Non-landed private home owners profit from resales

In such a hot market, even fools can make tons of money.No wonder over the last five quarters, average gross profitability peaked at Q3 2012, when owners had an average return of 43 per cent per unit.

Published April 30, 2013， Business Times

By benjamin aw

A TOTAL of $107 million in gross profit was pocketed by non-landed private home owners from quick resales over the five quarters of Q1 2012 to Q1 2013, according to a report released by real estate firm OrangeTee.

Noting that the property market has "rebounded very strongly", the report added that high property prices - the overall private residential price index is now 60 per cent above the trough in 2009 - contributed largely to the profit in this sector, which includes private condominiums and apartments but excludes Housing and Development Board (HDB) executive condominiums.

"In the current bull run, newly completed homes that were resold upon receipt of Temporary Occupation Permit (TOP) yielded good returns for purchasers," said the report.

Between Q1 2012 and Q1 2013, a total of 103 projects obtained TOP, according to data from the Urban Redevelopment Authority (URA) and the Building and Construction Authority (BCA). Out of these, 68 projects had transactions in the same quarter upon completion, making up a total of 348 transactions.

Only one out of the 348 transactions was unprofitable, which the report describes as a "one-off occurrence".

The report also highlighted that, over the same period, each newly completed unit yielded an average return of 33 per cent. The most profitable non-landed private residential segment was the Outside Central Region (OCR), which made an average profit of 41 per cent, compared to 31 per cent for the Rest of Central Region (RCR) and 25 per cent for the Core Central Region (CCR).

In all three regions, however, shoebox units, measuring 50 sq m or less, were less profitable than their non-shoebox counterparts.

Said the report: "Contrary to common belief, profitability of shoebox units underperformed the general market across all segments. Average profitability per unit was $132,000 or 25 per cent in the last five quarters, lower than that of the overall market."

Over the last five quarters, average gross profitability peaked at Q3 2012, when owners saw an average return of 43 per cent per unit. However, since then, average profitability has been falling as the rate of appreciation in private home prices moderated, and such profitability may not be repeated in the future, said the report.

"As the full effect of the cooling measures starts to sink in, profitability from reselling uncompleted properties upon project completion is expected to moderate in the coming quarters," the report added, advising owners to "exercise some caution" when investing in the property market.

Ultimately, the report expressed optimism for the future of the market, referring to sustained foreign capital inflow, low interest rates, and "record land prices" in recent Government Land Sales (GLS).

"We expect that demand for private housing market will remain strong."