Property subsales - who wins and who loses

August 26, 2008
Property subsales - who wins and who loses
For those who sold in the first seven months of this year, close to
97% came out ahead
By KALPANA RASHIWALA

(SINGAPORE) Sentiment in the Singapore property market is now far
from bullish, but data shows that nearly 97 per cent of those who
have sold private apartments and condos in the subsale market in the
first seven months of this year have made profits.

Only 3 per cent incurred losses, an analysis of caveats by Savills
Singapore shows.

For those who turned a profit, the average gain per unit came to
$417,563 or 36.5 per cent. Generally, the longer the holding period,
the bigger the gain.

Subsale deals are seen as a proxy for the level of speculative
activity in the market. On average, those who had bought their units
in 2004 and sold them in the subsale market this year made the
biggest gain, averaging nearly $692,000, or an 84 per cent profit.
They are followed by those who had picked up units in 2005, who
recorded an average gain of about $645,200 or 62 per cent from
selling their homes in the subsale market this year.

In absolute dollar terms, the smallest average gain of around
$175,600 was by those who bought their units this year, reflecting a
holding period of just a few months.

The profit or loss in the calculation is the difference between sale
and purchase prices and does not take into account stamp duty and
other expenses.

'The fact is that longer holding periods allow for larger gains,
shorter holding periods for smaller gains. This is consistent with
the fact that real estate is a long-term investment. Investors with
short exit time frames should look for alternative instruments,' said
Savills Singapore's director of marketing and business development Ku
Swee Yong.

Savills' analysis was based on 1,040 caveats for subsale transactions
from Jan 1 to July 31 this year captured by Urban Redevelopment
Authority's Realis system as at Aug 19. Of these, 821 had previous
caveat records dating back to 2003 and Savills compared the latest
subsale price of each unit with the earlier price paid by the seller
to work out the profit or loss.

Citylights, Varsity Park Condo and The Sail @ Marina Bay had the most
subsales in the first seven months of this year - 63, 47 and 45
respectively. The Sea View and City Square Residences had 30-plus
subsales each. Park Infinia at Wee Nam, The Calrose, Icon and The
Raintree each had 20-odd subsales.

Subsales, often seen as a gauge of speculative activity, refer to
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 its Temporary Occupation
Permit (TOP).

Market watchers note that many of the projects topping the subsale
chart this year had either received TOP or are close to receiving
TOP. Some of the units that changed hands in the subsale market could
have been purchased on deferred payment schemes from developers in
the past. Typically, such schemes run out when the projects get their
TOP and that is when buyers have to pay the chunk of the purchase
price to developers.

The deferred payment scheme was scrapped in October last year to
discourage speculative buying.

Of the 25 loss cases for subsale deals done this year, sellers of
about half the units had themselves bought theirs in the subsale
market, while the other half had made direct purchases from
developers. For instance, the four units sold in the subsale market
at a loss this year at City Square Residences had all been picked up
in the subsale market last year.Looking ahead, Savills' Mr Ku expects
subsales to maintain at current levels, that is, about 150 units a
month. Those who want to sell now will have to expect lower profits,
he said.

'Whether in good or bad times, there will still be subsale losses
from people being forced to make untimely sales due to corporate
liquidation, bankruptcy, divorce,' Mr Ku added.

In cases where investors are sitting on potential losses, Jones Lang
LaSalle Singapore's head of residential, Jacqueline Wong, said: 'My
advice to my clients, who are usually foreigners, have bought in
prime districts and are well off, would be, 'If you can, hang on. It
will be just a temporary paper loss. Singapore has a lot of things
going for it in the mid term'.'

Another seasoned property consultant said: 'A lot will depend on your
entry price vis-a-vis other owners, especially in a big development.
If a lot of them bought at say $1,000 psf from the developer and you
got your unit later for $1,800 psf in the subsale market from an
earlier buyer, you're in a disadvantageous position. If the market
dives, the earlier buyers could offload their units at much lower
prices than your cost price.

'On the other hand, everybody may be in the same boat. Say, if you've
bought into a small project of 30 units and everyone's bought at
about the same price, and if there's not much competition from
surrounding projects, chances of prices going down substantially may
be lower because everyone's locked in at the same threshold.'