Boomtime property buyers now big losers

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In 2011, the Seascape condominium unit was bought for $11 million, however, in 2016, it was sold for just $6.35 million. There was a hefty loss of $4.65 million.
Another high-end property loss in 2016 was for The Ritz Carlton Residences in Cairnhill Roadmade.

The property was sold with a loss of $3.7 million.
The third major loss in the property deal in 2016 was for Sentosa Cove unit at Turquoise. The total loss in this transaction was more than $3.3 million.

Statistics from property portalSRXshow that sales of condo units with losses of more than $1 million each rose substantially this year, with 48 such transactions, compared with 31 in 2015.

What is the common factor related to these luxury homes that made major losses during the resale. These condos were bought when the property market was booming in 2007, 2011 and 2013. Until November, 2016, just about 800 non-landed private properties were sold at loss. This figure is twice bigger than in 2015.

According to the Urban Redevelopment Authority (URA), about 6,000 resale non-landed private properties were transacted in the first three-quarters of 2016.

The New Paper news, while quoting analysts, reports that "unprofitable" deals are frequent when the market is going down, market sentiment is poor and unemployment is high.
One of the reasons for the loss at the property market is the expectations of hike in the US Fed rate hike, which increases interest rates.

“When there is a property bubble, it can be easy to tell people to stop buying; however, the truth is people are likely to stay away from buying property when the market is slump. This is due to the lack of confidence," Ong Kah Seng, the R'ST Research director says.

According to Seng during the middle of 2000 and until the end of that decade, there was a high attraction for luxury homes; however, at this moment, the desire for high-end properties is failing.

Those who are buying properties at underpriced bargain are cash-rich buyers from developing Asian countries. Formerly, they avoided investing in the luxury market, nonetheless, now they are on the lookout for a great deal.

"Luxury properties were status symbol in the past. The property that cost more, was thought to be having more value. The losses that the former owners are making by selling their luxury home can be justified with their “prestigious” occupancy for the past few years,” Ong Kah Seng adds.

"Furthermore, if they had rented the luxury unit, instead of owning, they had to pay price.”
Desmond Sim, chief of research for Singapore and South-east Asia at CBRE, believes that some of these “high losses” are the losses that only appear in the paper because it is compensated during the foreign exchange. “If someone makes $2-million loss, he can make for the loss and earn $10 million when he invests on other lucrative projects" he says.

Sentosa Cove and the Central area are the neighbourhoods where the top-10 loss-making properties are located. Among the top ten loss making properties, 7 were bought in 2007 and remaining three in 2011 and 2013.

According to R'ST Research director Ong Kah Seng, “During that time, interest in the high-end segment was very high. Exciting offers, for example, plans to transform the Central Business District, the integrated resorts etc. were being offered. These offers lured foreign investors.”

In 2015, when a Japanese tycoon sold penthouse unit at St Regis Residences everyone’s eyes popped out because he made S$15.8 million loss. In Financial Stability Review released last year, the Monetary Authority of Singapore, cautioned the property investors to watch out the increasing interest rate, rising vacancy rates, and declining rentals interest rate.

According to Desmond Sim, CBRE's head of research, "Various government policies – Additional Buyer's Stamp Duty and thee Total Debt Servicing Ratio, for example – have been introduced. These policies advise the investors not to eat more than they can swallow, otherwise they are prone to choking. The people who are making losses don’t need Heimlich manoeuvring, however, now they are spitting out."