ANALYSIS: The impact of sub-sales on profitable transactions
By Elizabeth Choong
/ EdgeProp Singapore |
The Florence Residences has the most number of sub-sale transactions this year. (Photo: Samuel Isaac Chua/EdgeProp Singapore)
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SINGAPORE (EDGEPROP) – The number of sub-sale transactions for condos has been rising, from 495 transactions in 2021 to 696 in 2022 and 1,230 last year. At the time of writing, there have been 1,068 sub-sale transactions this year. Despite this recent increase, the number of sub-sale transactions remains significantly lower than the record-high of 4,854 transactions in 2007 (see Chart 1).
The average price for sub-sale transactions is also on an upward trend, increasing by 19.3% from $1,704 psf in 2021 to $2,033 psf this year. Notably, this year marks the first time the average sub-sale price has crossed the $2,000 psf threshold.
Source: EdgeProp Market Trends (as at 15 November 2024)
What is sub-sale?
A sale transaction is considered a sub-sale if it occurs before the development receives its certificate of statutory completion (CSC). In a sub-sale, neither the seller nor the buyer is the developer of the property. In contrast, a transaction is classified as a new sale if the seller is the developer.
The holding period for owners who sell their properties via a sub-sale tends to be short. As a result, such transactions were deemed speculative by the government, which introduced Seller’s Stamp Duty (SSD) in 2010 to curb speculation.
Sellers of residential properties purchased on or after 11 March 2017 are required to pay SSD if they sell the property within three years of purchase. The SSD rate is 12% of the selling price or market value (whichever is higher) if the holding period is one year or less. The rate decreases to 8% and 4% for holding periods of two years and three years, respectively. No SSD is payable if the property is sold after being held by the seller for more than three years.
Representing higher percentage of total sales
In 2007, sub-sales accounted for 15% of total sales, but the peak occurred in 2008 when sub-sales represented 16% of total sales (see Chart 2). The Singapore residential market was very active in 2007, with a total of 32,884 sale transactions. The record-high number of sub-sales in 2007 was likely driven by speculative investments.
In contrast, the record-high percentage of sub-sales in 2008 may have been due to buyers selling their properties because of financial difficulties caused by the global financial crisis and the collapse of Lehman Brothers. That year, the total sales volume dropped significantly to 11,085 transactions.
Source: EdgeProp Market Trends (as at 15 November 2024)
Sub-sales have recently accounted for a larger percentage of the total sales volume for condos. From 2020 to 2022, sub-sales have represented less than 5% of the total sales volume for condos. However, this percentage increased to 7% last year and this year.
Possible reasons for the increase
There are several reasons for the recent increase in sub-sales volume. During the pandemic, disruptions to the supply chain and travel restrictions caused shortages of construction materials and manpower, leading to delays in the construction of many condo developments. As a result, developments took longer to obtain their CSC, extending the timeframe for sub-sale transactions to occur.
Due to these construction delays, the number of completed condo units dropped significantly during the pandemic, with fewer than 7,000 units completed per year in 2020 and 2021. The number rose to 9,526 units in 2022 and surged to 19,968 units last year. In the first months of this year, 5,376 condo units have been completed (see Chart 3).
The construction delays also result in a longer wait for buyers of brand-new condos to collect the keys to their units. Consequently, buyers who want a brand-new unit without the long wait tend to seek uncompleted developments nearing completion. Such transactions are considered sub-sales if the unit was purchased from another owner.
Another reason could be the widening price difference between the average prices of new sales and sub-sales. At the time of writing, the average price for sub-sales was $2,023 psf, or $392 psf lower than the average price of $2,415 psf for new sales (see Chart 4). The price difference between the two types of sales was $289 psf in 2020 and just $46 psf in 2014. The comparatively lower price of sub-sales allows buyers to purchase an almost brand-new unit at a lower price.
This wider price difference could be due to a stronger price growth for new sales compared to sub-sales. Since 2014, the average price for new sales has surged by 66.6%, compared to a 44.1% increase for sub-sales.
Source: EdgeProp Market Trends (as at 18 November 2024)
The average price for sub-sales has also remained higher than the average resale price since 2018 (see Chart 5). This higher average price for sub-sales provides the first owner of a condo unit with an opportunity to earn greater profits by selling the unit via a sub-sale rather than a resale. The price difference between sub-sales and resales could be attributed to lease decay.
Source: EdgeProp Market Trends (as at 18 November 2024)
Lastly, the sub-sales could be a result of opportunistic selling. Buyers purchase the units with the intention of selling for a profit after holding the unit for at least three years to avoid paying SSD. Our analysis indicates that The Florence Residences, Parc Clematis and Affinity at Serangoon have the most number of sub-sales this year. The average holding period for the units in the three condos that were sold via a sub-sale range from 3.8 to 4.4 years.
Condos with most number of sub-sales
At the time of writing, more than 100 sub-sale transactions have occurred this year for The Florence Residences, Parc Clematis, and Affinity at Serangoon (see Table 1). Combined, sub-sales for these three condos account for 34.3% of the total sub-sale transactions for this year.
Notably, among the trio, The Florence Residences and Affinity at Serangoon are located in District 19 and are within a 2km radius of each other (see Map 1). Parc Clematis is also located in the suburbs but it is in District 5.
Source: EdgeProp LandLens (as at 14 November 2024)
Other similarities include the fact that all three condos obtained their temporary occupation permits (TOP) last year, and they are all large developments with at least 1,000 condo units. Additionally, the majority of their sub-sale transactions appear to be profitable, as there are no unprofitable transactions for The Florence Residences and Parc Clematis. Affinity at Serangoon has only one unprofitable transaction.
Affinity at Serangoon: only development with unprofitable transactions
Among the trio, Affinity at Serangoon is the only condo with any unprofitable transactions. The lone loss-making transaction involved a three-bedroom unit on the 14th storey. The 1,249-sq ft unit was purchased in June 2018 for $1,475 psf, which is lower than the condo’s average new sale price of $1,527 psf. The seller sold it in April 2022 for $1,450 psf, resulting in a loss of approximately $32,000. This could be because the transacted price was significantly lower than the average sub-sale price of $1,694 psf for Affinity at Serangoon that year (see Chart 6).
Source: EdgeProp Market Trends (as at 18 November 2024)
The most recent profitable transaction for Affinity at Serangoon occurred earlier this month and also involved a three-bedroom unit. The 850-sq ft unit was sold for $1,844 psf, which is significantly higher than the condo’s prevailing average resale price of $1,764 psf. The seller had purchased it in January 2020 for $1,521 psf, which was lower than the average new sale price of $1,560 psf that year. As a result, the seller made a profit of approximately $275,000.
The highest profit generated from the sale of a condo unit occurred in August. The transaction involved a three-bedroom unit measuring 1,259 sq ft. The seller purchased it in September 2020 for $1,371 psf and sold it for $1,810 psf, resulting in a profit of approximately $553,000. Like the seller of the most recent profitable unit, the seller of the unit with the record-high profit bought the unit at a lower-than-average new sale price and sold it at a higher-than-average sub-sale price.
The Florence Residences: most number of sub-sales
It is inevitable that comparisons will be made between The Florence Residences and Affinity at Serangoon, as both condos are in the same district and obtained their TOP in the same year. Both are also large developments with over 1,000 condo units.
However, The Florence Residences is arguably in a better location, as it is closer to an active MRT station. It is approximately 760m away from Kovan MRT Station (North-East Line), whereas there are no active MRT stations within a 1km radius of Affinity at Serangoon. The upcoming Serangoon North MRT Station (Cross Island Line) is approximately 690m away from Affinity at Serangoon, but it is expected to be completed in 2030.
There are also more primary schools within a 1km radius of The Florence Residences, namely Holy Innocents' Primary School, Montfort Junior School, and Xinmin Primary School. Only Rosyth School and Zhonghua Primary School are within a 1km radius of Affinity at Serangoon.
The better location could explain why The Florence Residences has more profitable transactions than Affinity at Serangoon. Furthermore, the highest profit for The Florence Residences is $728,000, significantly higher than that for Affinity at Serangoon ($553,000).
The unit that generated the highest profit for The Florence Residences is a four-bedroom unit measuring 1,270 sq ft. The third-storey unit was sold in August for $1,960 psf and was purchased in May 2020 for $1,387 psf. Unsurprisingly, the unit was sold at a price higher than this year’s average sub-sale price of $1,772 psf for the condo and was purchased at a price lower than the average new sale price of $1,542 psf in 2020 (see Chart 7).
Source: EdgeProp Market Trends (as at 18 November 2024)
It is also notable that the popularity of Affinity at Serangoon ($1,764 psf) and The Florence Residences ($1,772 psf) in the sub-sale market could be due to their average sub-sale prices, which are lower than that for leasehold condos in District 19 ($1,791 psf) (see Chart 8).
Source: EdgeProp Market Trends (as at 18 November 2024)
Parc Clematis: highest profit
Of the 465 units released for sale during its launch weekend, Parc Clematis achieved a take-up rate of 69.7%. This positive response could be attributed to the project’s location within the well-established and popular housing estate of Clementi.
There are numerous amenities within a 1km radius, including Nan Hua Primary School, Clementi Primary School, Pei Tong Primary School, Qifa Primary School, Clementi Bus Interchange, Ayer Rajah Expressway, The Clementi Mall, Grantral Mall @ Clementi, Ayer Rajah Market and Food Centre, Clementi Sports Centre, Swimming Complex and Stadium, and Clementi Avenue 3 Market and Hawker Centre (see Map 2).
Source: EdgeProp LandLens (as at 14 November 2024)
Additionally, the condo is located within a 1km radius of Clementi MRT Station and the upcoming West Coast MRT Station (Cross Island Line), which is slated for completion in 2032. Clementi MRT Station will also serve as an interchange station for the Cross Island Line.
It is also notable that there are no recent government land sale (GLS) sites within a 1km radius. Furthermore, there are no upcoming new or recent condo launches, so buyers have limited options if they intend to buy an almost new condo unit in the neighbourhood.
The limited options could explain why Parc Clematis achieved the highest profit of $728,000 among the three condos. The unit that generated the highest profit is a four-bedroom unit on the 13th storey. The 1,496-sq ft unit was purchased in September 2021 for $1,713 psf, which is higher than the average new sale price of $1,694 psf for the condo that year. However, the unit was sold earlier this month for $2,311 psf, which is significantly higher than the prevailing average sub-sale price of $2,071 psf for Parc Clematis (see Chart 9).
Source: EdgeProp Market Trends (as at 18 November 2024)
Looking ahead
It is unlikely that annual sub-sale volume will reach the peak of 4,854 transactions recorded in 2007 due to government regulations such as SSD. There was no SSD in 2007 because this stamp duty was introduced only in 2010. Despite the recent increase in sub-sale transactions, they still represent only a small fraction of total sales volume, so adjustments to SSD are unlikely to happen in the near future. However, the government may adjust SSD rates or the required holding period if sub-sales begin to represent a higher percentage of total sales volume.
Sub-sales are not expected to increase significantly because there are fewer construction delays and more condo completions. As a result, the available timeframe for potential sub-sales has shrunk. However, some opportunistic buying and selling by investors is unavoidable in a bullish market.
Lastly, the Federal Reserve recently cut its rates by another 25 basis points, which is expected to put more downward pressure on mortgage rates. The lower interest rates will ease the financial burden on buyers. As a result, fewer of them will be forced to sell their properties due to financial difficulties.
Check out the latest listings for The Florence Residences, Parc Clematis, Affinity At Serangoon, Condominium properties
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