May 24, 2007


Consider refining caveats for true transparency in home prices

Requiring all caveats to be lodged will give better picture of price and size of units sold

By Fiona Chan

DATA GAPS: At Marina Bay Residences, 422 units are widely reported to have sold out within two days last year. As of yesterday, only 247 caveats had been lodged by home buyers.

THEY say the devil's in the details, and nowhere is this clearer than in Singapore's frenzied property market.

As one record home price after another hogs the headlines, not everyone goes on to read the finer print about the average prices of a project - which are often much lower - or whether there are specific reasons for the highest prices.

Sometimes, this additional - and crucial - information is not even available. This has prompted government concerns over whether focusing on super high prices paints a misleading picture for potential buyers.

There are two ways for the public to get information about home prices. One is through developers, which are quick to trumpet headline prices but do not always offer the more comprehensive data needed to make an informed purchase.

The other is by examining the sale caveats that home buyers lodge with the Urban Redevelopment Authority (URA). These voluntary records log the price and size of every unit transacted in every project and are the information source of choice for consultants and analysts.

To improve transparency, the Government is going straight to the developers. It will tell them to report, on a monthly basis, the prices of all the private residential homes they have sold, and any discounts offered, according to a report in The Business Times yesterday that quoted unnamed sources. This change could take place as early as the end of next month, BT added.

This information will be collected by the URA and released to the public.

But while requiring developers to provide average prices every month is a quick way to get more representative data, it still leaves some information gaps.

For one thing, the URA has indicated that this information will be published in an aggregated form. This means that, for instance, the public will know only the total number of units sold within certain price ranges or the average price of a development, and not the individual price information about each sold unit.

And developers can provide only price data for sales of brand-new units. Such data for resold units will not be captured while that for units whose buyers later back out of their options to buy may be included.

These are the reasons why some property watchers have suggested that with some refinements, the caveat system - already in place and widely relied on - may be a better long-term solution to the problem of price transparency.

Caveats break down a project into individual unit transactions, presenting a more detailed picture. Since they include each unit's size, they can help explain why a particular unit fetches an unusually high price on a per sq ft (psf) basis - smaller units generally fetch higher psf prices.

These records are made after a buyer has signed the sale and purchase deal, so only sales that have been sealed are captured. Not all the high-priced deals published by developers eventually take place, revealed one market veteran.

But there is one glaring problem with caveats: they are not compulsory, so the onus is on buyers to lodge them to protect their purchases.

The URA told The Straits Times yesterday that because caveats are not mandatory, there is often a time lag of a few months in lodging them. This is one reason why it is working with developers to obtain more timely information.

But developers are already querying the URA as to whether providing more price information would be a requirement under law. If so, there appears to be no reason why caveats cannot be mandated under law either, to be lodged at the point when an option to buy is exercised.

About 95 per cent of all home sales are reflected in caveats, estimated Mr Ku Swee Yong, the director of marketing and business development at Savills Singapore. But this proportion is much lower for some projects. At Marina Bay Residences, for instance, 422 units were widely reported to have sold out within two days last year. As of yesterday, only 247 caveats had been lodged.

One developer said banks usually require buyers who take loans from them to lodge caveats, whereas buyers who do not need loans may not do so. Mr Ku noted that while 'almost all individual buyers lodge caveats, it's the funds who buy in bulk who may not'.

He also said that these classes of buyers who do not lodge caveats may be the very ones whose purchases hold the most sway over average prices. Funds that buy units in bulk are often offered discounts, while individual buyers who do not take loans are typically those buying at the highest end of the price spectrum.

The URA is right to take pains to improve price transparency, and focusing on developers is a good way to start. But in the long term, fine-tuning the caveats system may be the best way to introduce a price database that is both transparent and comprehensive.

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