Profitable deals set new subsales market record

Profitable deals set new subsales market record

An up to 16 per cent seller's stamp duty (SSD) introduced in January 2011 may have caused a slowdown in subsales of private apartments and condos and generally lengthened the holding period for subsale transactions last year.

However, a record 98.1 per cent of 2011's subsales were still profitable even after counting the SSD where applicable as the overwhelming majority of the 2,337 units subsold last year had been purchased prior to the punitive SSD regime taking effect for units bought on or after Jan 14, 2011.

The average gain per unit for 2011 subsales was at a three-year high. Subsales refer to secondary market transactions in projects that have yet to receive a Certificate of Statutory Completion. Such deals are often seen as a gauge of the level of speculative activity in the property market.

The SSD - which is steepest for private homes bought on or after Jan 14, 2011 and sold within a year - along with more moderate price growth for apartments and condos probably kept a lid on subsales in 2011 involving properties which had been bought in the same year to just 11. Instead, half of last year's subsales involved properties that had been picked up in 2009, which marked a low for the Singapore private residential property market following the global financial crisis. This helped to produce strong gains on average for last year's subsale transactions.

Of the 2,619 private apartments and condos sold in the subsale market last year as captured by URA Realis, caveats of previous transactions for 2,337 of them. Based on these matches, 98.1 per cent of the 2,337 subsales were in the black, the highest figure in the four-year study period (since 2008). The profit or loss was calculated as the difference between sale and purchase prices, taking into account the SSD. However, the standard buyer's stamp duty, agent fees and other expenses were not factored in.

Among the 2,292 profitable subsale matches in 2011, the average profit per unit was $309,455, up 8.3 per cent from $285,718 in 2010 and a three-year high. This was on the back of buoyant private home prices in general over the past few years, say market watchers.

In percentage terms, the average profit per unit for 2011's profitable subsales was 25.4 per cent, also the highest in three years. Giving a quarterly split for 2011, the average percentage gain ranged from 23.9 per cent in Q1 to 27.9 per cent for Q4. If the equity downpayment was 40 per cent, the return on equity would have been 59.7 per cent to 69.7 per cent. This is a remarkable return from an investment holding period of just 2.34 years.

Nearly half or 1,164 of the 2,337 subsale matches for 2011 involved properties that had been previously transacted in 2009 and all but two of these transactions resulted in a profit. Market watchers said that this was not surprising given the substantial appreciation in prices of private homes post-GFC. Likewise, units bought in most other years - 2005 to 2010 - predominantly made a gain when subsold last year. The only exception was 2011.

There were six cases of non-landed private homes bought after the latest SSD regime took effect on Jan 14, 2011 and subsold in the same year, and these six transactions posted an average loss per unit of $129,739 after SSD.

The SSD collected from these six units averaged $198,731, which, if it had not been imposed, could easily have turned those transactions profitable, though by a lesser quantum than those purchased before the Jan 2011 SSD measures.

Those who sold in 2011 after purchasing on or after Jan 14, 2011 and thus made a loss were likely to be hard-pressed to offload for whatever reasons.

The average holding period based on 2011's 2,337 subsale matches was 2.34 years, longer than the 2.16 years in 2010, 2.13 years in 2009 and 1.89 years in 2008. Analysts point to the punitive SSD rates which deter short-term trading. Those who buy a private home on or after Jan 14, 2011 and sell it within a year have to pay a 16 per cent SSD; the SSD rate is lower at 12, 8 and 4 per cent for those who sell the property in the second, third, and fourth year of purchase respectively.

Another factor could be the moderation in the rate of property price increase last year compared with previous years, which could have led investors or speculators to hold on longer to eke out a better return. If 2011 had seen very strong price increases, the subsale holding period might have been shorter.

Market watchers say these two factors could have caused a 22.2 per cent drop in the number of non-landed private homes which changed hands in the subsale market to 2,619 last year.

URA's price index for non-landed private homes rose 4.6 per cent in 2011, slower than the 14 per cent hike in 2010. The 4.6 per cent price gain is less than the 16 per cent SSD which one has to pay on the selling price. Hypothetically, if non-landed property prices rose by say 30 per cent in 2011, there may be a high chance that subsale activity would be significantly higher.

The weaker price growth last year can be attributed to an interplay of global and domestic macroeconomic concerns with the SSD.

The government announced SSD in three rounds in 2010 and 2011 to deter short-term trading of private homes.

The level of activity in the subsale market is likely to stay muted this year because the rate of property price increase is set to remain moderate due to a plethora of choices for buyers from new launches. Also, buyers are likely to get handsome rebates buying directly from developers. It is unlikely that subsellers would offer similar rebates structured into their sale and purchase agreements.

Subsale deals are expected to decline further this year due to the high SSD rates. With the Jan 2011 measures in place, anyone that has since bought or will buy in new project launches will not have a mind to flip in the near term, especially in the first two years when the SSD rates are 16 and 12 per cent respectively.

Properties picked up in 2010 or earlier are likely to dominate subsales this year.

Source: Business Times – 28 March 2012