In 2023, the sub-sales of private homes will continue to rise.
As market confidence increases, volumes reach their highest levels in 10 years with 1,294 transactions
The number of SUB-SALE transactions in Singapore’s housing market increased again in 2023, reaching their highest level since 2013. With 1,294 transactions in 2023, this represents a 69.2 percent increase from the previous year.
It is the second consecutive year that the sub-sales sector has seen strong growth. This market is often used as a proxy to measure speculative purchasing behaviour. In 2022, volumes reached a decade high with 765 transactions. This was up 34.7% from 2021.
The current sub-sale levels are still a fraction of what was recorded at the peak of the housing market in 2007. The recent rise in home prices is probably the reason for the increase in sub-sales.
Sub-sales are recorded when the buyer sells the property they bought from the developer within three to four year before the completion of the project.
Urban Redevelopment Authority figures show that in the fourth quarter 2023, sub-sales represented 9.5 percent of all transactions. This is the highest level since Q1 2010, when 9.6 percent of all transactions were sub-sales. It is the highest since Q1 2010 when sub-sales accounted for 9.6 percent of all transactions.
Sub-sales have generally ranged from 0.3 to 3.5 percent of all transactions over the last decade.
Local property portal Mogul.sg analysed data for The Business Times and found that nearly all sub-sale deals recorded in the second quarter of 2023 were profitable. Only one transaction in September resulted in a loss. It was for a 1,335 square foot (sq ft), freehold apartment Rezi 24 located in District 14.
All deals in Q4 2023 made profit ranging between S$10,000 and S$864,000. The median capital gain of a sub-sale was S$243.500. This is around 22.3% of the original purchase price.
Profit figures for sub-sale deals in this article do not include transaction costs such as taxes and stamp duties.
Based on a holding time of 4.2 year, sellers also experienced a median capital gain annualised of 4.8%.
A 2,067 sq ft apartment in Affinity, a 99-year leasehold development in Serangoon, was the deal that generated the largest profit in Q4 of 2023. The property was sold for S$3.18m in October. This earned the seller S$864,000, after 4.6 years of ownership.
The deal with the lowest profit was a 657 sq. ft. unit at the Sky Everton condominium in District 2 that was sold in October for S$1.85million. After 4.3 years, the seller made only S$10,000.
Sub-sales outside the Central Region (OCR), with a median capital gains of S$243,000, or around 23 percent of the original purchase price, and a profit of 4,9% annually.
The city fringe or Rest of Central Region, which is the area surrounding the central business district of Singapore, saw the highest median gains of S$244,000 (20.4% of the original price) and a profit of 4.3% annually.
The prime Core Central Region (CCR), with its median gain of S$238,700, or just 9 percent of the original transaction price, and an annualised return of 2.4% was last.
Nicholas Mak, Chief Research Officer at Mogul.sg pointed out that properties located in the suburbs of OCR generated the largest capital gains, in percentage terms, because the purchase price was lower.
The median price of a private home in the CCR is S$6.16million. For RCR and OCR, the median price was S$1.27million and S$1.12million, respectively.
In addition, the study found that sub-sales of 99-year leasehold and freehold properties yielded similar profits. Mak stated that 99-year leasehold property’s profit margins and capital gains are higher than those of freehold properties because their purchase price is usually lower.
Stable growth
Mak noted that this is the fourth year in a row where sub-sale transactions have increased after a steady decline of more than 10 years. This is also after a low point in 2020 when only 198 sub-sale deals were recorded.
Since then, there has been a steady rise in the volume of sub-sales, which more than doubled in 2021, to 568 transactions, and increased further in 2022, and 2023.
Mak attributes the rise in sub-sales in homes since 2020 to the delays and disruptions caused by the pandemic in the construction industry. He said that this caused some residential projects to take a lot longer to finish, which has a lasting effect even today.
Due to the delay in completing projects, investors have a larger window of opportunity for subsales. The rising prices will also make subsales more lucrative. URA’s private residential home price index rose 32,5% between Q1 2020 and the Q4 2023.
He said that the higher profit potential would (thus) encourage more investors to sell their property.
Some real estate agents encourage their clients to recycle capital through a subsale.
Some agents, for example, may retain the contact information of the buyer after facilitating the sale of an unfinished private residential project. They then reach out to them after three or four years to encourage the seller to sell the first unit.
The commission paid by developers to agents is often higher than the 1 percent they get from a typical resale transaction.
He said that buyers who wait for unfinished properties will also have a payment plan. The full amount of the property will be due only when the project is complete. This may give the homeowner an increased return on their investment.
In addition, several large residential developments were launched in the OCR between 2018 and 2019. He said that many “affordable condo units” were available for short-term investors. This led to a rise in sub-sales over the last two years.
Mak emphasized that the current level of sub-sales is nowhere near its peak in 2007 and unlikely to grow in 2024.
Market conditions are vastly different today from 2007.
In 2007, cooling measures like the Additional Buyer’s and Seller’s stamp duties, as well as the Total Debt Service Ratio weren’t in place. These measures were introduced only between 2009 and 2013, to reduce market speculation following the global financial crash of 2008.
The private residential market is also likely to be affected by the economic uncertainty and high interest rate environment. Sub-sales will likely decrease in the next year.
