SINGAPORE: A S$4.3 million loss on the sale of a property would be a terrifying prospect for most people.
But that eye-watering amount is what the owner of a three-bedroom apartment at The Ritz-Carlton Residences Singapore Cairnhill saw disappear down the sink when the property was sold earlier this year.
The seller, a Chinese national who was a permanent resident here, had purchased the unit at S$3,815 per square foot (psf) in June 2013 and resold it at S$2,508 psf, a historical low. This was the most unprofitable deal for private non-landed homes in the first quarter of 2016.
And that loss-making sale was not unique. More owners of private property are selling units at a loss against the backdrop of a stagnating local economy, soft rental markets and sliding housing prices. A study by The Edge Property found that 14 per cent of sellers incurred losses in the first three months of 2016, up from 9 per cent in 2015 and 5 per cent in 2014.
Many of these owners are very likely being rocked by a double whammy – tenants are adjusting their expectations by asking for lower rentals and at the same time mortgages are increasing due to rising interest rates.
For the big-ticket transactions, however, the reasons could be entirely different. No rational seller of a multi-million dollar property would accept huge losses simply due to a challenging rental market or to cut their losses. Instead, they may simply need the proceeds to channel into their personal cash flow needs.
Nonetheless, it was the high-end segment which fared the worst in the first quarter of the year. Nearly a third of the transactions in the Core Central Region were in the red, up from 13 per cent in 2014 and 22 per cent in 2015. The losses averaged S$502,958.
Besides The Ritz Carlton Residences, another seller took in a huge loss of S$2.6 million. His property at Turquoise in Sentosa Cove was purchased in November 2007 at S$2,623 psf and was resold in January this year for S$1,400 psf.
The city fringe, or Rest of Central Region, has similarly witnessed a spike in the proportion of unprofitable transactions, from 5 per cent in 2014 to 8 per cent in 2015 and 16 per cent in the first quarter of 2016. The losses averaged S$232,648.
The biggest loss in the city fringe amounted to S$1.4 million. This was for a four-bedroom unit at Jardin which was purchased at S$2,028 psf in June 2010 and resold for S$1,232 psf. Incidentally, all four transactions at Jardin concluded in the first quarter of this year were unprofitable.
Besides The Ritz Carlton Residences, another seller took in a huge loss of S$2.6 million. His property at Turquoise in Sentosa Cove was purchased in November 2007 at S$2,623 psf and resold in January this year for S$1,400 psf.
In the mass market, or Outside Central Region, the biggest loss of S$677,600 was seen from the sale of a unit at Hillview Regency. The seller bought the property in August 2015 at S$1,263 psf and resold it in January this year for S$776 psf, incurring a 16 per cent Seller’s Stamp Duty of S$137,600.
The proportion of unprofitable transactions in the mass-market segment edged up from 4 per cent in 2015 to 7 per cent in the first 3 months of 2016, with losses averaging S$79,453.
PROFITS ALSO BEING PARED BUT OPPORTUNITIES REMAIN
While 86 per cent of transactions in the first quarter were still profitable, the average gains have also thinned, from S$443,533 in 2014 and S$381,472 in 2015 to S$326,992 in tandem with the overall downtrend in prices. Holding periods for these deals averaged 8.4 years.
The decline was observed across all segments. The biggest fall of 30 per cent was seen in the mass-market segment where the average gain has dipped from S$375,082 in 2014 to S$258,902 in the first three months of this year. In the high-end and city-fringe segments, average gains have fallen by just over 20 per cent over the same period.
The highest profit of S$3.3 million or 28 per cent, accrued to a 5,543 sq ft sky suite unit at St Regis Residences Singapore. The unit was purchased in February 2012 at S$2,111 psf and the previous seller had made a S$3.7 million loss. It was resold in February this year at S$2,706 psf, just after the expiry of his four-year SSD holding period.
The key question now is what will happen in the private market for the rest of this year. Looking at basic indicators – slower GDP growth, pressure on the job market and the soft rental market – the percentage of unprofitable deals is likely to continue to trend up.
For those who can afford it, this might be an ideal time to bottom-fish for high-end or city-fringe properties at attractive prices. Both The Ritz-Carlton Residences and Jardin units, which were sold at hefty losses, changed hands at or near historical low prices. At S$1,232 psf, the unit at Jardin was also a tad pricier than some mass-market properties. Investors looking for trophy deals should be on the constant lookout, as such deals can be snapped up quickly.
Property auctions can be a good place to start looking. Both The Ritz-Carlton Residences and Jardin units have previously surfaced at auctions, although they did not successfully go under the hammer. Auctions present opportunities for buyers to negotiate for a lower price if the property remains unsold.
Meanwhile, mass-market home prices could witness a steeper decline than other submarkets in view of the huge pipeline supply and stiff rental competition from HDB flats. These home owners may consider selling their properties now and rent, while waiting for the right opportunity. For those with extra cash, upgrading to the city-fringes or hunting for higher-end homes where there are signs that prices are bottoming could be viable options.
Note: The study matched resale and sub-sale caveats as at April 5, 2016 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 SSD rate, but excluding other costs.