$64 mil went down the sink in 3Q as home sellers burnt their fingers

By Feily Sofian & Esther Hoon

/ The Edge Property |

October 7, 2016 10:50 AM SGT

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Buying a home is partly an emotional decision. We take pride in our homes, not so much in our portfolio of stocks and bonds. Acting on emotion, however, can be a very costly mistake when it comes to purchasing a home. Paying top dollar for that sea view or being too gung-ho about the prospect of a property may leave homebuyers with regrets in the future.

A total of $64 million went down the sink in 3Q2016, the second-highest quarterly loss in at least five years, as 247 condo sellers incurred losses (Chart 1). The final tally could be higher as the full data for 3Q will only be available by end-October. While the ailing property market has been attributed for the losses, some sellers should share the blame for paying toppish prices for their property.

Of the $64 million wealth loss, $47 million came from the Core Central Region, also known as the high-end segment. The biggest loss in CCR in 3Q amounted to $3.1 million. It accrued to a 3,897 sq ft unit at St Regis Residences Singapore, which changed hands at $2,284 psf in July. Of the 233 caveats lodged for St Regis units so far, only 13% crossed $3,000 psf, including the $3,089 psf that the seller paid to the developer in 2007.

Last year, a penthouse at St Regis Residences made headlines when the seller, a Japanese billionaire, incurred a $15.8 million loss. He had forked out $28 million for the unit in a sub-sale in 2007, or at a record price of $4,653 psf. Meanwhile, the previous owner raked in a whopping profit of $12.8 million.

Another unit at St Regis Residences Singapore was sold at a hefty loss

One in three sellers in CCR, or 33%, incurred losses in 3Q, up from 31% in the past two quarters and 21% in the same period last year. Their losses averaged $457,000 and they held the property for an average of seven years.

Separately, the top loss in the Rest of Central Region (RCR) in 3Q came from a 4,273 sq ft unit at The Seafront on Meyer, which amounted to $1.7 million. The seller had purchased the unit at $9.3 million, or close to $2,200 psf in 2007, which would afford him a unit in high-end developments then, including Four Seasons Park, Orange Grove Residences and Scotts Highpark. The property is a sea-facing unit on a high floor. However, it was resold at almost 20% below the purchase price, or at $1,778 psf, in August.

Meanwhile, the most unprofitable deal in Outside Central Region (OCR) in 3Q amounted to $406,400. It was traced to a 1,173 sq ft unit at Waterfront Key on Bedok Reservoir Road. This exemplifies another case in which the seller had paid toppish prices, this time at $1,193 psf in a sub-sale in 2013. His generous offer resulted in a profit of more than half a million for the previous owner.

The proportion of deals in the red also trended up in RCR and OCR. In RCR, 15% of sellers booked in losses in 3Q, up from 13% in 2Q and 11% in the same period last year. Losses averaged $184,000 and the properties were held for five years on average.

In OCR, 12% of sellers incurred losses in 3Q, up from 10% in 2Q. Losses averaged $80,000 with a holding period of five years. Islandwide, the proportion of unprofitable deals stood at 17% in 3Q (Chart 2).

Still a bargain?

High-end condo prices are back on their downward trajectory, going by official data, after showing signs of bottoming-out in 1H2016. Condo prices in CCR fell 1.8% q-o-q in 3Q, according to a flash estimate by URA, reversing the 0.3% gains in 1Q and 2Q. In RCR and OCR, prices fell 1.3% and 1.2% in 3Q respectively. Islandwide, condo prices were down 1.4% in 3Q, after a modest 0.1% decline in 2Q.

The steeper price decline brings back questions about whether aspiring homebuyers should wait for prices to drop further. Yet, prices for some value deals have arguably hit a very attractive level, at least in the highend segment. The $2,284 psf fetched in the $3 million loss-making deal at St Regis, for example, was in the bottom 25% of all 21 transactions involving 3,897 sq ft units in the development historically. Only three units were transacted at a lower price — two at $2,002 psf in 2009 and 2015, and one at $2,200 psf in 2015.

Meanwhile, there is only one listing from three major property listing portals that is offering the same asking price of $2,284 psf. The next lowest price for a 3,897 sq ft unit is listed at $2,438 psf, or 7% higher.

Another high-end home was sold at a loss of slightly over $3 million in 3Q. The 3,251 sq ft unit at Parkview Eclat was purchased directly from the developer in 2007 at $3,360 psf. While the purchase price was not toppish, the sale price of $2,399 psf was the lowest seen in the development historically.

Similarly, there is no single listing in the three major property listing portals that beat the $2,399 psf record-low price. The buyer, who is listed as a Singaporean, seems to have scored a significant bargain. The lowest asking price at Parkview Eclat was $2,553 psf, which was still 6% higher than the $2,399 psf. That asking price came from a listing on TheEdgeProperty.com for another 3,251 sq ft unit. Parkview Eclat is a 35-unit freehold condominium on Grange Road. Each floor comprises just two units — a 2,896 sq ft, three-bedroom unit and a 3,251 sq ft, four-bedroom unit. Each unit comes with an en suite 3.5m spa pool.

Against falling prices, transaction volume in 3Q has continued to pick up in CCR and RCR, by 52% and 56% y-o-y respectively. Purchases by Singaporeans jumped the most, by 71% y-o-y in CCR and 67% in RCR, as they are less affected by the additional buyer’s stamp duty. OCR bucked the trend with a fall in transaction volume y-o-y for the second consecutive quarter in 3Q.

This article appeared in The Edge Property Pullout, Issue 749 (Oct 10, 2016) of The Edge Singapore.

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