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Thread: Property subsales - who wins and who loses

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    Published August 26, 2008

    Property subsales - who wins and who loses

    For those who sold in the first seven months of this year, close to 97% came out ahead


    (SINGAPORE) Sentiment in the Singapore property market is now far from bullish, but data shows that nearly 97 per cent of those who have sold private apartments and condos in the subsale market in the first seven months of this year have made profits.

    Only 3 per cent incurred losses, an analysis of caveats by Savills Singapore shows.

    For those who turned a profit, the average gain per unit came to $417,563 or 36.5 per cent. Generally, the longer the holding period, the bigger the gain.

    Subsale deals are seen as a proxy for the level of speculative activity in the market. On average, those who had bought their units in 2004 and sold them in the subsale market this year made the biggest gain, averaging nearly $692,000, or an 84 per cent profit. They are followed by those who had picked up units in 2005, who recorded an average gain of about $645,200 or 62 per cent from selling their homes in the subsale market this year.

    In absolute dollar terms, the smallest average gain of around $175,600 was by those who bought their units this year, reflecting a holding period of just a few months.

    The profit or loss in the calculation is the difference between sale and purchase prices and does not take into account stamp duty and other expenses.

    'The fact is that longer holding periods allow for larger gains, shorter holding periods for smaller gains. This is consistent with the fact that real estate is a long-term investment. Investors with short exit time frames should look for alternative instruments,' said Savills Singapore's director of marketing and business development Ku Swee Yong.

    Savills' analysis was based on 1,040 caveats for subsale transactions from Jan 1 to July 31 this year captured by Urban Redevelopment Authority's Realis system as at Aug 19. Of these, 821 had previous caveat records dating back to 2003 and Savills compared the latest subsale price of each unit with the earlier price paid by the seller to work out the profit or loss.

    Citylights, Varsity Park Condo and The Sail @ Marina Bay had the most subsales in the first seven months of this year - 63, 47 and 45 respectively. The Sea View and City Square Residences had 30-plus subsales each. Park Infinia at Wee Nam, The Calrose, Icon and The Raintree each had 20-odd subsales.

    Subsales, often seen as a gauge of speculative activity, refer to secondary market deals in projects that have yet to receive their Certificates of Statutory Completion. This may be anywhere from three to 12 months after the project receives its Temporary Occupation Permit (TOP).

    Market watchers note that many of the projects topping the subsale chart this year had either received TOP or are close to receiving TOP. Some of the units that changed hands in the subsale market could have been purchased on deferred payment schemes from developers in the past. Typically, such schemes run out when the projects get their TOP and that is when buyers have to pay the chunk of the purchase price to developers.

    The deferred payment scheme was scrapped in October last year to discourage speculative buying.

    Of the 25 loss cases for subsale deals done this year, sellers of about half the units had themselves bought theirs in the subsale market, while the other half had made direct purchases from developers. For instance, the four units sold in the subsale market at a loss this year at City Square Residences had all been picked up in the subsale market last year.Looking ahead, Savills' Mr Ku expects subsales to maintain at current levels, that is, about 150 units a month. Those who want to sell now will have to expect lower profits, he said.

    'Whether in good or bad times, there will still be subsale losses from people being forced to make untimely sales due to corporate liquidation, bankruptcy, divorce,' Mr Ku added.

    In cases where investors are sitting on potential losses, Jones Lang LaSalle Singapore's head of residential, Jacqueline Wong, said: 'My advice to my clients, who are usually foreigners, have bought in prime districts and are well off, would be, 'If you can, hang on. It will be just a temporary paper loss. Singapore has a lot of things going for it in the mid term'.'

    Another seasoned property consultant said: 'A lot will depend on your entry price vis-a-vis other owners, especially in a big development. If a lot of them bought at say $1,000 psf from the developer and you got your unit later for $1,800 psf in the subsale market from an earlier buyer, you're in a disadvantageous position. If the market dives, the earlier buyers could offload their units at much lower prices than your cost price.

    'On the other hand, everybody may be in the same boat. Say, if you've bought into a small project of 30 units and everyone's bought at about the same price, and if there's not much competition from surrounding projects, chances of prices going down substantially may be lower because everyone's locked in at the same threshold.'

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    Published August 26, 2008

    Subsale property gains top out at $4.2m

    But Cosmopolitan penthouse seller nurses $463,400 loss


    (SINGAPORE) The biggest profit in absolute dollar terms from a subsale deal in the first seven months of this year was $4.2 million, reaped for a 22nd-floor unit at The Grange.

    It was offloaded in the subsale market in April for $11 million, compared with a $6.8 million purchase price in September 2005 paid to the developer.

    In fact, on an average basis too, The Grange has seen the most profitable subsale deals this year, with the 13 units sold in the project between Jan 1 and July 31 generating an average profit of slightly over $2 million per unit.

    In percentage terms, the average subsale gain at The Grange worked out to 52 per cent, according to Savills Singapore, which analysed caveats for subsale transactions from Jan 1 to July 31 captured by the Urban Redevelopment Authority's Realis system as at Aug 19.

    The biggest subsale loss was $463,400 for a penthouse unit at The Cosmopolitan at Kim Seng Road. It was sold in April for about $2.3 million, against the $2.8 million purchase price paid in July last year.

    Other projects with sub sale losses included two units at Soleil @ Sinaran, four at City Square Residences, three at Citylights and one each at One St Michael's, Park Infinia at Wee Nam and Marina Bay Residences.

    Percentage-wise, some of the biggest subsale profits were recorded for The Sail @ Marina Bay. The seller of a unit on the 49th floor reaped a 178 per cent return when he disposed of it in May for $1.43 million, compared with the $510,400 he paid to buy the apartment from the developer in late 2004.

    Owners of 14 other units at The Sail also doubled their money or more, when they sold their properties in the subsale market this year. However, there was also a unit in the development that chalked up a $63,000 subsale loss.

    Among prime district projects, profitable sub- sales included a 17th floor unit at St Regis Residences, which yielded a handsome $2.78 million return for its seller in June, after a two- year holding period. A sub- sale deal at The Orchard Residences also generated a $1.44 million profit.

    Over in the waterfront housing district of Sentosa Cove, four subsales of The Azure condo resulted in gains of at least $1 million per unit. One unit, in fact, generated a $3 million profit for a two-year-plus holding period.

    However, the owner of another unit in the 99-year leasehold condo incurred a $106,000 loss when he sold his unit in the subsale market in April for about $3.4 million after a 10- month holding period.

    Analysts note that, given the current weaker market sentiment, profits from subsales can be expected to shrink in the days ahead, or there may be even more loss cases, particularly for those who bought at the peak of the market in the first half of last year.

    Savills Singapore director of marketing and business development Ku Swee Yong suggests that there is no reason for panic selling if investors consider that interest rates are still very low.

    'So owners who have not lost their jobs can still afford to hold on to their mortgages,' he said.

    Also demand for rental properties should increase by early 2009 as the Marina Bay Sands resort boosts its employment drive ahead of its planned opening late next year.

    A seasoned developer highlighted the fact that subsale transactions, whether at a gain or loss, are still taking place, is a good thing.

    'There's diversity of different sellers, with varying financial strengths and abilities to hold, and similarly, there's a diversity of buyers. There's still liquidity out there. That's a good thing.

    'If we didn't have this diversity of behaviour and ability to buy, sell or hold, we'd have a very uni-dimensional and monolithic market.

    'That wouldn't be a good thing because, then, you may have everybody wanting to sell at the same time (and nobody wanting to buy). Then the market would grind to a halt,' he said.

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