More luxury condo units sold at loss as resale market ebbs
A LARGER percentage of high-end luxury condo homes on the resale market are being sold at a loss and a smaller percentage at a profit, as the tide of the once-rosy property market recedes and reveals those who have been "swimming naked" - that is, those without adequate holding power for their extravagant purchases.
According to data compiled by STProperty.sg from URA Realis, 7 per cent of transacted units in the prime districts 9, 10 and 11 sold at a loss in the first eight months of this year, up from 5.5 per cent over the same year-ago period.
Fewer people are profiting from their resales too: only 62.2 per cent enjoyed any capital gains - a steep drop from 83.5 per cent a year ago. And 4.5 per cent sold without making a profit or a loss (versus 0.4 per cent a year ago).
Yields are also under pressure. The low-rental environment is leaving more owners struggling to repay their mortgages. Assuming a $1.6 million loan (equivalent to an 80 per cent loan limit for a $2 million property) is taken out at an annual 1.5 per cent interest rate over a 30-year tenure, this would amount to a monthly mortgage of $5,500. Rentals would therefore have to be in excess of this to cover mortgage payments.
"In some cases, the monthly rental cannot cover the mortgage. Take a $5 million Sentosa Cove condo: It would take a monthly rent of $13,800 to cover your loan," said Christine Li, head of research and consultancy at OrangeTee.
"That said, it's quite common that rents cannot cover monthly instalments, especially for bigger units. But those who don't have holding power would have to let go of their units. Others may be forced to do mortgagee sales," she added.
But not all the sellers who were willing to stomach losses were overleveraged. Some could simply want to exit the market because they don't see the cooling measures ending any time soon (meaning, they expect that price recovery is still far off), or just as a way of rebalancing their overall portfolio.
Lee Lay Keng, DTZ's South-east Asia regional head of research, said: "A large proportion of purchases in the prime districts are by foreigners; perhaps they are just pulling out of Singapore. But the fall in demand for private homes makes it harder for sellers to find buyers.
"So if they really need to sell, they will have to lower their prices significantly."
RST Research director Ong Kah Seng said that investors would also have bought into high-end properties in major cities in the United States, Europe and Australia, where there have been exciting properties launched in recent years.
In all likelihood, despite pulling out of Singapore, they might have profited elsewhere, as other countries saw an uptick in residential property prices after the global financial crisis.
Meanwhile, loan curbs and price cutting by developers at new condo launches also continue to sap strength from the resale market.
Condo homes in the prime districts 9 (Orchard Road, River Valley), 10 (Bukit Timah, Holland, Balmoral) and 11 (Novena, Newton, Thomson) have traditionally been purchased as investment homes for capital gains and rental yields.
Buyers bank on demand from expatriate lessees, most of whom enjoy staying near the city. But with corporate housing budgets having shrunk post-financial crisis, these foreign employees are moving instead to the city fringes and suburbs, with some even renting Housing Board flats.
Losses made in resale transactions from January to last month this year range from $9,300 for a unit at The Hillier in Bukit Timah, to $2.06 million for a unit at St Regis Residences in Tanglin. The latter was purchased at $6.8 million in 2007 and sold for $4.7 million in April.
THE BUSINESS TIMES