The sub-sales for private-homes will continue to reach new heights in 2023
In the last decade, sub-sales ranged in general between 0.3 and 3.5 percent. Mogul.sg, a local property portal, analysed the data collected by The Business Times to show that most sub-sale transaction in 2023’s second half were profitable. One deal made a S$38, 000 loss in September. This was for the 1,335-square foot unit of Rezi 24 freehold apartment in District 14.
In Q4 of 2023, profits ranged from S$10,000 up to S$864,000. Overall, the median capital gain from a subsale transaction was S$243.500. That’s around 22.3 percent of the original deal price.
The figures in this article for profit on sub-sale transactions do not include any transaction costs like taxes, stamp duty and legal fees.
A median annual capital gain was also achieved by sellers, with a holding period based at 4.2 years.
Affinity at Serangoon’s 99-year leasehold condominium project, Affinity 2,067 sq. ft. terrace house was the deal which generated the highest profit for Q4 2023. In October, the unit was sold at S$3.18million. The seller earned a cool S$864,000 for holding the property for almost 4.6years.
In October, a freehold condominium Sky Everton located in District 2 sold a unit measuring 657 square feet for S$1.85million. The seller only made S$10,000 after a holding time of 4.3 year.
When broken down by region, the Outside Central Region (OCR), which includes Singapore and the rest of Southeast Asia, had the highest profits. The median capital gain was S$243,000 or 23 per cent of initial purchase price. This equates to a profit annualised of 4.9%.
Rest of Central Region or the city fringe was the next to be sold. It saw a median profit of S$244,000, which is 20,4 per cent of its initial price. This represents a 4,3 per cent annualised gain.
Prime Core Central Region was behind with a median profit of S$238,700 (just 9 per cent of initial transaction price) and an annualised gain of 2,4 per cent.
Nicholas Mak (chief research officer, Mogul.sg) pointed out the properties in suburban OCR usually generated the highest percentage capital gains since their acquisition prices were lower than other regions.
In the CCR, for example, the median purchase price was S$6.16million. RCR and OCR property prices were S$1.27 and S$1.12 millions, respectively.
The study also found little difference between the profit margins for sub-sales made on 99-year leasehold or freehold properties. Mak says that the annualised capital gains and profit margins for 99-year Leasehold Properties are higher because they have a lower acquisition price than freehold properties.
Growth
Mak said that the sub-sale number has increased for four years in a consecutive row after a decline of over a decade. The sub-sale numbers are also up after a decline in 2020. Only 198 transactions were recorded.
Since then the market has seen a steady growth in volume, with sub-sales increasing by more than twice in 2021 and reaching 568 deals. This will continue to increase in 2022 and in 2023.
Mak attributes the increase in subsales since 2020, to the disruptions and delays in the construction sector caused by the pandemic. The pandemic caused delays in the construction industry, Mak said. This has had a lasting impact on some residential projects.
Sub-sales are more profitable for investors due to delayed project completion and rising prices. URA’s index of private residential homes increased by 32.5% between Q12020 and Q42023.
According to him, the potential higher profits would (therefore), encourage more investors sell their properties.
In addition, some agents will encourage home owners to recycle their money by selling it at a lower price.
After brokering the sale a newly-launched private residential project, agents can keep the contact details and follow up with the buyer in three to four years. This is to encourage them sell their first unfinished unit and purchase another unit.
This is because the property developer’s commission rate is typically higher than the usual 1 per cent that they receive for a resale.
He added that those buyers who are waiting on an unfinished property would also be subject to a progressive payment plan. It means that only the full cost of the property must be paid up front before the project has been completed. The homeowner may get a better return on investment if they do this.
In 2018 and 2019, several large-scale residential projects were launched in OCR. The fact that short-term buyers could purchase many condos at a low price led to an increase in sub-sales during the past two year, said Mr. Ayala.
Mak also pointed out that sub-sale sales are not at their 2007 peak and will likely continue to decline in 2024.
Today’s market conditions are quite different from 2007
For example, cooling measures such as Additional Buyer’s or Seller’s Duty and the Total Debt Servicing ratio were not implemented in 2007. These measures were only implemented between 2009-2013 to curb market speculation after the global financial crises of 2008.
In addition, the high-interest rate environment and economic uncertainty are likely to have a negative impact on the residential market. In the future, it is likely that sub-sales will decrease.
The market is confident, and volumes are at their highest in 10 years.
In 2023 the number of sub-sales in Singapore’s private housing market reached its highest level in years with 1,294 sales, an increase of 69.2 % from last year.
The sub-sales market has grown strongly for the second year in a row. This market can be viewed as an indicator of speculative behaviour. Volumes reached a decade-long peak in 2022 when 765 transactions were recorded, an increase of 34.7% over 2021.
Still, the current level is a small fraction of the 4,863 deals that were recorded during the peak year for the housing industry in 2007. Sub-sales are likely to be on the rise due to the recent surge in home values.
When a buyer sells a property purchased directly from the developer in the three- to four-year period before the project is completed, a subsale will be recorded.
Urban Redevelopment Authority data shows that in the 4th quarter of 2023 sub-sales made up 9.5 percent of all transactions, surpassing 9 per cent for first time since 2011. This is the highest level ever since Q1 2010, where sub-sales represented 9.6 per cent.
