More private property owners selling at loss as resale, rental markets weaken

Seascape condomimium at Sentosa Cove, where one unit was sold for a loss of $5.2 million. At a transacted price of $5.8 million, the deal was the biggest loss-making one for private homes last year. Sellers sustaining large losses in property now ten
Seascape condomimium at Sentosa Cove, where one unit was sold for a loss of $5.2 million. At a transacted price of $5.8 million, the deal was the biggest loss-making one for private homes last year. Sellers sustaining large losses in property now tend to be foreign investors and property funds, says Ms Chia of TSMP Law Corporation. ST FILE PHOTO

Given likely higher interest rates and rising private housing supply, property investor Mr Lim, 44, is looking to exit the market.

He bought a two-bedroom unit in Choa Chu Kang for $915,000 about four years ago and it was completed a year ago. Mr Lim is not renting out the unit, but stays there sometimes.

"Based on transacted prices, it's probably break-even for me and if I want to offload it quickly, it will probably be a slight loss - that's factoring in legal fees, stamp duty, the interest I've beenpaying for a few years.

"But as I'm not sure where the market is going, it is probably better to sell, take a small hit and reinvest further down the road."

Mr Lim is not alone. More private home owners are selling at a loss as the sale and leasing markets weaken. About 400 secondary market sales lost money last year, up from about 100 each in 2013 and 2014, according to SRX Property.

Last year's figure included about 31 non-landed private homes which each sustained losses of more than $1 million when sold, up from seven in 2014 and 11 in 2013.

Sellers sustaining large losses now tend to be foreign investors and property funds, said Ms Jennifer Chia, executive director and head of corporate real estate at TSMP Law Corporation.

These investors bought during the property boom of 2007 and 2008 when market rents were high and mortgage loans were cheaper; they are now cashing out to cut losses and re-directing their cash to more profitable investments overseas.

For example, rents at Ardmore Park condominium, where units are mostly 2,885 sq ft four-bedders, have fallen from between $18,000 and $20,000 in 2007 to between $15,000 and $16,000 in 2011 and between $13,000 and $14,000 now.

Some funds which bought during the property boom of 2007 and 2008 are coming to the end of their fund life, which typically spans about five to eight years, she added.

An agent who specialises in prime district properties noted that many of the foreign investors are not desperate sellers. They will sell at below market prices, but these must be reasonable.

They also have investment alternatives elsewhere. For example, an Indonesian who bought an Ardmore II unit at $6.2 million in 2007 is now trying to sell at $5.4 million as he wishes to take the money back to Indonesia for development opportunities. "He may be taking a 13 per cent loss now, but he could be getting gains of 30 to 80 per cent over two years with the other venture," the agent said.

The losses may be mitigated by foreign exchange, said Mr Desmond Sim, CBRE head of research for Singapore and South- east Asia.

Other Singaporean homeowners may also be cashing out now, even at a loss, to buy blue-chip stocks.

Some loss-making deals also include mortgagee sales where the owners have lost their jobs, said Dr Lee Nai Jia, DTZ regional head (SEA) of research. Ms Alice Tan, Knight Frank Singapore research head, said buyers picking up these properties tend to be end-users.

If market conditions do not improve, more of these transactions are likely, experts said.

A version of this article appeared in the print edition of The Straits Times on March 05, 2016, with the headline 'Safe as houses? Not quite for some'. Print Edition | Subscribe