When A Price Fall Isn't A Price Fall

Source : The Business Times, January 3, 2009

SISV Services is fixing problem with caveats lodged for some subsale deals.

PRIVATE home prices have fallen but in some cases, the drop may not be as much as suggested by SISV Services' Realink database.

SEEING DOUBLE Savills Singapore has spotted more than 60 instances of 'duplicate caveats' listed at different prices for the same transaction on Realink -- STOCK.XCHNG

Savills Singapore has spotted more than 60 instances of 'duplicate caveats' listed at different prices for the same transaction and which give the impression of a unit changing hands within a span of a few months at a significantly lower price, when in fact it hadn't.

The common thread running through these cases is that they involved subsale deals transacted in the past six months for projects which either received Temporary Occupation Permit in 2008 or are nearing TOP.

For example, Realink shows a caveat for a 47th floor unit at The Sail @ Marina Bay sold in the subsale market in September for $508,024 or $858 psf, when actually the unit was sold for $1.45 million or $2,450 psf and which was caveated three months earlier (and also shown in Realink). The lower price was the price at which the developer first sold the unit back in 2005.

In another instance, Realink shows a caveat for a unit at Park Infinia at Wee Nam in November for $1.16 million or $868 psf, one-third lower than the $1.77 million or $1,325 psf caveat lodged for the same unit two months earlier. Actually, both caveats were lodged by the same buyer, who paid the higher price.

Rodyk & Davidson LLP partner Tang Woon Ee told BT that it was 'good practice' to advise clients who buy in the subsale market to lodge two caveats. The first is when the buyer exercises his subsale option and has to fully pay up the initial 5 per cent deposit; this caveat will reflect the actual transacted price.

Then, two or three months later, when this subsale transaction is completed and the buyer enters into a fresh sale and purchase agreement (SPA) with the developer, the buyer should lodge another caveat to protect his interest in the unit. This fresh SPA will reflect the original price at which the developer sold the unit, since this is the price it is entitled to collect.

'So if the developer originally sold the unit to Buyer 1 for $1 million and Buyer 1 later sells to Buyer 2 in the subsale market for $1.2 million, the fresh SPA issued by the developer to Buyer 2 will still reflect the $1 million price; the profit (or loss) made by Buyer 1 from his subsale transaction is not relevant to the developer,' Ms Tang explained.

As a result, the original sale price of the unit gets reflected in the second caveat lodged by the purchaser in the latest subsale deal. In this instance, two caveats will be lodged by Buyer 2 for the same transaction - the first at $1.2 million followed by another a few months later at $1 million.

SISV's Realink database, by listing both caveats, gives the impression that the price of the unit has fallen about 17 per cent in the past three months.

Said Ms Tang: 'A caveat is a legal claim against a property. When the developer issues a fresh SPA to a buyer who picked up his unit in the subsale market, it establishes a relationship between the buyer and the developer - that's a caveatable interest.'

SISV Services is in the midst of rectifying the problem, which has been caused by the service provider not eliminating 'duplicate caveats' lodged for subsale transactions which show the original price at which the developer sold the unit a few years ago (and which is listed in the fresh Sale & Purchase Agreement issued by the developer to the latest subsale buyer).

An SISV Services spokesman attributes the problem in Realink to an increase in subsale cases involving projects originally sold on deferred payment schemes (DPS) as the original buyers who may have picked up their units from developers a few years ago are now feeling the pinch from the economic downturn and facing difficulty getting bank loans.

This has led to an increase in subsales being registered and duplicate caveats showing up, according to him.

To fix the problem, SISV Services has added a 'history' button, next to transactions with two or more caveats lodged, for the professional version of Realink. 'Users can view the caveats' history and if they see the latest price is identical to the initial transaction in the primary market say a couple of years ago, they can disregard the latest caveat as being a 'duplicate',' the spokesman said.

'For the free version of Realink available to the public, we are in the process of devising a computer programme to help us identify the duplicates, so we may remove them.

'We didn't remove the duplicate caveats earlier because we could not determine readily that they were 'duplicates' as we do not have the buyers' names in the raw caveats data that we buy from SLA (Singapore Land Authority).'

Savills Singapore compiled a list of over 60 subsale transactions covering projects like The Sail, Cosmopolitan, The Esta, Park Infinia at Wee Nam, The Sea View, The Azure, Watermark, The Calrose and Parc Emily where Realink's database showed latest caveats at significantly lower prices than caveats lodged for the same units just a few months earlier. Typically, the latest caveated price was also the original transacted price for the unit a few years ago.

Savills did individual searches for a few of these cases using Singapore Land Authority's Inlis system and, in each instance, found two caveats being lodged for the property by the same buyer, just a few months apart - and with the second caveat at a lower price than the first.

Raw caveats data that SISV Services purchases from SLA does not contain information on the buyers' or sellers' identities to protect privacy.SLA confirmed that it provides identical data to both SISV Services and the Urban Redevelopment Authority.

Interestingly, URA's Realis system does not list these 'duplicate caveats' that do not reflect the latest transacted prices.

When asked how it sifts out caveats lodged when developers issue a fresh SPA based on original sale price, a URA spokeswoman said: 'If a caveat is lodged against a developer, we will ascertain whether it is a new sale or a fresh agreement arising from a subsale.

'We do this by checking whether a caveat for the same unit has been lodged against the sub-seller, whether a previous caveat has been lodged for the unit when it was originally sold and also against our database on new sales compiled from monthly surveys of developers. If the caveat is lodged against a developer arising from a sub-sale, we will not show the record in Realis.'

On the duplicate caveats in SISV Services' Realink database, Savills Singapore director for investment sales and prestige homes Steven Ming said: 'Analysts who do not distil the information carefully can come to very wrong conclusions of the market, thus further aggravating the already weak market conditions.

'Had end-users, investors and property owners relied on such data without first seeking a professional opinion, they can easily be making a misinformed decision as a result.'

There may also be a minority of rogue agents who may use such erroneous low-priced caveats to their advantage in convincing less savvy owners to close on low offers given market conditions, he added.