The 99-to-1 Property Split Strategy: Legality and Risks
TLDR The 99-to-1 property ownership split in Singapore, where one spouse holds 99% and the other 1%, is used to...
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TLDR
Home buyers are advised to thoroughly research property values using online tools, secure an ideal home loan package early on, ensure cash availability for upfront payments, research renovation costs and providers to avoid overspending, and obtain a valuation report from HDB or a property agent. By following these steps, buyers can make informed decisions and navigate the home buying process smoothly to avoid costly mistakes.
Securing an Option to Purchase (OTP) is a big milestone for any home buyer.
Once the OTP has been issued by the seller, the buyer will be awarded exclusive access to buy the house at a predetermined price.
As the OTP is legally binding, buyers must exercise their option 21 days after the contract is delivered.
Those who don’t follow this will not only lose their option fee, but also their special right to the home.
How Much Will Buyers Lose If They Back Out During The Option Period?
Once the OTP is issued, buyers and sellers enter a 21-day period known as the option period.
Although this duration is usually fixed for HDB flat purchases, private property transactions can take anywhere from 14 days to multiple months of negotiating, depending on how the talks progress.
Before they can receive the OTP, buyers must first put down an option fee deposit – which, for HDB flat buyers, ranges from $1 to $1,000. Although it may seem like a small sum, no one wants to lose their money needlessly. Remember, if your OTP expires, you’ll have to reimburse the option fee.
When it comes to private property purchases, the stakes are considerably higher – one must shell out an astonishing $20,000 simply to enter the option period if the property’s price is at a whopping $2 million!
Though negotiations can help lower the cost, this is a figure that you should expect to pay. It is thus imperative to be absolutely sure of your decision before entering the option period – this is not the time for browsing around for a home.
Buying a home is no small commitment – and signing an OTP requires even more commitment. With so much on the line, it’s understandable why some buyers might hesitate before signing off on the extensive paperwork associated with a six or seven figure home purchase.
5 Things Home Buyers Must Do Before Signing The OTP
To ensure a smooth home buying process, be sure to read on and avoid being in a difficult situation!
1. Do Your Research
Nobody wants to look back 30 years down the road and realize they’ve wasted hundreds of thousands of dollars due to their home losing value.
The three week option period provides home buyers with the opportunity to decide if they’ve made the right investment (even though it would have been ideal to figure this out before signing the Offer To Purchase, sometimes it’s best to cut your losses and find a better deal).
Although no one can predict the future of the housing market, it is wise to get a second or third opinion about the property you are buying.
Fortunately, there are plenty of free online home valuation tools, such as my free home valuation report, to help you in this process.
Are you trying to ascertain the value of the home on your own?
Keep in mind that property prices are typically calculated based on the following criteria:
- Location
- Urban Redevelopment Authority zoning
- Number of rooms
- Age and condition of the property
Take a deep dive into past real estate deals in the vicinity – your estate agent should be able to provide you with this info. Don’t skimp on market research – not doing it properly could cost you a lot more than just your reservation fee!
2. Lock In An Ideal Home Loan Package
Secure your loan in advance of signing the OTP to ensure you have sufficient funds to cover the multitude of payments ahead.
Getting a loan is not something you can do without due diligence, so make sure you don’t wait until the last minute.
In addition to assessing your income, savings, and existing debt, you should also evaluate:
- Whether you’re taking a loan with floating or fixed interest rate.
- Who your joint borrower should be for an optimal Income Weighted Average Age (IWAA), or if you even want a joint borrower in the first place.
- The amount that you are eligible to borrow based on your MSR and TDSR.
Figuring out your financial outlook for the next two decades or so can be a tiring and overwhelming process, particularly when you have to balance your day job and family responsibilities.
Thankfully, I am connected with a fantastic, complimentary mortgage advisory service which allows home buyers to assess home loan options from all banks to find the best fit for their financial requirements.
3. Secure Your Cash For Upfront Payments
It’s no joke – buyers should be sure to get their loans locked down in the initial week of the option period, as there’s a hefty number of expenses that will have to be taken care of.
To give you an idea of the amount of cash you’ll need to bring to the table, have a look at the following table for a rough estimate.
4. Research On Renovation Costs And Providers
Ensure that your renovation loan does not spiral out of control by setting a cap of $30,000 at the most.
Additionally, your loan should be no more than six times your monthly salary, as long as it does not exceed the $30,000 limit.
Bear in mind that this will be an additional loan, in addition to the primary home loan that must still be paid.
As such, we suggest that you focus on only essential renovations and repairs, to keep costs as low as possible.
It’s completely understandable that the prospect of so many pricey bills has you hyperventilating; owning a home shouldn’t cost this much!
5. Get A Valuation Report From HDB Or Your Property Agent
It is mandatory for buyers who wish to take out home loans from HDB or private banks to get their home valued by HDB; however, you may have the luck of saving tens of thousands of dollars if the valuation is higher than the selling price – the sellers would then have to bear the expense, though such luck is rare. Don’t count on it!
By consulting with a property agent, buyers can reduce the chances of overspending for a COV.
Although no one can predict HDB’s valuation with absolute certainty, agents have extensive experience with past HDB reports and can provide educated guesses.
Furthermore, my free e-valuation service can provide you with a rough estimation of your home’s worth – however, this is not a replacement for official appraisals, and HDB’s valuation will still be the final decision.
Should You Buy, Sell or Wait?
If you’re reading this, you must be trying to figure out the best course of action right now: is it the right time to buy or sell?
It’s difficult to give an exact answer since everyone’s situation is unique and what works for one person may not necessarily work for you.
I can bring you a wealth of on-the-ground experience and a data-driven approach to provide clarity and direction. From beginners to experienced investors, our top-down, objective approach will help you on your real estate journey.
I can help you by:
- Offering Strategic Real Estate Advice – I can help create a comprehensive plan to guide you through your property journey.
- Connecting Your Home with the Perfect Buyers – Through stunning visuals, an effective communication strategy, and an in-depth knowledge of the market, we’ll ensure your home is presented in the best possible way to fulfill your goals.
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