Continued growth in private-home subsales to 2023
After brokering a sale of a recently launched private residential development, some agents will keep the contact info of the purchaser and may reach out three years later to encourage him to sell his first unit and to buy a second unfinished unit. They may do this because they are compelled to by the fact that the developers pay a higher commission than what the agents receive on a normal resale.
Those who are awaiting an uncompleted project will be placed on a schedule of progressive payments, he added. The property’s total price is only due before the project ends. It may also result in a greater return on the investment for the homeowner.
Moreover, in 2018 and 2019 there were many large residential projects in the OCR. There were many “affordable’ condo units that were available to short-term investment, leading to a higher number of sub-sales, he explained.
A sub-sale occurs when a purchaser resells an item purchased directly from a developer between three and four years prior to the completion date of the project.
Urban Redevelopment Authority (URA), according to its figures, showed that subsales accounted 9.5 percent of all deals during the fourth quarter in 2023. It was the first time it had exceeded 9 percent since 2011. The sub-sales rate is at its highest since Q1 2010. Sub-sales were 9.6 % of all transactions. Sub-sales accounted for between 0.3 percent and 3.5 % of all transactions in the past decade.
Mogul.sg’s local property portal analyzed data for The Business Times, and showed that the majority of sub-sale sales in the second half 2023 was profitable. In September, only one sub-sale transaction resulted in an S$38,000 loss. The unit was a 1,335 sq ft (sqft) apartment at the Rezi 24 Freehold Apartment in District 14
All transactions in Q4-2023 generated profits between S$10,000 – S$864,000. The overall median capital gains for sub-sale deals was S$243.500. It is usually around 22.3% the original transaction price.
The profit figures quoted in this article are exclusive of transaction costs including taxes, stamp duties, legal fees, and other transaction costs.
On the basis of a holding duration of 4.2-years, sellers saw an annualised median capital gain of 4,8%.
Affinity Serangoon is a 99 year leasehold condominium that offers a 2,067 square foot terrace house. This deal generated the most profit during Q4 2023. The unit sold in October for S$3,18 million, earning the seller S$864,000. He had held the property for 4.6 year.
A 657 sq ft apartment in the District 2 freehold condominium Sky Everton, which was sold at S$1.85m in October, made the least profit. This resulted in a profit of S$10,000 for the seller after a 4.3-year holding period.
Market confidence is growing, as volumes rise to the highest level they have seen in a decade.
SUB-SALE volume in Singapore’s Private Housing Market rose again in 2023. It reached its highest since 2013, with 1,294 transaction, a jump of 69.2 Percent from the prior year.
This is the 2nd consecutive year of strong growth for the sub-sales, which are typically used to gauge speculative behavior. Volumes were at a decade’s high in 2022. 765 transactions represented a 34.7 percent increase from 2021.
Even so, the sub-sale transactions that are currently being conducted are only a fraction compared to the 4,863 recorded deals at the height of the housing boom in 2007. This increase is most likely due to recent increases in home value.
By region, sub-sales made in the Outside Central Region accounted for the largest profits. They had a median gain of S$243,000 (approximately 23 percent of the original price) and an annualised return of 4.9 percent.
Rest of Central Region (RCR) was next, with a median increase of S$244,000 or 20,4% of the price of the property. They also had a 4.3% annualised profit.
Core Central Region, prime Core (CCR), was lagging behind the other regions with a gain of S$238,700. This is only 9% of the transaction price and a profit of 2.4% annually.
Nicholas Mak of Mogul.sg’s chief research officer pointed out to the fact that properties in OCR suburbs typically generate the highest capital gains percentage-wise, as the acquisition price is usually lower.
The median price of private homes in CCR was S$6.16m. RCR (Rural Central Region) and OCR (Outer Core Region) properties were S$1.27m and S$1.12m respectively.
The study also found there to be little difference in profits for subsales of either 99-year leasehold property or freehold properties. Mak said that although 99-year leasehold homes have lower purchase prices, their profit margins and annualised gains in capital are higher.
A steady growth
Mak pointed out that it is the fourth consecutive increase in sub-sale figures after more than a ten year decline. It follows a trough of 198 subsale transactions in 2020. Since then, market volumes have steadily increased. Sub-sales have more than doubled to 568 in 2021. They will rise further in both 2022-2023.
Mak attributes an upward trend in subsales of houses since 2020 to the delays, disruptions, and pandemic-related construction industry. It took longer for some residential construction projects to be completed, according to Mak, and the impact is still being felt today.
Investors will have more time to make sub-sales because of the delay of project completion. Rising prices also increase the profitability of sub-sales. URA’s price index for residential private homes rose by 32.5% from Q1 2020 to Q4 2023.
According to him the higher possible profit would (therefore), incentivise investors to sell properties. A few real estate agents might also encourage homeowners to recycle the capital they have invested by reselling it.
Mak said that, despite the fact that the sub-sale level is still far below its 2007 peak, it is unlikely to continue increasing in 2024. The current market conditions are completely different than those of 2007.
Back in 2007, there were no cooling measures in place, such as the Additional Seller’s Tax and Total Debt Services Ratio. These measures only came into effect between 2009 and 2013. They were designed to limit market speculation in the wake of the 2008 global financial crisis.
The impact of economic uncertainty, coupled with the current high interest-rate environment, is likely to continue to affect the private residential sector. The sub-sales of residential properties are expected to decline in the coming years.
