Speculators paying the price of market cooldown as offers slow to a trickle
BUSINESSMAN Alan Lim is a seasoned property investor, so he knows the value of not losing his nerve in testing times like now.
Last year, when the property market was scorching hot, he picked up a new condominium unit at Lumiere off Shenton Way for about $1.3 million, and another at The Inspira off Mohamed Sultan Road for more than $1.4 million.
He intended to 'flip' or resell them for a quick profit.
Property agents flocked to him with eager would-be buyers. But he rejected them all in anticipation that prices would keep soaring.
Now, the offers have slowed to a trickle and the prices buyers are willing to pay are falling, falling.
But he claims to be not too worried.
'Of course, when the market was hot last year, everybody called me. This year, there are still agents calling, there are still offers but they are lower,' said Mr Lim, who is in his 40s and lives with his accountant wife and three kids in a Clementi Park condo which he bought nine years ago.
He looks at property in the same light as the stock market: 'If you have holding power, you're all right. I think I can hold.'
While Mr Lim may be able to wait out the market cooldown, other would-be 'flippers' are not so lucky.
Agents say a rash of people who bought condos at the height of the property fever last year with the intention of offloading them for fat returns are now having trouble doing so.
Many are meeting an icy response in today's fast-cooling market where collective sales have come to a standstill, new project launches are being delayed and once-ubiquitous record prices are few and far between.
A detached house in Kembangan, for instance, has been on the market for more than two months with no takers even though it is going for $2.5 million - well below the market price of $2.8 million to $2.9 million, said Mr Eric Cheng, executive director of HSR property group.
'If you look at newspaper ads now, sellers are giving more commissions to agents because they want to dispose of their house quickly. Price may not be their greatest concern,' he said.
A major property firm, which declined to be named in the interests of its clients, also said home-buying interest has dwindled in recent months.
'According to our agents, the sub-sale market has been very quiet, in line with the cautious mood of the general market,' said a company spokesman.
This has led to owners 'not asking for sky-high prices. They're more realistic and more willing to negotiate', he added.
Sub-sales are when a person buys an uncompleted home and then sells it again before it is built, without ever living in it. They are often used to measure speculation, or 'flipping' in the property market.
'Flipping' is not a new phenomenon, having been around for as long as there were profits to be made in buying and reselling homes.
In fact, there has been much less speculative behaviour in this property boom than during the last peak in the 1990s, said industry players.
'Those who have tried flipping before and were burned when the market crashed, either in the mid-1990s or the early 2000s, tended to be a bit more cautious this time round,' said Mr Nicholas Mak, director of research and consultancy at property consultancy Knight Frank.
He added that most would-be flippers are well-heeled as they have to be able to pay for the property - usually high-end condos - in the first place.
Alternatively, some younger buyers may pool their money to target the mid-tier market, where properties cost less than $3 million each.
But one thing most flippers had in common now was that they probably did not expect the quick turnaround in the market, said Mr Mak.
'Seven, eight months ago, no one knew that the United States sub-prime mortgage crisis would have such a great effect. Nobody expected the sentiment in the property market to cool so suddenly.'
But the spokesman for the major property firm noted that while transaction volumes have slowed, home prices are not exactly plunging.
'At this point in time, we have not noticed any sub-sales done below the original sale price. Sellers are still making some margins though they may be lower than they expected,' he said.
This is because most sellers seem unwilling to let go of their property below a certain price level. One agent is marketing a two-bedroom unit at Viz@Holland near Holland Village for $1.03 million, or $1,260 per sq ft (psf). This is below the bank's valuation which she said is between $1,300 and $1,500 psf.
'Last year, the owner had an offer for $1,240 psf but he didn't take it. Now he's willing to settle for $1,200 psf, but not lower,' she said.
Soon, however, more sellers may find themselves squeezed for cash. Several projects, including The Sail @ Marina Bay and One Amber in Marine Parade, are scheduled to be completed soon, at which point buyers will have to cough up large payments for the homes.
Signs of strain have already appeared.
Three of the top five projects with the most sub-sales recorded slight dips in the median prices of such deals last month, according to consultancy CB Richard Ellis. These are Icon in Tanjong Pagar, Citylights in Lavender and One Amber.
'Most sellers still think the market will pick up so it's all about holding power now,' said HSR's Mr Cheng. 'But a minority over-committed thanks to deferred payment schemes, and the lump sums are due soon, so they are in a hurry to sell.'
Deferred payment plans allowed buyers to put an upfront deposit for an uncompleted home and then delay the bulk of payments until the property was built, which could be up to a few years later.
Such schemes were exploited by speculators who would resell the property before completion without needing to fork out the bulk of payments. But the schemes were removed in October last year precisely to discourage speculation.
Those who bought under these plans could now have trouble reselling the homes as deferred payment may no longer be available for their would-be buyers.
On the bright side, this could present buying opportunities for home seekers, Mr Cheng said.
'If the owners are desperate, they may ask for $700,000 but accept 10 per cent less. Some of these condos would be worth considering for buyers.'
Anxious seller
AN INDONESIAN home buyer is sitting on three brand-new condominiums he bought in Singapore last year for almost $3 million in all.
He is eager to sell one - a two-bedroom unit at Parbury Hill in Upper East Coast - and use the cash to hold on to the other two until the market picks up again, his property agent told The Sunday Times.
'Price-wise, he doesn't mind losing some money because he's holding three properties at one go,' the agent said. He asked not to be named to protect his client's identity.
But he revealed that the buyer, who works in the plastics industry, is 'not one of those super-rich Indonesians'.
'He is just speculating,' the agent said, adding that the man was 'enticed into purchasing the properties because of the property fever'.
The buyer had successfully 'flipped' a few others previously and found himself drawn to the easy profits of a 'few hundred thousand dollars'. But he ended up 'committing more than he expected'.
He is now willing to let go of the Upper East Coast condo at $670,000, about 5 per cent below its estimated market value.
Even then, response has been 'very slow' since advertisements for the recently completed property were placed a few weeks ago.
'It hasn't been on the market very long, but he's getting kan cheong (Cantonese for anxious),' the agent said.
Meanwhile, the Indonesian still has to make payments for his other two condos here: a studio at Tribeca in Kim Seng Road and a two-bedroom unit at 2RVG in River Valley.
The two cost him more than $2 million when he bought them in the middle of last year, at the time the property boom reached fever pitch. He also booked a unit at One Rochester in Buona Vista but let the option lapse, which means he did not end up actually buying the unit and forfeited his deposit.
The situation is not hopeless however, his agent said. Even if he sells the East Coast condo below market value, he will probably still make a profit on it and if the market does pick up, he stands to make an even bigger profit on the other two downtown properties.
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