Subsale deals pick up as investors bail out

Posted on 09-Mar-2009

Private condominium and apartment subsales are on the rise as project completions put pressure on investors with weak holding power to exit the market.

The trend is expected to continue this year with official estimates projecting that some 10,448 private homes under construction (comprising both landed and non-landed units) will be completed.

Property firm DTZ’s analysis of caveats captured by the Urban Redevelopment Authority’s Realis system shows that the total volume of private residential property transactions (including both primary and secondary markets) plunged in 2008, but subsales as a proportion of total transactions is up.

DTZ said 12,988 private homes changed hands last year, down 65 per cent from 36,745 units in 2007. Total subsale transactions fell 64 per cent to 1,732 units last year, in line with the general slump in housing sales.

But subsales as a proportion of total sales of private non-landed residential property is on the increase.

Subsales accounted for 18 per cent of total condominium and apartment purchases in the October to December 2008 period, up from 14 per cent in the preceding quarter.

For the full year, subsale transactions’ share of total condo/apartment purchases was 16 per cent - up from 15 per cent in 2007 and 6 per cent in 2006. This is also the highest level since the 23 per cent seen in 1996.

Subsales are 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 gets its TOP.

DTZ’s senior director Chua Chor Hoon has an explanation for the trend: ‘Many of those who had bought on the deferred payment scheme (DPS), particularly if they’re not planning to occupy the properties themselves, can be expected to offload their units to avoid incurring additional financial commitment when the projects receive TOP.’

When a project is given a temporary occupation permit (TOP), the DPS expires and that is when buyers must pay up the bulk of their purchase price to developers.

‘Specuvestors’, or investors who are open to taking a quick profit if the opportunity presents itself, may be under pressure to offload their properties if they are under the deferred payment scheme and have yet to secure financing for their units. DPS, where buyers pay the first 10 to 20 per cent of the property purchase price and defer payment of the balance till TOP, was scrapped in October 2007 amidst increasing concern that the scheme promoted excessive property speculation.

Ms Chua noted that 10,122 private homes were completed in 2008, some 17 per cent higher than the past 10-year annual average of 8,671 units.

With another 10,448 units scheduled for completion this year, the subsale market is likely to see continued activity in 2009, she said.

Knight Frank executive director (residential) Peter Ow says the subsales market may be brisk this year if prices are attractive to buyers.

‘It depends on how desperate sellers are to offload their units. If they lack holding power or are not able to get the required loan quantum as the projects near completion, they may just divest in the subsale market,’ he added.

Some analysts have suggested that if desperate sellers offload their units in the subsale market, they may be competing head on with developers trying to sell projects in the primary market in the same vicinity.

‘As well, the price at which these sellers divest their units may set a benchmark in the area and weaken developers’ pricing power,’ said a veteran property consultant.

DTZ’s analysis also shows that the median subsale price slipped to $880 psf in Q4 2008 - down 7 per cent from the preceding quarter and a bigger 27 per cent drop from the same year-ago period, due to fewer high-end private residential properties being transacted last year.

The $880 psf median subsale price in Q4 last year was also the lowest since Q3 2006. The Sail @ Marina, 2008’s top subsale project with some 100 caveats lodged, saw its median subsale price ease 22.1 per cent for the whole of last year to $1,550 psf; the quarter-on-quarter decline in Q4 last year was 9.4 per cent.

But even at a $1,550 psf median price, the original buyers of The Sail who had picked up their units directly from the developers would still be able to make some gains as the project was launched at $950 to $1,200 psf in late 2004 and 2005, DTZ observed.

Last year also saw median subsale price drops of 10 per cent for Citylights in the Lavender area (to $1,036 psf), 12 per cent at Varsity Park Condo in Clementi (to $659 psf) and 17 per cent for City Square Residences at Kitchener Road (to $835 psf).

Ms Chua expects subsale prices to decline further this year against the backdrop of weaker market sentiment.

Source : Business Times - 9 Mar 2009