Deal swoon in prime residential segment

By Feily Sofian and Esther Hoon / The Edge Property | July 8, 2016 12:10 PM SGT
The proportion of unprofitable deals in the high-end segment continued to climb. One in three sellers, or 33% of the segment, incurred losses in 2Q2016, up from 30% in 1Q2016. In the city fringe, however, the proportion declined from 16% in 1Q2016 to 13% in 2Q2016.
A majority of the unprofitable deals in the high-end segment were traced to units bought in 2007 and 2010. They were sold in 2Q2016 at an average loss of $1 million (24%) for units purchased in 2007, and $263,000 (10%) for those bought in 2010.
The proportion of unprofitable deals and their loss margins underscore deep value buying opportunities in the prime residential segment. A couple of them were sold through auctions.
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The top loss in 2Q2016, which amounted to $2.8 million, accrued to a 1,679 sq ft unit at Paterson Suites. The buyer, a Singapore citizen, picked up the unit at just $2,156 psf, or a 30% discount on the average 2007 price of $3,074 psf. The seller is believed to be an Indone sian family.
Such deals cannot be inferred from the URA price index, which puts today’s prices for high-end non-landed homes at 2% above 4Q2007 prices.
Besides the unit at Paterson Suites, a seller at Turquoise in Sentosa Cove also took a huge loss in May amounting to $2.5 million. The seller, a Singapore citizen, had bought the unit in 2007. The buyer, meanwhile, paid an attractive price of $1,521 psf for the 2,433 sq ft unit, which is on a par with, or just a tad higher than, several city-fringe projects.
Another buyer got a steal when he picked up a 2,282 sq ft unit in Orchard Scotts in June for just $1,468 psf. The seller, however, sustained a loss of $2.4 million, having purchased the unit in 2007 at $2,520 psf.
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One buyer got a steal when he picked up an Orchard Scotts unit at $1,468 psf. The seller sustained $2.4 million loss, having bought the unit at $2,520 psf
The list goes on. At Cuscaden Royale, two units changed hands in May at an average price of $1,771 psf. The units potentially belonged to the same seller as they were bought and resold on the same day. The transaction resulted in a total loss of $3.5 million to the seller(s), who purchased them in 2007 at an average price of $2,925 psf.
A seller at Helios Residences suffered a $1.7 million loss. He purchased the unit in 2007 at $3,378 psf and sold it in May at $2,094 psf.
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This study matched resale and sub-sale caveats as at June 28 for private non-landed homes with their previous transactions. Profits and losses were computed based on the difference in selling and purchase prices, taking into account the prevailing Seller’s Stamp Duty (SSD), but excluding other costs.
Impact on prices
Deals at rock-bottom prices appear to be a minority at this juncture, although they tend to be highlighted.
As a broad proxy, the median asking price on TheEdgeProperty.com is $2,645 psf for Paterson Suites, $2,082 psf for Turquoise, and $2,167 psf for Orchard Scotts.
A property search on TheEdgeProperty.com unearthed some fantastic buying opportunities, if the listings are accurate. The lowest asking price at Paterson Suites is listed at $2,323 psf for a 1,679 sq ft unit, which puts it at the bottom 5% of all transacted prices in the development.
A unit at Paterson Suites is listed on TheEdgeProperty.com at $2,323 psf, putting it at the bottom 5% of all transacted prices in the project
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Prime homes in Hong Kong and London went for US$4,645 and US$4,223 psf as at December 2015, according to The Wealth Report 2016 by property consultancy Knight Frank.
Notwithstanding this, the current market may be a better fit for owner occupiers or investors looking for defensive assets. The continued enforcement of cooling measures, the weak rental market and renewed concerns over Brexit mean that prices will be wobbling their way to recovery, even as URA’s flash estimate shows a 0.2% q-o-q increase in 2Q2016 for prices of high-end non-landed homes.
Bright spot in the city fringe
Meanwhile, the proportion of profitable deals in the city fringe rebounded for the first time since 3Q2013. That left us with about one in eight resale deals in the red in 2Q2016 (see chart on next page ).
The average holding period for the unprofitable deals in the city fringe was shorter than in the high-end segment, at 5.1 years. A majority of the units were purchased in 2011, with losses averaging $177,000 or 10%.
The biggest loss of $1.7 million accrued to a unit in Aalto in District 15. The seller had purchased it in 2011 for $2,333 psf and sold it last month for $1,637 psf.
Two of the three transactions in Aalto in 2Q2016 resulted in a loss. The one profitable deal accrued to a unit that was bought almost nine years ago. At the height of the property market, prices in the project breached $2,000 psf. This year’s transacted prices, however, have ranged from $1,505 to $ 1,681 psf.
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A seller at Aalto in district 15 sustained a $1.7 million loss as prices plunged from over $2,000 to around $1,600 psf. A unit at Aalto is listed on TheEdgeProperty.com at $1,506 psf
A unit in Reflections at Keppel Bay occupied the second spot in terms of loss quantum. The seller had purchased it at over $2,000 psf in 2012 and sold it for $1,500 psf in June, resulting in a loss of $1 million, after paying SSD of about $92,000.
In the mass market, 9% of secondary market transactions in 2Q2016 were unprofitable, up from 8% in 1Q2016. Like in the city fringe, a majority of the units were purchased in 2011. The average loss for these units, however, was significantly smaller, at $68,000 or 5%.
The biggest loss in the mass market was traced to a unit at Tanamera Crest. The seller had bought the unit at the height of the market in February 2013 for $1,078 psf. It was resold in April this year for just $751 psf, leading to a loss of $431,000 after a $36,200 SSD.
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Mass-market home prices are propped up by general affordability, especially with the continued enforcement of the property curbs, which are punitive for pricier properties. High-end and city-fringe homes, however, score on market fundamentals.