Sub-sales in private property at 10-year high in 2022

Mar 14, 2023

SUB-SALE volumes, a key indicator of speculative buying in Singapore’s private residential market, rose in 2022 to their highest level since 2013 with 765 transactions, a 34.7 per cent jump from the year-ago period.

While still a fraction of the 4,862 sub-sale deals recorded during the housing market’s peak in 2007, the rising numbers point to a return of trading momentum in a market where buying activity has been damped by cooling measures.

A sub-sale is recorded when a buyer resells a property bought directly from the developer, before the project is completed.

Data analysed for The Business Times by ERA Realty showed that the vast majority of sub-sale transactions recorded last year were money-making. On average, sellers earned a profit of S$373,230.

Sub-sale deals made for 5.7 per cent of all deals in the fourth quarter of 2022, bringing it past 5 per cent for the first time since 2013, according to the Urban Redevelopment Authority’s latest quarterly real estate data.

Over the past decade, sub-sales generally ranged between 0.3 per cent and 3.5 per cent of all transactions.

In 2022, the bulk of sub-sale transactions were found in the outside central region (OCR) and the rest of central region (RCR) at 362 and 375, respectively. The prime core central region (CCR) recorded just 28 deals.

ERA’s analysis of the data showed that out of a sample size of 86 sub-sales, 80 chalked up profits while six made losses.

Breaking it down by region, sub-sales in the prime CCR made an average profit of S$707,640. CCR deals also saw an average annualised profit of 3.7 per cent, slightly below the islandwide average of 3.9 per cent.

Meanwhile, sub-sales in the RCR city-fringe areas raked in profits averaging S$179,277, with an average annualised profit of 3.3 per cent. Those in the suburbs (OCR) garnered average gains of S$277,360, with the highest average annualised profit of 4.6 per cent.

While current sub-sale levels are nowhere near their peak of 4,862 transactions in 2007, ERA Realty head of research and consultancy Nicholas Mak pointed out that the year 2022 would be the third consecutive year of increasing numbers, after more than a decade of steady declines.

In 2008, speculators fled the market in the aftermath of the global financial crisis, but returned in force in 2009, which saw a second peak in sub-sales and 4,678 deals chalked up. Subsequent interventions by the government introduced several rounds of cooling measures between 2010 and 2018, and sent speculators into hibernation.

As Mak pointed out, the additional buyer’s stamp duty, which was first introduced in 2011, would “effectively cream away any potential speculative profit even before the buyer makes any profit”.

The market hit a trough in 2020, when just 198 sub-sale deals were recorded.

Since then, volume has returned, with sub-sales more than doubling year on year to 568 transactions in 2021 and 765 in 2022.

The market’s recovery from 2020 is thanks in part to the current boom market, with healthy demand from both investors and owner-occupiers, said Mak.

This might have enticed some to sell their uncompleted properties at a profit, especially those that have obtained their Temporary Occupation Permit, he said. The permit allows homeowners to move into the development before the remaining amenities are completed.

“These sellers may want to clutch onto the opportunity of cashing out their property at an attractive price, as their profit would likely outweigh the cost of the seller’s stamp duty (SSD),” he said. SSD is the tax payable of up to 12 per cent for any property sold within three years of purchase. The holding period is four years for properties purchased between January 2011 and March 2017.

Mak added that delays and disruptions in the construction industry brought on by the pandemic also resulted in some residential projects taking more than three years to complete.

“(It) means that some property owners could sell their uncompleted housing unit as sub-sales, without incurring any SSD,” he said.

Market analysis by ERA Realty showed that sub-sale transactions made in 2022 had an average holding period of around four years. Some eight out of 86 deals were unaffected by the SSD.

The area with the highest number of sub-sale transactions last year was Hougang, with the 1,472-unit Riverfront Residences condominium recording 105 of such deals. This was “significantly higher than any other non-landed private residential properties islandwide”, said Mak.

The units sold at a median price of S$1,527 per square foot (psf), according to data from URA Realis. The biggest deal by quantum was for a 2,109 square foot unit at S$2.93 million or S$1,388 psf, with the seller walking away with S$415,000 in profit in just over three years.

Still, Mak believes that the number of sub-sale transactions is likely to taper in the coming year.

“Homebuyers are starting to grow cautious of a high interest rate environment and increased consumption costs. Hence, we may see a growing pool of homebuyers and investors taking a backseat this year,” he said.

With more project launches in 2023, homebuyers will also have more options to choose from, he said. “This might funnel some demand away from the secondary and into the primary market.”