OTP – Option to Purchase
This is a contract that gives a Buyer an exclusive right to purchase a property at an agreed upon price, within a specific timeframe (known as the Option Period).
Typically the Buyer would have paid a small "Option Fee" to the Seller as consideration for this contract. During the Option Period, the Seller cannot sell the property to anyone else.
During this time, the buyer has to decide on whether he wants to go ahead with the purchase. If he does, he will exercise the option, typically by signing the Sale & Purchase agreement and paying up a further deposit. If the Buyer, for any reason decides not to go ahead, then upon the expiry of the Option Period, he has to forfeit the Option Fee. The Seller gets to keep the Option Fee, and is then free to sell the property to another person.
Why This Matters
From a legal perspective, once an OTP is signed by the Seller, and the Option Fee accepted, it is a binding agreement. There are legal consequences for the Seller if he backs out — he has to refund the Option Fee and can even be sued for damages. For the Buyer, there is the forfeiture of the Option Fee. So please — do not enter into an OTP blindly!
Bonus Tip
Do not confuse the Option to Purchase with an Offer to Purchase, even if they have the same acronym. On its own, the Offer to Purchase is a non-binding letter of intent, given by the Buyer to the Seller. It has to be accepted by the Seller. The Seller will then prepare the Option to Purchase, which he will then send to the Buyer. The Option to Purchase is already binding on the Seller once the Option Fee is accepted and the Option has been sent over to the Buyer with the Seller's signature.
TDSR – Total Debt Servicing Ratio
This is a restriction, implemented by the Monetary Authority of Singapore in 2013, which limits the percentage of a borrower's gross monthly income that can be used for debt repayments to 55%.
That is to say, if you have a gross monthly income of $10,000, then only $5,500 can be used towards the payment of all your debt obligations. This includes home loans, car loans, personal loans and credit card payments.
There is also an additional stress test where a 4% interest rate is baked into the TDSR calculation. This means that whatever the prevailing interest rates are, the banks will assess your TDSR using a 4% interest rate as a base.
Why This Matters
From a regulatory point of view, the TDSR is a very important cooling measure. It helps to align property prices with purchasing power, preventing buyers from borrowing beyond their means, and ensures that buyers can continue to service their mortgage even during downturns. Since this is an MAS rule, banks are not able to just waive it, so you do have to plan your finances carefully to make sure that you are eligible for the loan for that dream house of yours.
Bonus Tip
Do not confuse TDSR with MSR. The Mortgage Servicing Ratio is another similar measure, which caps the portion of the borrower's gross monthly income that goes towards paying property loans at 30%, and is applicable to all HDB properties. So remember: if you are buying private, only TDSR applies, but if you are getting BTO, resale HDB or a new Executive Condominium, both TDSR and MSR will apply, and the lower amount of the two will be used in determining your loan eligibility.
MOP – Minimum Occupation Period
This is a very familiar term for those who have purchased HDB flats. It refers to the minimum occupation period — the timeframe where the owners cannot sell or rent out their whole property after gaining ownership.
It may be possible to rent out some of the bedrooms but this is provided you meet the eligibility conditions (which are set out clearly on the HDB website).
Why This Matters
For HDBs and Executive Condominiums, the MOP is typically 5 years. There used to be only one type of MOP period, however, with the introduction of Plus and Prime HDB, which are in prime locations, there is now a longer MOP of 10 years that would apply to these types of flats. Additionally, Plus and Prime flat owners are prohibited from renting out the whole flat, even after their MOP period is over.
Bonus Tip
Even if you buy a resale HDB or EC, the same MOP applies. For resale Plus and Prime flats in particular, the restrictions — including not being able to rent out the whole flat, and the eligibility of who you can sell to — would also still apply.
More Terms Coming Soon
This guide is regularly updated. Coming up next:
- MCST – Management Corporation Strata Title
- LTV – Loan to Valuation
- ABSD – Additional Buyer's Stamp Duty
- Decoupling and the 99:1 split
- GFA Harmonization