In some popular projects, average subsale prices slipped by up to 5% in the first five months
Subsale volumes are down amidst a quieter property market, but a new study by Jones Lang LaSalle shows that in most parts of Singapore, subsales actually rose as a percentage of total private apartment and condo sales in the first five months compared with last year.
Driving the trend have been players who bought properties from developers on deferred payment schemes (DPS) but who are seeking to exit the market as projects near completion.
In some popular projects such as Icon, Marina Bay Residences, 8 @ Mt Sophia, Park Infinia at Wee Nam, The Grange, One Amber and The Sea View, average subsale prices have slipped between one and 5 per cent in the first five months of 2008 (5M 2008) compared with levels scaled in H2 2007. However, in some projects, prices are still much higher than H1 2007 levels, the study shows.Subsales are secondary market transactions involving projects that have yet to receive a Certificate of Statutory Completion (CSC) and are often used as a gauge of speculative activity.
JLL's head of research (SE Asia) Chua Yang Liang expects the percentage of subsales to continue to increase till end-2008 before some high-profile projects receive their Temporary Occupation Permit (TOP). Property market watchers are keeping tabs on the potential unwinding of positions by speculators and specuvestors as the scale of such transactions could lead to a much-predicted slide in subsale prices that could ripple through the broader market.
JLL's study showed that in the prime districts 9, 10 and 11, subsales made up 23 per cent of non-landed private home sales in 5M 2008, up from a 17 per cent share in H1 2007 and an 18 per cent share for the whole of 2007.
In the east coast (districts 15 and 16), the proportion of subsales rose from 8 per cent in H1 2007 to 11 per cent in 5M 2008. In mass-market areas (defined as all districts falling outside prime, central and east coast), the subsale share went up from 9 per cent to 14 per cent over the same period.
However, in the central districts 1 to 4 (which include places like Marina Bay, Harbourfront and Sentosa Cove), the subsale percentage dipped from 35 per cent in H1 2007 to 33 per cent in 5M 2008, although the latest share remains the highest in the four submarkets in JLL's study.
'Going by the relatively high subsales proportion in the Central district, this location has a higher probability of future consolidation in subsale prices given that a number of projects in the area are reaching completion,' Dr Chua says.
Savills Singapore director (marketing and business development) Ku Swee Yong says that agents have a long list of units in high-profile condos available for the subsale market. 'But asking prices have yet to come down to a level that would be attractive to potential buyers. So we're not seeing that many subsale transactions,' he says.
Mr Ku says that things may not be so bad. 'Some of them bought their units a few years ago from developers at pretty low prices, so they should be able to get bank loans when the project gets TOP and the DPS runs out. Others bought their units in the subsale market and the developers would not have extended DPS to them; so they've already got their housing loans in place. For these owners, it's more the fear of prices falling that may drive them to put their units on the market.'
JLL's Dr Chua argues that the rising proportion of subsales this year is 'not a bad phenomenon as it may suggest a transfer of ownership from speculators to potentially long-term occupiers or investors with stronger investment stamina'.
'The danger for the market lies with short-term speculators who decide to hold back in anticipation of a higher gain but only to be caught up by insufficient investment breath. This could result in a later surge in fire sales by these speculators, or in their returning units back to developers, who in turn may be hard put to find buyers at a time when sentiment may be weak,' he argues.
Says Knight Frank executive director (residential) Peter Ow: 'If I'm not a long-term player and I bought my unit sometime ago when prices were lower than today, it would be more prudent to let go and take some profit first. Property can be very illiquid in a weak market. By the time you want to sell, everybody may also want to do the same thing.'
The level of subsales, and the prices at which such deals are done, is being watched closely by market players as a slew of condos launched earlier and sold on DPS approach their physical completion. The Sail @ Marina Bay (Tower 2) received TOP this month, while Tower 1 is expected to be completed by Q3 2008. The Oceanfront @ Sentosa Cove is expected to be completed in Q1 2009.
A project usually gets its CSC three to 12 months after obtaining TOP. Hence deals in a project that has obtained TOP but not CSC are still classified as subsales.
Typically, the deferred payment expires when the project gets TOP, which is when buyers have to pay the developer a huge portion of the purchase price. 'Those who bought on DPS and have not exited the market yet, will have to make a call as to whether to secure a loan or begin to release their holdings back into the market now,' JLL says.
The government stopped granting DPS approvals in October last year.
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