from the ground Up

by Jessica Cheam, The Straits Times, Apr 23, 2008

No URA figure on units sold but experts say 30% could be offloaded

THE hugely popular deferred payment scheme (DPS) – scrapped last year – may now
be a thing of the past, but what sort of shadow will it cast on the Singapore
property market going forward?
This has been the question on market watchers’ lips since the Urban
Redevelopment Authority (URA) revealed last week that as many as 29,250 homes
offered under the DPS, including 5,760 unsold units as at the end of last
month, will be completed from this year to 2013.
The concern is that speculators who bought homes under the DPS could dump their
units at below-market prices, and this could drastically drag down overall
sentiment.
But just how many units are at risk of being sold, and how big will the impact
be?
The URA said while it has the number of units approved under DPS, it does not
have data on how many units were actually sold under the scheme.
But four property experts The Straits Times spoke to estimated that up to 30
per cent of homes sold under the scheme last year could be held by speculators
who may offload homes as the completion date nears. This translates to roughly
4,200 homes, going by a back-of-the-envelope calculation.
That is because out of the 23,490 units approved under the DPS and sold, only
about 50 to 60 per cent – or roughly 14,000 – are likely to have been sold
under the DPS, say property consultants and agency bosses from Knight Frank,
Savills Singapore, HSR Property Group and PropNex.
The remaining 40 to 50 per cent were not bought under the DPS. Either
developers did not eventually offer it, or buyers chose to pay via progressive
payments, because buying a home with DPS usually means a further 2 to 3 per
cent added to the price.
Next, property experts estimated that of the 14,000 or so homes sold under the
DPS, about 20 to 30 per cent were probably sold to short-term investors or
speculators.
This means that as a group, speculators could be holding on to as many as 4,200
units.
Why are speculators prone to selling their units as they near completion?
The DPS allowed buyers to pay just 10 or 20 per cent of the sale price upon
purchase, with the rest due only when the unit received its temporary
occupation permit (TOP) on completion.
Speculators would, therefore, typically opt for the DPS and hope to sell their
units for a profit before the TOP. Any later and they would have to pay up for
their homes by arranging for bank loans or other means of financing.
Industry experts were, however, divided on the impact these 4,200 homes would
have on the market.
Some maintained that panic selling is not likely, given Singapore’s strong
economic outlook, which is backed by upcoming mega projects such as the
integrated resorts and the 2010 Youth Olympics.
Mr Eric Cheng, HSR’s executive director, noted that homes set to be completed
this year and next are less likely to be sold indiscriminately, since their
owners are probably sitting on healthy gains.
But those who bought at the peak of last year’s buying frenzy, from April till
October, are most likely to be at risk. These homes are likely to be completed
after 2010.
Mr Ku Swee Yong, Savills’ director of business development and marketing, said
the sell-off will likely be staggered, because investors have different levels
of holding power.
Also, investors have bigger coffers compared to the last property peak in 1996,
he added.
But he warned that if too many units in a single large project get dumped at
below-
market prices, overall market sentiment may be hit.
Mr Colin Tan, Chesterton International’s head (research and consultancy),
thinks that the potential risk created by the DPS is relatively high.
He added that data on homes sold under the DPS should be collected and made
public, so investors know “what they’re getting themselves into”.
The DPS was scrapped abruptly last October after a decade-long run to remove
excessive speculation and ensure financial prudence in the property market.
jcheam@sph.com.sg