Time to use those "flippers" for Snorkelling now...

The Sunday Times yesterday has reported that sub-sales of non-landed homes fell to a three-year low last year, with the proportion at 14% of total non-landed sales, said the latest report from property consultancy DTZ. The figure is below the 16% in 2008 and 15% in 2007, but much higher than the 2 – 11% registered between 1998 – 2006.

A sub-sale is one where buyers buy a new apartment, then resells it before it is built. These deals are usually used as an indicator of speculative activities in the property market.

There were some concerns about the rise in speculative buying in the middle of last year when prices were rising. In mid-September, the Government announced cooling measures which appeared to have tempered speculative interest. And new measures announced last Friday could further dampen such interest.

The Government said it would levy a stamp duty of about 3% on sellers of private homes if they were to sell the homes within a year of purchase on or after Feb 20th this year. It also lowered the loan-to-value limit to 80% for all housing loans provided by financial institutions, from 90% previously.

The Government has introduced these new measures to “temper sentiments and pre-empt a property bubble from forming”. And the moves come despite the comparatively lower speculative activity now.

DTZ noted that the median sub-sale price of non-landed homes rose by 3.8% to $1090psf in the 4th quarter of last year, while the median sub-sales prices rose by a hefty 24% in the whole of last year.

In the last three months of last year, Casa Merah in Tanah Merah saw the highest number of sub-sale transactions, followed by Ferraria Park in Changi. Median sub-sale prices at Casa Merah rose to $800psf in the 4th quarter, up from $770psf in the 3rd quarter and $671psf at the end of 2008. Both projects were granted Temporary Occupation Permits (TOP) in the 3rd quarter of last year.

Newly completed projects or those nearing completion usually attract a higher level of sub-sales as the new buyer can move in or rent it out quickly.

As far as 2010 is concern, sentiments are mixed amongst property experts on the trend for sub-sales. Some feel that sub-sales as a proportion of total home sales may rise as many projects will be completed this year. Others think that with the new “cooling” measures, sub-sale numbers may hold steady this year. But most generally do not expect sub-sales to rise significantly in 2010. This is because mass market prices may not rise substantially this year, so there may not be many gains to be made in the sub-sale market for the majority who have bought mass market properties last year.

However, high-end prices are expected to rise more than mass market prices this year, but runaway prices like those seen in 2007 are unlikely. And for those who intend to flip their properties, they can only do so when the market is rising very fast. Although the new measures are unlikely to scare away all the speculators, these will make them think very carefully about flipping as the Government could introduce more measures if needed, like capital gain tax, for example.

Reading between the lines, the wife and I have come to this conclusion: if we have some spare cash in hand (a big IF), the high-end market is where we should put our money in terms of property investments in 2010. But this is only if we can afford at least the 20% initial capital outlay and have the sustaining power to hold on to the property for a year. And in between this period, we have to pray real hard that the property market will remain buoyant so that we can have the option of selling our investment property for a profit once the year is up.

Should we decide to sell the property within the 1-year time bar, a decent size (say, 1200sqft) high-end property will easily costs us $2.64 million (at a conservative $2200psf) these days. Even with a gross profit of $300K, this may only give us a “nett” profit of about $100K after all deductions (i.e. stamp duties, agent’s commission, penalty on early redemption of housing loan etc). And to even get $300K gross, we will need the property price to appreciate by $250psf. Hard-earn money indeed!

Projects With the Most Sub-sales