Sub-sales in the private home market will continue to grow in 2023
Sub-sales in the past decade have ranged between 0.3% and 3.5% of total transactions. Mogul.sg analyzed the data of The Business Times for the local property site and found that almost all transactions in second half 2023 were profitable. In September, one deal resulted to a loss S$38,000. This was for a freehold apartment Rezi 24 at District 14, a unit measuring 1,335 square feet (sqft).
All deals generated profits in Q4 2023 ranging 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%.
The figures given in the article for profits on sub-sale transactions exclude all transaction costs, including taxes, duties and legal fees.
The median annualised gain for sellers was also 4.8 percent, based upon a holding of 4.2.
Affinity Serangoon has a 99-year freehold leasehold condo development that includes a 2,067-square-foot terrace house. The biggest deal in Q4 was resulting in hefty profits in 2023. The unit sold for S$3.18mil in October. After 4.6-years of holding the property, the seller made a profit of 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$1.85m. in October. This sale brought the seller S$10,000 profit after a period of 4.3.
With a growing market confidence, volume reaches its highest level in over a decade.
In 2023, the volume of sub-sales on Singapore’s private property market rose to its highest level since 2013, with 1,294 deals. This represents a 69.2 percentage increase over the previous year.
This is a second straight year with strong growth in the market for sub-sales. This is usually seen as an indication of speculative purchase behaviour. Volumes hit a decade long high in the year 2022. With 765 sales, this was up 34.7% on 2021.
Still, today’s levels are just a tiny fraction of 4,863 subsale agreements recorded in 2007, the peak year of the housing sector. It is possible that the recent increase in home values has contributed to the surge in sub-sales.
A sub-sale takes place when a buyer, who bought a home directly from the builder within the last three to four project years, sells it again.
Urban Redevelopment Authority’s (URA) figures showed that the sub-sales in the fourth quarterly of 2023 accounted for 9.5% of the total deals, a level not seen since 2011. This is also the highest number since Q1 of 2010, when subsales accounted 9.6 percent for all transactions.
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 an average annualised profit rate of 4.9%.
After brokering the purchase of a newly released private residential property, some agents keep contact information for the buyer. They may then follow up after three years to try and encourage the buyer to sell their unit and buy a new unfinished one.
Agents may be tempted to sell their properties at a lower price because the developer pays a commission that is higher than 1 percent.
The schedule will include a gradual payment schedule for buyers waiting for unfinished projects. The total cost of the unfinished property can only be paid when the project is finished. Homeowners may see a higher return if they follow this advice.
In 2018, and 2019, there were also several large residential construction projects that began in the OCR. In the last two decades, there have been more sub-sales due to the availability of “affordable”, condo units for short-term, investors.
Mak pointed out, however, that current subsale levels were nowhere near the 2007 highs and are unlikely to continue to increase in 2024.
The current market is very different to what it was in 2007.
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 introduced from 2009 to 2013 in order to curb the market speculation that followed the global economic crisis of 2008.
In addition, uncertainty about the economy and the current environment of high interest rates will likely weigh on the private housing market. Sub-sales in the residential market are likely to drop this year.
Rest of Central Region – or the city edge – saw a gain of S$244,000 (or 20,4 percent of the initial purchase price) with an annualised return of 4,3 percent.
Core Central Region (CCR), the most important region, was the least successful with a median increase of S$238,700. That’s just 9% of the original purchase price. It also had an annualised profit rate of only 2.4%.
Nicholas Mak is the chief research officer of Mogul.sg. He pointed out that the OCR suburbs are the ones with the most capital gains. This is because their properties tend to have lower acquisition costs than in other areas.
For example, median prices for private homes within the CCR were S$6.16million. RCR properties and OCR homes were respectively S$1.27mil and S$1.12mil.
The study also found no difference in profit between sub-sales for freehold and 99-year-leasehold properties. Mak says 99-year-leasehold properties have higher profit margins, and their annualised capital gain is greater than freehold properties. This is because the acquisition cost of these properties are generally lower.
Continued growth
Mak stated that this year marks the fourth consecutive time sub-sale sales have risen after more then a decade of decline. In 2020, only 198 sales were made.
Since then the market is experiencing a steady increase of volumes. In 2021, sub-sales increased by over doubling to 568 and continued to rise in 2022 & 2023.
Mak attributes the rising trend in sub-sales for homes since 2020 due to the delays and disruptions brought about by the pandemic. According to him, this resulted in many residential projects taking much longer to complete.
A longer sub-sale window is available to investors because projects are delayed. Moreover, the increasing prices make sub-sales profitable. URA’s index for the price of private residential properties rose by 32.5% in the period between Q12020 to Q42023.
The potential for higher profit will (therefore), motivate more investors in selling their properties, he said.
Some agents may also encourage homeowners recycle their capital via a secondary sale.
