Some ‘flippers’ took big hit in sub-sale deals

Source : Straits Times – 23 Sep 2009

They were caught out earlier this year when prices fell as awarding of projects’ TOP neared

PROPERTY speculators have been in the firing line of late, but the hefty losses some suffered earlier this year suggest they might be deserving of some sympathy.

A number seem to have been caught out when prices fell as the awarding of a project’s temporary occupation permit (TOP) neared.

Instead of flipping the property for a gain, some speculators were caught out and took a hit when they offloaded some of the popular sub-sale projects, according to Savills Singapore.

While the data showed that sub-sale deals typically rise in projects nearing completion, sellers may not always gain.

Take Casa Merah in Tanah Merah. There were 71 sub-sale deals done this year with 16 resulting in losses averaging $30,601. One seller suffered a loss of $142,790.

Most sellers made gains at Rivergate, which was completed in the first quarter of the year, but 10 suffered hefty losses. One ‘flipper’ took a massive hit of $985,000, with the average loser suffering red ink to the tune of $371,355.

At popular projects like The Sail @ Marina Bay, eight out of 19 sub-sale deals this year were done at an average loss of $949,343.

Regardless of market condition, prices may rise near completion time because people looking for immediate occupation will typically prefer to buy a brand-new home while tenants usually like to move into a new property, said Savills Residential director Phylicia Ang.

She added that this ‘TOP effect’ is more obvious in a rising market, and especially if the completed development turns out to be better than expected. But these factors did not apply earlier this year as the market was very weak, she said.

‘Some people were selling earlier this year because they panicked. No one knew how the market would turn out,’ said Cushman & Wakefield managing director Donald Han.

‘They wanted to sell before the project was completed so that they did not have to take up a loan.’

There was considerable fear around the market then – which coincided with the global meltdown in share markets – with speculators concerned that they would not be able to find loans to match the high prices they bought at during 2007, he said.

In the first quarter, high-end home prices were down 35 per cent from prices at the peak of the market early last year, while mid-tier and mass-market homes were down 25 per cent and 15 per cent respectively.

Buyers were looking at steep discounts with the result that some of the lowest prices seen recently were in the first three months of the year, said experts.

The market has moved up from those dark days, so sub-sale deals since then would have closed in positive territory.

It was the case with the new launches this year. Savills Singapore found that the sub-sale deals for the major and most popular projects launched this year nearly all closed at a profit.

The six sub-sale deals done at Alexis in Alexandra Road this year had average gains of $62,833.

Prices of most mass-market homes now are nearly hitting the peak seen in the first quarter of last year. The mid-tier market is about 10 to 12 per cent below that high point, while the high-end market is about 20 per cent away, said Mr Han.

‘Whoever comes into the market now would be looking into a medium-term window of two to three years,’ he said.

Those looking to flip within a year may have it tough, as the window of making a quick killing has closed because of the Government’s recent introduction of measures to cool the market, he added.