Trouble looms for developers who post tepid sales take-up at home launches

Leslie Yee

Mar 26, 2024

SALES are the lifeblood of almost any business. With sales comes revenue to pay bills, fund expansion, generate returns and keep the business going.

As such, kudos should go to GuocoLand and Hong Leong Holdings for selling 400 out of 533 units or 75 per cent of the homes at 99-year leasehold development Lentor Mansion in the Lentor Hills estate in District 26 at the project’s launch weekend in mid-March.

However, Lentor Mansion’s sales performance could be an outlier in today’s private housing market.

Earlier this month, another suburban project in the Lentor Hills estate, developer TID’s Lentoria, sold 50 units or nearly 19 per cent of the development’s 267 units during its launch weekend.

Outside the suburban segment, several housing projects in prime districts or the city area that were launched some time back have seen slow sales and need to speed up sales or be hit with hefty Additional Buyer’s Stamp Duty (ABSD) for failing to sell out housing units within prescribed timelines.

As it stands, new private home sales here are moderating while prices remain stable, with some upward bias.

The rate of increase in private home prices and the number of private homes excluding executive condominiums (ECs) sold by developers fell year on year in 2023 and 2022, data from the Urban Redevelopment Authority indicated.

Developers sold less than half the number of private homes excluding ECs in 2023 versus 2021.

Over April and May, the market could see five major condo launches with a total of nearly 1,600 units.

As home buyers today are selective, some upcoming new home launches risk getting the cold shoulder from buyers. And weak sales at launches may in turn be problematic for the developers.

Risks to returns

Typically, developers sell private homes off-plans and buyers pay for new uncompleted homes using the progressive payment method.

A certain percentage of the purchase price is paid upon purchase. Other payments based on specified percentages of the purchase price are made as the project achieves various milestones.

A developer can use funds received from buyers of uncompleted homes to help fund the building of those homes. If a project sells well, the developer minimises the size of loan drawdown.

Assuming debt costs of 4.5 per cent per annum and project costs of S$600 million excluding financing costs, the difference between drawing down debt averaging S$100 million over three years and S$200 million over four years is S$22.5 million.

Should the project’s gross development value be S$660 million, net profit margin halves from 7.6 per cent to 3.8 per cent when more debt is drawn down.

Worse, a project that sold poorly at launch might struggle to sell out all the housing inventory in a timely manner.

A potential home buyer may see a project’s weak initial sales as indicating its lack of appeal to buyers in general. He might then shy away from the project and choose a more popular one on the basis that offloading his unit in future may be easier.

Today, developers who buy sites to build five or more homes, pay 40 per cent ABSD of which, 35 per cent ABSD may be remitted upfront subject to conditions. To avoid clawback of ABSD remission, developers need to meet various conditions including selling out all the homes within five years of a site’s acquisition date.

Profit margins of private housing projects with low initial sales rates risk being eroded by developers lowering selling prices or paying higher commission rates to incentivise agents to close more sales so as to avoid clawback of ABSD remission.


TID – a joint venture between Hong Leong Group and Mitsui Fudosan – was awarded the site for Lentoria in September 2022. To avoid clawback of ABSD remission, this project has more than three years left to sell all housing units.

Housing developers should not count on substantially improving market conditions over the next few years.

First, tough property cooling measures have hit private housing demand hard. ABSD rates for many home buyers rose in April 2023.

A Singapore citizen pays 20 per cent ABSD when buying a second home and 30 per cent ABSD when buying a third or subsequent home. A foreigner who is not a permanent resident pays 60 per cent ABSD when buying any home.

Home prices may not run away, and locals looking to buy their first home will be prioritised even if ABSD rates are lowered for locals who buy multiple homes and foreigners.

However, any relaxing of property cooling measures ahead of a general election which could be called next year is invariably risky. Moreover, any relaxation of cooling measures may need to be significant in order to boost demand.

Second, the recent lowering of the ABSD clawback rate for developers who sell at least 90 per cent of homes in a development within the prescribed timeline may hardly help developers.

For a developer who enjoyed 35 per cent ABSD remission upfront, the ABSD clawback is 34 per cent for selling 90 per cent of homes and 25 per cent for selling 99 per cent of units.

Developers might hope for greater flexibility from the government in applying the ABSD clawback rate to the remaining value of the unsold housing units, or extending the timeline to sell out the remaining homes once the 90 per cent sale threshold is achieved.

However, the above wishes may not be granted unless the housing market weakens substantially.

Third, with relatively stable home prices, many potential home buyers could adopt a wait-and-see attitude instead of rushing to buy for fear of missing out.

While some potential homebuyers have urgent needs, others may have less pressing needs.

A family who is fairly happy with their existing home may see an upgrade as a nice-to-have and not a must-have. A young adult living with parents could be highly selective in committing to buy a place of his own.

Locals buying for owner-occupation are the key demographic in today’s private housing market. Developers who offer the right product will thrive, while others will flounder. Unfortunately, little relief is in sight for developers of struggling projects.