Subsales in the private home market continue to grow in 2023

Singapore’s private property market saw a further increase in sub-sale volume in 2023. With 1,294 transactions that year, it was the highest since 2013. This is a jump of 69.2 percentage points from previous years.

This is the 2nd consecutive year of strong growth for the sub-sales, which are typically seen as an indication of speculative purchase behaviour. Volumes were at a decade’s high in 2022. 765 transactions represented a 34.7 percent increase from 2021.

Even so, current sub-sale rates are still only a fraction compared to the 4,863 transactions recorded at the peak of the 2007 housing market. This increase is most likely due to recent increases in home value.

Sub-sales occur when a purchaser resells property purchased directly from a developer between three and four years prior to the project’s completion.

Urban Redevelopment Authority (URA), according to its figures, showed that subsales accounted 9.5 per cent of total deals in the 4th quarter of 2023. For the first since 2011, this figure has surpassed 9 per cent. The sub-sales rate is at its highest level since the first quarter of 2010, when 9.6 % of all transactions were sub-sales.

Over the past 10 years, sub-sales ranged between 0.3% and 3.5% of all transactions.

The Business Times analysed the data of a local real estate portal to find that nearly all subsale transactions in 2023’s second half were profitable. In September, only one sub-sale transaction made a profit of S$38,000. It was a freehold apartment Rezi 24 at District 14, a unit measuring 1,335 square feet (sqft).

In Q4 2020, profits for all transactions ranged between S$10,000 to S$864,000. The median capital gains for sub-sale deals was S$243.500. It is about 22.3% the price of the initial transaction.

The figures quoted in this article are exclusive of transaction costs including taxes, stamp duties, legal fees, and other fees.

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$3.18million, netting the seller S$864,000. He had held the property for over 4.6 years.

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. After a holding period spanning 4.3 year, this deal brought the seller S$10,000 profit.

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 initial price) and a profit annualised of 4.9%.

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 the laggard with a S$238,700 median gain – only 9% of the initial purchase price – but a 2.4% annualised profit.

Singapore property arena analyst has pointed out to the public that properties located in the suburban OCR area typically generate the highest percentage gains due to the lower acquisition price.

For example, median prices for private homes within the CCR were S$6.16million. RCR (Rural Central Region) and OCR (Outer Core Region) properties were S$1.27m and S$1.12m respectively.

In the same study, property watcher found that sub-sales on 99-year-leasehold properties and freehold properties yielded similar profits. Although 99-year leaseholds are generally cheaper than freeholds, their profit margins as well as annualised capital gain were higher.

This is after more than 10 years of steadily declining sub-sale sales, the fourth consecutive year that these numbers have risen. In 2020, only 198 subsale transactions had been recorded.

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Since then, market volumes have steadily increased. Sub-sales more that doubled to 568 in 2021. They will rise further in 2020 and 2023.

Researchers attribute an upward trend in the sub-sales for homes since 2020 due to the disruptions of the construction industry caused by pandemic. Some residential projects took much longer to finish, and the impact is still felt today.

Due to the delays in the completion of projects, sub-sales will be more profitable due to rising prices. URA’s price index for residential private homes increased 32.5% from Q1 2020 to Q4 2023.

This higher potential profit will (thus) encourage more investors sell their properties.

Some agents may also encourage homeowners “recycled” their capital via a sub-sale.

Some agents will keep contact information for the buyer of a newly released private residential development and then follow up after about three years to try and encourage the person to sell the unit they bought and purchase a second 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.

For buyers waiting for unfinished properties, a payment plan is in place. This means the entire price will need to be paid only before the project’s completion. It may also result in a greater return on the investment for the homeowner.

Besides, in 2018 and 2019 there were several major residential projects launched within 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.

Researchers noted that despite the fact that current sub-sale prices are still far below their 2007 peaks, they are unlikely to increase 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 2009-2013 to stop market speculation in the wake of the 2008 global financial crisis.

Moreover, economic uncertainty and the current high interest-rate environment will likely weigh on the private housing market. The sub-sales of residential properties are expected to decline in the upcoming year.

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