Secondary market for private homes heading for doldrums

 February 3, 2012 

 

The secondary market for private homes is shrinking. Of that, there is no doubt. The trend has been clear since the second half of 2010, but what is unnerving is the rate at which demand is shrinking.

Official figures show that the number of resale and sub-sale deals have fallen by more than a quarter last year compared to 2010. Their market share of total sales has also fallen to about 57 per cent from 61 per cent in 2010.

Many property watchers have pointed to the revised seller’s stamp duty (SSD) imposed in January last year as the primary cause of the decline. They say it may have channelled more purchases towards units offered at project launches. Likewise, they say, the situation is going to get worse following the introduction of the additional buyer’s stamp duty (ABSD) in December last year.

With the ABSD, foreigners have to pay a duty of 10 per cent on top of the existing buyer’s stamp duty of about 3 per cent. Permanent residents who buy a second and subsequent residential property will pay 3 per cent more in stamp duty. Singaporeans who already have two residential properties will have to pay the extra 3 per cent on their third and subsequent home purchases.

With respect to the SSD, those buying a private home on or after Jan 14 last year have to pay a duty of 16 per cent, 12 per cent, 8 per cent and 4 per cent if they sell the property within the first, second, third and fourth year of purchase, respectively.

Analysts say the majority of investors prefer to buy uncompleted properties at project launches as they can minimise their capital exposure with progress payments. Also, by the time the property is completed in about three to four years, they would be hit only by a relatively small 4 per cent SSD, if at all.

Yet others say the higher number of project launches and wider range of properties offered may have diverted buyers’ attention away from the secondary market.

Both are valid arguments.

But most investors have a preference for either uncompleted or completed properties. Only a small proportion invests in both.

Also, the sales at project launches did not show any significant increase. Rather, sales in the primary market have held firm while those in the secondary market have plunged.

So, if not the revised SSD, what could have caused the slump?

While we may disagree on the extent, most of us would agree that the majority of buyers at project launches today are predominantly investors. The majority of upgraders or owner-occupiers would have been priced out of the primary market by now.

If they are still looking to buy private homes, they would most probably be viewing the completed ones. However, the falling sales seem to suggest that this group of buyers may also be fast disappearing from the secondary market.

Besides the imposition of the SSD, what else was new last year that could have triggered the decline in sales?

Last year was the first full year that executive condominiums (ECs) made their presence felt again in the non-HDB housing market. There were more than 2.7 times the number of ECs sold last year than in 2010.

For the first time in a very long time, a third alternative had emerged for upgraders and owner occupiers – apart from just choosing between units offered at project launches and those in the secondary market. If we include ECs in the analysis, it is obvious where the demand has shifted to.

The raising of the monthly income ceiling to purchase new ECs from S$10,000 to S$12,000 on Aug 15 last year may have accelerated the swing in demand to ECs.

The recent announcement that the number of EC sites to be sold in the first half of this year would be raised to six, with five on the Government’s Confirmed List, also does not bode well for the secondary market for private homes.

Sites expected to yield 3,500 EC units will be made available in 1H2012, including five on the Confirmed List that will yield 3,000 EC units. This Confirmed List quantum is comparable to the 3,000 EC units from five sites sold for the whole of last year.

Some may question the sharp increase in supply of ECs and ask whether there is enough demand to sustain sales. My own feeling is that with this swing in demand, there will be more than enough demand to absorb the increased supply.

I fear investors may find it increasingly difficult to dispose of their completed properties from this year onwards unless prices at launches resume their climb, which may alter the dynamics between the different markets yet again.

But what are the chances of this happening?

By Colin Tan – of research and consultancy at Chesterton Suntec International.