Speculators Holding Out For Higher Prices

Source : The Business Times, March 7, 2008

Subsale activity slows but transacted prices remain resilient

Property prices have been bolstered by speculators in the last year. But now that speculation is on the decline, could prices follow suit?

An analysis by Savills Singapore of properties subsold last year after being bought from developers in the same year has revealed that while subsale activity dropped significantly in the last quarter, subsale prices did not, suggesting that speculators are not ready to offload their investments yet.

The number of subsales fell by 66.7, 69.1 and 39.1 per cent in the high, mid and mass-market segments respectively in the fourth quarter of last year from a quarter earlier.

However, average gains made from subsales over the developers' sale price remained relatively stable. They came to 34.2 per cent in the high-end segment in Q4, 14 percentage points higher than the full-year average gains. In the mid-tier segment, average gains fell marginally by 2.4 points to 21.1 per cent, while in the mass-market segment, they rose 1.6 points to 17.2 per cent.

Savills director (marketing and business development) Ku Swee Yong adds: 'Speculators appear to be holding out for better prices.'

Interestingly, Savills's analysis also shows that there have been several speculators that have subsold on very thin profit margins of 5 per cent or less, adding credence to market talk that some speculators may be looking to offload properties at bargain prices soon.

However, while Mr Ku believes that speculators that cannot manage the mortgage payments - especially after holding for a year or more on the deferred payment scheme - might be letting go at lower profits, he does not think they represent a majority.

By his estimation, there are about 6,000 residential units that will receive TOP (temporary occupation permit) this year. 'While there may be some dumping from those who cannot afford to pay up at the point of TOP, we do not think that it will constitute more than one per cent of the 6,000 units,' he adds.

The situation could change next year.

'We expect around 10,000 units to receive TOP in 2009. Those who bought using the deferred payment scheme in the last couple of years might let go if they are really speculators and cannot afford to pay,' says Mr Ku.

But he is optimistic that the low mortgage rates may mitigate the need to sell. 'The buyers might go for rental yield instead.'

Subsales of major new launches in the high-end sector, which include developments such as Marina Bay Residences, Scotts Square and The Orchard Residences, fell to just four transactions in Q4, compared to 32 for the full year.

Two subsales were done at less than 10 per cent above the developer's sale price.

The average gains from subsales over the developer's sale price were highest in the high-end market, substantiating Mr Ku's belief that this segment could prove more resilient if the global economic downturn is prolonged. 'There is a large proportion of buyers in the high-end market that are so rich, they buy properties with cash.'

This segment is also largely supported by foreign buyers and Mr Ku says: 'Foreigners are not speculators.'

Last year, the mid-tier segment saw 140 subsales of newly launched developments like Sky @ Eleven, The Rochester and One North Residences.

In Q4, one subsale was transacted at just 2.3 per cent above the developer's sale price.

In the mass market, there were 49 subsales of newly launched projects such as The Parc Condominium, Casa Merah and Clementiwoods for the year.

In Q4, there were 14 subsale transactions. Three were done at less than 10 per cent above the developer's sale price.

The number of Sky @ Eleven subsales - over 60 - was among the highest in 2007. In July and August, four units were subsold for over 50 per cent of the developer's sale price.

But the days of huge capital gains could be over.

Mr Ku says that, based on data for January so far, subsale gains could trend downwards slightly. But he adds that there is no evidence that speculators will find themselves in negative territory yet.