Published 6 June 2011
The Business Times
By Kalpana Rashiwala
Average holding period of Q1 subsales rises, so does average gain from profitable deals
It pays not to flip properties too frequently, according to a study of subsale transactions by Savills Singapore.
The average holding period of subsales in the first three months of 2011 increased to its longest in at least three years, while the average gain from profitable subsale deals in the quarter was also at its highest since Q3 2008.
Savills’ study, which traced caveat matches to work out holding periods and gains or losses from subsales since Q1 2008, revealed that the average holding period for subsale transactions in Q1 2011 was 2.31 years.
This was longer than the 2.07 to 2.23 years average holding period for subsales in various quarters of last year and the longest since Q1 2008, when the average holding period for subsale deals was 1.64 years.
Some 97.4 per cent of matched subsales in Q1 2011 were profitable and, of these, the average gain per profitable subsale deal climbed to $315,043, surpassing the $283,498 to $289,004 for Q1-Q4 last year and the highest figure for any quarter since Q3 2008.
Steven Ming, executive director of investment sales at Savills Singapore, said: ‘The bigger average gain from profitable subsale deals is in sync with the upbeat market sentiment, which has seen prices of non-landed private homes rebounding strongly from the trough in 2009 and even surpassing its previous peak in 2008.’
‘The longer holding period for subsales transacted in Q1 2011 indicates that short-term speculation was stifled by the government’s various cooling measures announced since February 2010, particularly the stringent seller’s stamp duty introduced on Jan 13, 2011,’ he added.
Indeed, there were no instances of units bought in Q1 this year and flipped within the same period.
‘These results support (the view) that real estate should be a mid- to long-term investment rather than short-term speculation,’ concludes Mr Ming.
The most profitable subsale in Q1 2011 yielded a profit of $3.44 million; it involved a ground-floor unit at Nassim Park Residences that was previously bought for around $12.1 million from the developer in June 2008 and sold in March 2011 for $15.56 million. The biggest subsale loss, of $723,200, was for an apartment at The Orchard Residences.
Subsales, often used as a proxy of speculative activity, refer to secondary-market deals in projects that have yet to receive a Certificate of Statutory Completion and where property titles for units sold have yet to be transferred to buyers.
‘Transaction volume in the subsale market is expected to moderate over the next 24 months and the average holding period (lengthen), following the imposition of steep seller’s stamp duty (SSD), which compels any real estate investor to think mid- to longer-term to ride out the four-year SSD period to reduce costs,’ said Mr Ming.
Savills’ analysis showed that the average subsale gain for profitable deals was highest at $445,313 in Q1 2008 – during the heyday of the previous property boom when anecdotal evidence of people flipping properties within a short period for handsome returns was not uncommon. Back then, 98.2 per cent of all subsales made money and the average holding period for subsale deals was just 1.64 years.
Then came Lehman’s collapse and during the low point of the property market in Q1 2009, only 67.5 per cent of subsales were in the black while their average gain sank to $105,663. From that point, the proportion of profitable subsales quickly began to recover, reaching 90.7 per cent in Q3 2009, 97.5 per cent in Q4 2010 and 97.4 per cent in Q1 2011.
Savills examined URA Realis caveats data for subsale deals and tried to find previous caveat records for the same units; where it found matches, it worked out the holding period for the subsales and the profit or loss. The latter was calculated as the difference between sale and purchase prices, without taking into account agent fees, stamp duties and other expenses.
For instance, of the total 584 caveats for subsales of private condos or apartments in Q1 2011, Savills found previous caveat records for 506 units, of which 493 (or 97.4 per cent) made gains and 13 made losses.
The projects with the most subsale caveat matches in Q1 2011 were Livia in Pasir Ris and Double Bay Residences in Simei – with 24 and 22 deals respectively, all profitable.
Savills said subsale interest in these two projects was probably fuelled by recent launches in the respective locations such as NV Residences and My Manhattan, given that the average price in the subsale market is relatively lower than that for new launches.
As for 2010, the projects with most subsale matches were The Parc Condominium in West Coast (150 units), One Amber (132), Caspian in the Jurong Lake area (93), Marina Bay Residences (75) and Sky@Eleven (63).
Some of these projects were completed last year, and it is often around this time that a flurry of subsale activity occurs as projects then have added appeal to buyers seeking properties that they can move into or rent out soon.
But Savills noted that even projects which are slated for completion around 2013 such as Caspian and Kovan Residences were active in the subsale market last year.
‘Matched results showed that most units in these mass-market projects made gains through subsales, riding on the strong price growth in the mass-market segment,’ Savills observed.
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