of whether it is at the pre-sale stage or otherwise.
Siva said several other factors must also be taken into account, such as the timing for the start of construction and the timeline set by housing developers.
In his announcement, Nga said the objective is to provide both buyers and developers the flexibility to pull out of the transaction before a sale and purchase agreement (SPA) is executed.
Generally, an OTP model requires the payment of a booking fee or deposit at the stage where a prospective buyer expresses interest to purchase the property. Both parties will then have an option to decide whether or not to go ahead with the signing of the SPA.
If the transaction proceeds, the booking fee is offset against the purchase price. Otherwise, it is returned to the buyer under regulated conditions.
Siva said the introduction of an OTP would not resolve the deeper structural causes of abandoned projects. “Uptake does not necessarily mean that a development is financially sustainable in the long term,” he added.
He explained that there are several factors that force developers to abandon projects, such as lengthy approval process, changing market conditions, or being locked in outdated project concepts by the time launches occur.
“If a property developer does his market research now but only launches (the project) in two years, the market may already have changed.
“The process needs to be sped up, and proper research must be done by the developer for the housing market to stand strong, with or without the proposed OTP model,” Siva told FMT.
Prohibition on booking fee collection
National House Buyers Association (HBA) secretary-general Chang Kim Loong sees the OTP has a practical way to formalise and manage a process that is already actively practised in the market.
Chang pointed out that under Article 11(2) of the Housing Development Regulations 1989, the collection of payments outside the prescribed SPA framework, including booking fees, is prohibited.
However, he said, enforcement is weak, enabling developers to collect booking fees or deposits before the SPA is signed.
“As a result, the buyer suffers financial losses when booking fees are not refunded even when he fails to get a bank loan or if he changes his mind before the SPA is signed,” Chang said.
He said many end up suffering the loss quietly given that initiating legal action tends to be too costly or complex.
“There is little to no record of prosecutions against developers, agents, or intermediaries who continue collecting booking fees, and enforcement has largely been limited to compound fines, which have not effectively deterred violations,” he said in a statement.
Under Singapore’s system, OTP arrangements are standardised and regulated, with clearly defined timelines, prescribed option fees, and legally enforceable procedures governing refunds and contract execution.
The HBA had previously proposed the introduction of a regulated OTP model that includes a 30-day option period, capped booking fees of RM5,000 or 1% of the purchase price whichever is lower, mandatory refunds within 14 days of withdrawal, interest penalties for delayed repayments, and compulsory disclosure of project information during the option period.
Careful planning
The Real Estate and Housing Developers Association (Rehda) said the OTP framework could benefit both purchasers and developers if it is well implemented.
Rehda president Ho Hon Sang said the framework would give homebuyers greater flexibility while enabling developers to better gauge genuine market demand before commencing construction.
However, he stressed that the framework must remain clear, practical, and fair to all parties before it is finalised.