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Property sub-sales net $95m profits
Third-quarter showing still strong but market will soften soon: Experts
Fiona Chan
Property Reporter
Wednesday, 22 October 2008
Private home prices may have slid in the third quarter but the sub-sale market was still going strong.
Ninety-six per cent of owners who resold an uncompleted home between July and last month pocketed profits from the deals, according to new data by property consultancy Savills Singapore.
These transactions, officially known as sub-sales, occur when you buy a home and resell it before it is built. They are used as a proxy for property speculation because the owner resells the home without ever living in it.
Only 12 sub-sale transactions out of the 306 that Savills analysed in the quarter incurred a loss, amounting to just under $1 million of red ink. The rest made a total of $95.1 million in gains, Savills said.
This continues the trend in the first half of the year, when 97% of such deals turned in profits. But the profits seen in the third quarter were considerably narrower as home prices started softening more quickly.
Profitable sub-sellers made an average of $323,420 in the third quarter, but this was skewed upwards by a single large deal: a whopping $6.7 million profit from the sale of a 63rd-storey penthouse at The Sail @ Marina Bay.
Excluding this sale, the average gain was $301,784 - almost 40% lower than the average gain in the first half of the year. It works out to an average profit for each seller of about 30% over the purchase price.
Still, 'to be able to achieve such gains in a year when the property market has gone into a standstill is highly commendable', said Mr Ku Swee Yong, director of business development and marketing at Savills Singapore.
But in case would-be speculators become tempted by these gains, other consultants noted that the bulk of these deals probably occurred before the Sept 14 collapse of United States investment bank Lehman Brothers, which caused the financial crisis to take a sudden turn for the worse.
'The real estate market typically lags behind the stock market by six months or more, so we will probably start to see the real effect early next year,' said Mr Nicholas Mak, director of research and consultancy at Knight Frank.
'These profitable sub-sale transactions took place before the market hit the skids. It is extremely risky to go and speculate in the market right now.'
Most sellers who made a profit in the third quarter had originally bought their units in the last two years and benefited from the sharp run-up in prices in the period, said Mr Ku. While values have weakened somewhat this year, they are still generally higher than in 2006.
Sellers who held on to their units for a longer time before reselling them in the third quarter made more gains, Savills' data showed. Even those who had bought a unit as late as this year and offloaded it in the third quarter made an average gain of $98,600.
If they had sold the unit in the first half of the year, however, they would probably have doubled their gain.
The biggest profits of more than $1 million each were for units at The Sail @ Marina Bay, St Regis Residences and Cairnhill Residences.
On the flip side, sub-sale losses for the quarter averaged $76,820 for each loss-making deal. A unit at Watermark Robertson Quay chalked up the biggest loss of $207,552, while units at Soleil @ Sinaran, 8 @ Mt Sophia and One Amber were also sold at losses of more than $100,000 each.
All the losses were for units that had been bought last year or this year, according to Savills' data. Sub-sellers who had bought their units at the peak of property fever, between June and September last year, bled the most.
'In any case, there are always desperate sale cases even during good times,' Mr Ku noted.
The Sail @ Marina Bay had the largest number of sub-sales in the quarter - 19 - with each deal netting its seller an average profit of $1.1 million. There was one loss, of $62,890, for a second-floor unit.
Other projects with more than 10 sub-sales included Parc Emily in Dhoby Ghaut, Park Infinia at Wee Nam, Riveredge in Tanjong Rhu and The Esta in Marine Parade.
But the profits were not just confined to developments in the prime districts.
At Casa Merah in Tanah Merah, 10 sub-sales yielded an average profit of $100,351, while Atrium Residences in Geylang saw four sub-sales with an average gain of $54,556.
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