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Speculators exiting private home market

This story was first published in The Straits Times on Jan 27, 2014

SPECULATORS looking to make a quick buck from private homes have all but disappeared, spooked by the recent series of property cooling measures.

Sub-sale transactions fell to 147 units in the fourth quarter last year, the lowest level in eight years, data out last Friday from the Urban Redevelopment Authority (URA) showed.

The last time such dismal figures were logged was in the first quarter of 2006, when speculators flipped just 127 units.

Sub-sales are when buyers resell a unit before it is completed. They are taken as measure of the level of property speculation in the market.

Property analysts said the chief reason for the drop in speculative demand is the imposition of tough sellers' stamp duties in January 2011.

Home owners face a duty of up to 16 per cent if they re-sell their property within four years.

Mr Ong Teck Hui, national director of research and consultancy at Jones Lang LaSalle, said investors had to take a longer-term view on their asset if they wished to avoid the duty.

He said: "The number of speculators would not be increasing with the duty in place - this group would have shrunk over the years as they gradually off-loaded their properties to take profit."

Just 1,072 sub-sale transactions were recorded for the whole of last year, making up 4.7 per cent of all sales. It was the lowest level since 2005.

Since the revised duty was put in place in 2011, the number of sub-sales has been on a downward trend.

This is in stark contrast to the heady days of 2007, when sub-sales were rampant and speculators would queue overnight to buy a property and sell it almost within days, said SLP International research director Nicholas Mak.

The resale market has also floundered in the past year, with just 6,608 transactions or 29.2 per cent of total sales, as buyers and sellers take account of tighter loan restrictions and a looming supply glut.

About 66,100 private homes are expected to come on stream within the next three years.

Mr Mak said: "There is growing realisation among buyers that many homes will be reaching completion within the next three years but with falling rentals and tougher loan requirements, investors may not want to get in."

He added that the resale market has not been very active, reeling from a lack of demand due to a slower inflow of foreigners and fewer collective sales - two groups of home buyers who would need to look for completed homes.

A mismatch of price expectations between sellers and buyers is also making it harder for resale transactions to go through, consultants said.

Said Mr Ong: "When the market is upbeat, sellers of resale units tend to be optimistic in their asking prices and that has also affected the pace of resale transactions."

Meanwhile, buyers have become more sensitive about how much they can fork out after the total debt servicing ratio (TDSR) was implemented in June last year.

Instead of opting for second-hand properties, they are choosing new launches where some developers offer more palatable prices.

Orange Tee head of research and consultancy Christine Li said: "Buyers are unable to take bigger loans because of the TDSR so they would turn to developers who can offer fairly attractive rates by forgoing some margins."

feimok@sph.com.sg

This story was first published in The Straits Times on Jan 27, 2014

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