March
19, 2009
Some bleed from subsales but most come out ahead
Deals that run up a loss double in H2 as market worsened
(SINGAPORE)
In a tough property year, an overwhelming 95 per cent of those who sold
private apartments and condos in the subsale market last year had managed
to turn a profit.
But
the number of subsales that chalked up losses more than doubled from
24 in first-half last year to 52 in H2, reflecting the deteriorating
market conditions, especially in the fourth quarter.
For
those who took a loss, the average loss per unit also rose, from about
$138,000 or 7 per cent in H1 2008 to $188,000 or 12 per cent in H2 2008.
But
there were happy stories. One owner at The Sail, for instance, chalked
up a gain of some $6.7 million after having held on to the property
for about three years.
Savills
Singapore's analysis of caveats showed that the number of loss cases
rose as 2008 rolled along, from six in Q1, increasing to 18 in Q2, and
stabilising somewhat at 20 in Q3, before jumping to 32 in Q4.
'There
were more owners cutting losses in the subsale market in H2 2008, especially
in Q4, following the Lehman fallout and the global meltdown. Sales trickled
and more people sold at losses,' said Savills director (investment)
Steven Ming.
And
while there was an increase in the number who suffered losses on their
subsale deals, the number of subsales that produced profits fell 16.8
per cent from 757 in H1 to 630 in H2. The average subsale gain per unit
shrank steadily through the year, sliding from $425,000 or 37 per cent
in H1 to $288,000 or 28 per cent in H2.
On
the whole, the finding was that it is more rewarding to hold one's property
for a longer period. On average, the biggest gains of $785,000 per unit
were pocketed by those who bought in 2004 and sold in H2 last year,
followed by those who had picked up their properties in 2005 and divested
them in H1 last year, collecting an average gain of nearly $666,000.
The
largest average loss of $210,000 was incurred by those who had bought
in 2006 and sold in H1 2008.
Around
90 per cent of the 76 investors who suffered a loss in the subsale market
for the whole of last year had bought their units in 2007 during the
market peak.
Knight
Frank executive director (residential) Peter Ow notes that usually an
investor would cut losses in the subsale market when it is time to pay
the developer. 'An investor exposed to a few properties bought on deferred
payment scheme (DPS) may want to cut losses on the first one or two
to improve his cashflow so when it is time to pay up for the third one,
he can afford it,' he said.
Mr
Ming points out that in addition to multiple property owners who may
find it difficult to get sufficient bank loans to complete their acquisitions,
those taking a hit in the subsale market may include 'savvy investors
seeking to diversify their investments and allocating a part of the
exposure to other undervalued asset classes'.
Savills
calculated profit or loss as the difference between sale and purchase
prices and did not take into account agent fees and other expenses.
The analysis was based on a total 1,761 subsale deals of non-landed
private homes captured in the URA Realis system as of March 9, 2009.
Of these, it could trace and match previous caveat records for 1,463
units. Savills then compared the latest subsale price of each unit with
the earlier price paid by the seller to work out the profit or loss.
Subsales,
often seen as a gauge of speculative activity, are secondary market
deals in projects that have yet to receive their Certificates of Statutory
Completion. This may be anywhere from three to 12 months after the project
receives Temporary Occupation Permit (TOP).
Savills's
analysis also showed that the proportion of subsales done below $1 million
per unit rose from 38.3 per cent in H1 last year to 45.9 per cent in
H2, as affordability became important.
Projects
with the highest number of subsale transactions for 2008 were The Sail
@ Marina Bay (78 units), Citylights (77 subsales), Varsity Park Condo
(59 units), City Square Residences (57 units), The Sea- view (52 units),
The Esta (49 units) and Park Infinia at Wee Nam (48 units).
Some
of these projects also saw the most number of subsale losses for the
whole of 2008, for instance City Square Residences (six units), Citylights
(four units) and The Sail (four units). In addition, The Cosmopolitan
and Watermark Robertson Quay each had four subsale loss cases last year.
In
H1 2008, Citylights saw the most subsales, at 60. In H2, The Sail was
the top subsale project, with 40 units changing hands.
'Anecdotally,
there appears to be a higher number of subsales that take place for
projects that were approaching TOP. For example, the 1,761 subsale transactions
in 2008 included 52 projects that received TOP in the same year,' Mr
Ming said. Projects that obtained TOP in 2008 included The Sail, part
of City Square Residences, The Sea View and The Cosmopolitan. Icon,
City Lights and The Calrose were among the projects that received TOP
in 2007.
Mr
Ming said that with 10,000 homes expected to get TOP this year, 'we
expect subsale transactions to remain active and the sell pressure will
keep up this year, unless debt markets open up and financing for investors
eases'.
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