Continued growth in private-home subsales to 2023

Singapore’s sub-sale market volume rose again in 2023. It reached its highest point since 2013 with 1,294 transaction, a 69.2per cent increase over the previous year.

It’s the second straight year the sub-sales segment has experienced strong growth. This can be seen as a proxy of speculative behavior. Volumes hit a decade long high in the year 2022. With 765 sales, this was an increase of 34.7 per cent over 2021.

The current levels of sub-sales are still a tiny fraction of the 4,863 recorded deals during the peak year for the housing industry in 2007. It is possible that the recent increase in home values has contributed to the surge in sub-sales.

Sub-sales can be recorded if a buyer sells a property that was purchased directly by the developer three to four months before the project completion.

Urban Redevelopment Authority’s (URA) figures showed that the sub-sales in the last quarter of 2023 accounted for 9.5% of all deals, surpassing 9 % for the first year since 2011. This is the highest level ever since Q1 2010. Sub-sales were 9.6percent of all deals.

Sub-sales accounted for between 0.3 percent and 3.5 percent in the last decade.

The Business Times was able to analyse data collected by a local property website that revealed almost all of the sub-sale sales recorded during the second half in 2023 had been profitable. In September, one deal resulted to a loss S$38,000 for a 1 335-square foot unit at the Rezi 24 freehold flat in District 14.

In Q4 20,23, the profits from all deals ranged from S$10,000 – S$864,000. The median capital profit for a deal that involved a subsale is S$243.500. Typically, this represents around 22.3 percent of the original transaction value.

The profit figures given in the article for subsale transactions exclude all transaction costs, including taxes, duties, and legal fees.

The median annualised gain for sellers was 4.8%, based upon a holding of 4.2years.

Affinity Serangoon has a 99-year freehold leasehold condo development that includes a 2,067sqft terraced house. The biggest deal in Q4 was based on acquiring a 2,067sqft terraced house. The property changed hands in October at S$3.18million. After 4.6 year’s ownership, the seller made a tidy S$864,000.

The unit of 657 sq.ft. in the Sky Everton freehold condo in District 2 was the one that generated the smallest profit. It was sold for S$1.85million in October. After a holding time of 4.3years, the seller earned only S$10,000.

According to the breakdown by region of sub-sales, those in the Outside Central Region made the most profit with a capital gain median of S$243,000. That’s around 23% of the purchase price and 4.9 percent annualised.

Rest of Central Region – or the city edge – saw the largest gains, with an average gain of S$244,000. That’s a 20.4% increase in the initial purchase price and a profit of 4.3 percent per year.

Core Central Region (CCR), the most important region, was the least successful with a median increase of S$238,700. This is only 9 percent of the transaction price and a profit of 2,4% annually.

Singapore property analyst, Singapore property arena, pointed out that OCR suburban properties typically produced the highest capital gain in percentage terms because the acquisition price for these properties was usually lower than in other areas.

For example, in the CCR the median price for a home was S$6.16million. RCR and OCR homes were priced at S$1.27mil and S$1.12mil, respectively.

A study by Property Watcher also showed that there were no significant differences in profits for subsales of 99-year leasehold or freehold properties. But profit margins for 99-year Leasehold Properties and annualised Capital Gains were higher, since their acquisition prices are typically lower than those of Freehold Properties.

After more than a decadal of constant declines, sub-sale numbers are increasing for the fourth straight year. It follows a trough of 198 subsale sales in 2020.

Since then, volumes on the market have increased steadily. In 2021, sub-sales grew by over doubling to 568 and continued to rise in both 2022-2023.

Researchers attribute the rising trend in subsales of houses since 2020 to the delays, disruptions, and the pandemic that affected the construction industries. This caused some residential project to take a longer time and has had a lasting impact.

A longer sub-sale window is available to investors because of the delayed completions of projects. Also, the increasing prices make sub-sales a more profitable option. URA’s index for the price of private residential properties rose by 32.5% in the period between Q1 2021 and Q4 2023.

The potential higher profit would (therefore), incentivise investors to dispose of their properties.

Some real estate agents might also encourage home owners to “recycle capital” by selling it at a lower price.

After brokering a sale of a recently launched private residential property, some agents keep the contact details and may reach out three years later to encourage buyers to sell their unit and buy a second uncompleted one.

Agents may be tempted to sell their properties at a lower price because they will receive a larger commission from the developer than the standard 1 percent.

The buyers of unfinished property are also on a schedule for progressive payments. The property’s total price is only due before the construction project is finished. Homeowners may see a higher return if they follow this advice.

Moreover, in 2018, and 2019, there were a number of large residential projects that launched in OCR. In the past couple of years, there have been more sub-sales due to the availability of “affordable”, condo units for short-term, investors.

Researchers point out, however, that the current levels of sub-sales are nowhere near 2007’s peak and are unlikely to continue increasing in 2024.

The current market is very different to what it was in 2007.

19 Nassim Pricing is attractive and units are ready to move in now.

These cooling measures, for example the Additional Seller Stamp Duty, Seller Stamp Duty and Total debt Servicing Ratio, were not available in 2007. The measures were only implemented between 2009 and 2013. They were designed to limit market speculation as a result of the global economic crisis in 2008.

The impact of economic uncertainty, coupled with the current high rate environment, is likely to affect the private residential sector. Sub-sales in the residential market are likely to drop this year.