To survive the cooling measures, property developers have no choice but to constantly come up with creative ways to move their units from the shelves.
Buyers are a rare species
Where can they find that rare species called buyers who possess all of the following?
- Can afford the hefty cash downpayment of units in new projects;
- Are willing to pay 5, 7, 10 or 15 percent Additional Buyer Stamp Duty;
- Don’t mind holding the property for 4 years to avoid paying 4 to 16 percent Additional Seller Stamp Duty;
- Can pass the TDSR test and obtain the desired percentage of loan-to-value limit; and
- Have the guts to buy right now when property prices are on the way down.
Developers are probably sharing the same thought: Better sell now than later. Better let go cheaper than get stuck later.
But wait! They can’t rock the boat and further undermine market confidence. And they need to be fair to the early buyers, namely the VIP customers or early birds who bought at premium prices when those units have seen better days.
Many ways to skin a cat
Spend a weekend at the sales galleries and you can spot the tactics deployed by developers and their marketing agents:
1. Markup Then Discount
Simply raise the prices of all the remaining units by 10 to 15 percent before giving back 15 percent discount. Anyway, not everyone takes the hassle to check past transactions of the project.
2. Star Buys
They are units chosen for their bad facing, inauspicious unit numbers, being unsold or returned, or any other reasons. Projects offering star buys include the Citron Residences and Hillion Residences.
The marketing agent may tell buyers that star buys just started this month or are valid for this weekend only. Don’t be too tempted to grab the ‘just for today’ special offer. Check the recent transacted prices and find out what’s so ‘special’ about those units under promotion.
3. Buyer Incentives
Developers can package a unit with a car, or give away renovation, furnishing or travel vouchers. These gimmicks work to draw buyers and manage to keep price levels constant.
4. ABSD Fully Absorbed
Some developers are willing to subsidize buyers whatever percentage of Additional Buyer Stamp Duty they have to pay. The amount will be reimbursed to the buyers after sales completion.
5. Rental Guarantee
Rental guarantee is nothing new for high-end condominiums. Mixed development NeWest is offering an extra 10 percent discount for their commercial units. Or alternatively, buyers can choose to have a 7 plus 7 percent rental guarantee which is payable in two years after TOP.
6. Cash Rebates
Some projects simply give cash to buyers. On top of 4 percent discount, Hillion Residences offers a 6 percent cash rebate – 3 percent after exercising the option and another 3 percent upon TOP of the project. In other words, buyers are paying 14 percent instead of 20 percent for the downpayment of their units.
Implications of Project Discount
1. Inflated property prices
URA, REALIS and INLIS cover caveats lodged with Singapore Land Authority (SLA). SRX is using the URA data plus sales transactions from major property agencies. Both the caveats and the transactions do not reflect the different types of incentives offered by developers to buyers. Property prices published, apart from resale units, are being inflated.
Under the Housing Developers Act, developers are required to disclose all incentives. But after TOP, developers can clear unsold units with whatever discounts, incentives or price levels they please without informing the public.
In fact, it is not rare to see price per square foot of recent caveats lodged at URA in the same project remain fairly constant, or sometimes even higher than the previous transactions.
2. Misrepresented property indexes
Developers were also not required to submit sales status of their delicensed projects after TOP. URA thinks that the low volume of such transactions does not impact the overall Property Price Index. This may be true in a robust market, but definitely not the case now when many projects still have tons of unsold units after TOP, especially in the high-end market.
Afterall, the lodgment of caveats with SLA is based on voluntary submission. Have a check on any sold-out project in the URA caveat database and one will find that not all the units and their sales prices are captured.
The incomplete data entries make it difficult for the public to get a real picture of the current private property market in Singapore. All those property indexes are, at best, for one’s information only.
Jim Rogers has this to say about GDP figures:
“First of all it’s backward looking. Second of all they make them up. They are always revised later. I know you have to report these things on TV, but as an investor I don’t pay any attention.”
Maybe it is applicable to Singapore property figures too.
3. Inaccurate valuation and loan-to-value limit
If the valuation of residential properties is based on recent transactions in the same or a similar development, without factoring in developers’ rebates, the figures are likely to be unrealistically high.
Similarly, if loan-to-value limit is based on the valuation of the property, buyers are now able to borrow a bigger housing loan from the bank based on the undiscounted purchase price.
Such practices are going against the government’s determination to ensure greater financial prudence among property buyers.
What goes around comes around
The misdeed of not reporting the actual selling prices and the failure of the authority to take actions can only hide the truth temporarily. As the Chinese saying goes, no one can swathe flames in paper. What the buyers and sellers of new projects are doing now may later come back to get them.
Once the government requests submission of the ‘real’ transaction prices after rebates, buyers who enjoyed such incentives earlier may risk holding a negative equity, with their outstanding mortgage higher than the fair market value of their properties.
On the other hand, the inflated property price index can be used as a good excuse for the government to insist that “it’s too early to relax property cooling measures” – until the rare species of buyers gradually becomes an extinct species.
Or the government may impose harsher rules to further correct the market, especially when it’s time to please the voters again.
This article was first published at propertysoul.com