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Published February 5, 2007

Buyers of luxury projects slow to lodge caveats

Analysts cite speculators looking to resell units quickly, new deferred payment scheme


(SINGAPORE) Buyers of luxury apartments launched of late are not rushing to stake legal claim on the properties by lodging caveats on them, official data shows.

Figures from the Urban Redevelopment Authority's (URA) Realis website shows that in some instances, fewer than a quarter of the units sold have seen caveats lodged on them even a few months after the launch.

Industry players attribute this to a variety of reasons, including speculators looking to sell their properties quickly, the newly introduced deferred payment scheme, and good buyer-developer relationships.

At Marina Bay Residences, for example, just 75 caveats for new sales had been filed as of Jan 31, although the 428-unit development was fully sold by mid-December last year. The project is by a consortium comprising Keppel Land, Cheung Kong Holdings and Hongkong Land.

Similarly, only 66 new sale caveats have been lodged for the 111 apartments sold in Wheelock Properties' Ardmore II. The project has 118 units.

Other recently launched developments where the number of new sale caveats lodged falls short of the number of units sold include City Developments' St Regis Residences (87 new sale caveats lodged for around 128 units sold) and Tribeca By The Waterfront (29 caveats for more than 112 units sold) and Ho Bee's The Coast at Sentosa Cove (98 caveats for more than 240 units), among others.

Lawyers BT spoke to said that while lodging a caveat when acquiring a new property is not mandated by law, new owners are usually advised to do so to stake their claims on their properties.

One reason for this new trend could be due to buyers looking to resell their apartments soon after buying them.

'Nowadays, there are a number of people who don't lodge caveats when they buy,' said DTZ Debenham Tie Leung executive director Ong Choon Fah. 'We suspect the caveats are popping up in the subsale market instead.'

URA classifies caveats for new projects as either those for new sales or those for subsales.

Mrs Ong said she first started noticing the trend about 1-2 years ago. While historically, for every development, there have always been some buyers who choose not to lodge caveats, the proportion has increased over the past couple of years, she says.

Another reason is the deferred payment schemes offered by developers, which means there is no immediate need to get financing.

Deferred payment schemes have been a popular option for property buyers, accounting for more than 90 per cent of transactions in recent new Marina Bay and downtown projects, according to Citigroup.

Such arrangements also favour buyers looking to resell their properties on the subsale market.

'The deferred scheme may be encouraging the entry of speculators and fuelling stronger price increases in the primary residential market,' said Citigroup economist Chua Hak Bin. 'Sub-sale transactions have quadrupled from two years ago. Median prices of uncompleted projects have risen by about 20 per cent from their recent lows, double that of the 10 per cent for completed projects.'

The scheme allows buyers to fork out only a 10 per cent or 20 per cent downpayment on a property, with the rest due upon completion - sometimes as much as three years later. Buyers need not worry about further payments during the construction phase and the ample period of three years also allows the buyer time to resell the property for a profit.

Buyers could also simply be letting the task of lodging caveats slide, since they are secure in the knowledge that big-name developers are not likely to sell the same unit twice, said Norman Ho, senior real estate partner with law firm Rodyk & Davidson. This is especially likely, he said, considering the volume and speed of recent high-end property launches.

'They (buyers of new properties) are buying directly from the developers, so they are very, very safe - the developer is not going to sell the same property twice,' said Mr Ho.

Despite this, lawyers will always advise clients to file caveats just to cover all bases.

More caveats for newly launched upmarket developments are likely to be filed in the coming weeks. Mr Ho explained that in every transaction, there is a time lag of about five weeks between the time the option-to-purchase is granted by the developer and the time the sale-and-purchase agreement is signed by both parties. The sale-and-purchase agreement is needed before a caveat can be filed.

However, with the high levels of resale and subsale activity on the market now - aided in part by the deferred payment scheme - the proportion of new sale caveats lodged is unlikely to climb by too much, market watchers said.