Tuesday, September 22, 2009

Poorer year so far for subsale market

Deals done in Q1 post poorest returns since the start of last year

(SINGAPORE) Property speculators have had a tougher time so far this year - some 341 subsales of condos and apartments in the first eight months of this year incurred a loss, about 4.5 times the total number of loss cases in the whole of 2008.

The numbers are equally dismal in percentage terms. From just 5.2 per cent of total subsales in 2008, the proportion of loss-incurring subsales rose to 23.3 per cent between January and August this year.

The higher number is largely due to the weak home prices in Q1 this year, which saw the highest proportion of subsale losses (32.5 per cent) since the start of last year.

Loss-incurring subsales in the first three months of the year also posted the biggest average loss per unit of $343,982 or 18 per cent.

On the other hand, profitable subsales in Q1 showed the smallest average gain per unit, according to Savills Singapore's analysis of caveats from the URA Realis system as of Aug 28.

The fortunes of those who sold in the subsale market improved in the second quarter and in the July to August period, in tandem with the recovery in sentiment and home prices.

Looking ahead, Savills' residential director Phylicia Ang reckons that the number of subsale loss cases as well as the size of the losses should come down as property prices have begun to recover and the momentum is expected to continue.

Knight Frank executive director (residential) Peter Ow said: 'That phase of the market we saw in Q1 when the property market was really bad is over.'

According to caveats matches traced by Savills, the majority of subsale transactions so far this year continue to be profitable.

Around 77 per cent of those who incurred a loss from selling their property in the subsale market in the first eight months of this year bought their units in 2007, during the peak of the private residential property market.

Mr Ow suggests losses from subsale deals could have accrued to those who bought properties earlier on the deferred payment scheme, and then sold as their projects neared completion.

'They could have bought at historically high prices in 2007 and then chose to cut loss and sell instead of having to source for funding to complete the purchase. Those who bought for investment, that is, not for their own occupation, may not have wanted to be saddled with finding tenants amid a weak rental market and decided to cut loss.'

Savills' Ms Ang said: 'Some property investors may also have cut losses earlier this year to channel their resources to the stock market, which began its recovery before the pick-up in home prices.'

Those who lost money in the subsale market in January to August this year chalked up an average loss per unit of $267,616, while the average gain per unit for profitable subsale deals in the same period was $164,157.

On average, subsale deals done in Q1 this year posted the poorest returns since the beginning of last year. This finding gels with the fact that prices were at their lowest in Q1 when developers chopped prices.

Subsales, often tracked as a gauge of the level of speculative activity in the property market, refer to secondary market deals involving projects that have yet to receive Certificate of Statutory Completion.

The vast majority of those who sold their properties in the subsale market from January to August this year held their units for at least two years. Over half (52 per cent) bought their properties in 2007.

Another 36 per cent had bought in 2006, while nearly 7 per cent of 2009 subsale deals involved properties purchased this year.

The biggest average loss per unit, at $368,543, was incurred by those who originally bought their properties in 2006 and sold this year.

On average, those who entered the market in 2005 and exited this year made the most money with gains of about $409,289 per unit.

Savills calculated profit or loss as the difference between sale and purchase prices, without taking into account agent fees, stamp duty and other expenses.

Its analysis was based on 2,079 subsale caveats of non-landed private homes so far this year as reflected in URA's Realis system as at Aug 28, 2009.

Of these, it found previous caveat records for 70 per cent or 1,463 units. Savills then compared the latest subsale price of each unit with the earlier price to work out the gain or loss.

An analyst said one reason previous caveat information could not be found for about 600 units sold in the subsale market this year could be because 'some seasoned players who buy with an eye to flipping may not engage lawyers. Lawyers usually advise clients to lodge caveats'.

A developer said: 'Someone who bought on DPS to flip may also not file a caveat until he gets bank funding as the project nears TOP. The bank will lodge a caveat for sure once it gives a mortgage.'

Savills' analysis shows that in many ways, Q1 2009 was the worst time to have sold a property in the subsale market. About 32.5 per cent of subsale deals in Q1 were in the red - compared with 13.9 per cent in Q4 last year, and 1.8 per cent in Q1 last year.

The proportion of loss-making subsales eased to 24.9 per cent in Q2 this year and to about 12.2 per cent in July-August. However the latter figure may change as more caveats are lodged.

The average loss per unit of $343,982 or 18 per cent for unprofitable subsales done in Q1 2009 was also the highest since the start of 2008.

For those who managed a subsale gain, the smallest average gain per unit of $105,663 or 13 per cent was also in Q1 2009.

With improving sentiment and prices, the average subsale loss per unit narrowed to $263,173 or 13 per cent in Q2, and dipped further to $140,485 or 8 per cent in July-August. For profitable subsale deals, average gains have also risen since Q1.

Source: Business Times, 22 Sep 2009

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