Some Loss but Most Gain in Subsales (19 Mar 2009)

Even though it is a difficult property year in Singapore, an overwhelming 95 percent of the property sellers who dealt private condominiums and flats in the subsale market a year ago were able to turn a great profit.

However, the amount of subsales that ran up losses totalled above doubled - from 24 in H1 of 2008 to 52 in H2 - indicating the falling market conditions particularly in the Q4.

For the knowledge of those who incurred a loss, 2008’s average loss for each unit also increased, from 7 percent or $138,000 in the first half of 2008 to 12 percent or $188,000 in the second half.

However, not all are sad stories, as there were also positive ones. For instance, the owner at The Sail incurred a profit of nearly $6.7 million after keeping his property business for around three years.

Analysis of caveats by Savills Singapore presented that the amount of loss cases increased as 2008 flapped along, from only 6 in the first quarter, going up to 18 in the second quarter, and steadying slightly at 20 in the third quarter, before upping to 32 in the last quarter of 2008.

Savills director (investment) Steven Ming said, “There were more owners cutting losses in the subsale market in H2 2008, especially in Q4, following the Lehman fallout and the global meltdown. Sales trickled and more people sold at losses”.

While the number of those who experienced losses from subsale deals have increased, the number of subsales that were able to produce income on the other  hand dropped by 16.8 percent, from 757 during the first half of 2008 to 630 in the second half.

In general, the result only shows that it is much pleasing to keep someone’s property for a long time. Averagely, the largest profits of $785,000 each unit were bagged by those property buyers who bought homes in 2004 and sold them in the second half of 2008, followed by those who bought homes in 2005 and sold them in the first half of 2008, gathering an average profit of almost $666,000.

Those property buyers, who bought homes in 2006 and sold them in the first half of 2008, were the ones who incurred the largest average loss of $210,000.

Approximately 90 percent of the 76 investors, who incurred a big loss in the subsale market throughout 2008, had purchased units in 2007 during the peak in the property market.

Peter Ow, the executive director of (residential) Knight Frank, noticed that an investor would typically decrease losses in the subsale market once the time to pay the developer comes. “An investor exposed to a few properties bought on deferred payment scheme (DPS) may want to cut losses on the first one or two to improve his cashflow so when it is time to pay up for the third one, he can afford it”, he said.

As an addition to various home owners, who find it hard to acquire enough bank loans to complete acquisitions, Mr. Ming pointed out that those having a strike in the subsale market can admit “savvy investors seeking to diversify their investments and allocating a part of the exposure to other undervalued asset classes”.