Unsold homes big drag on developers' coffers

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#1
PUBLISHED JUNE 07, 2014
Unsold homes big drag on developers' coffers

Punishing fees seen incentivising some to reprice projects to move sales in near term
BYLYNETTE KHOO
lynkhoo@sph.com.sg @LynetteKhooBT

DEVELOPERS have collectively paid up to $55.1 million in extension fees for unsold units in their private condo projects since 2012. They could potentially fork out another $80.7 million to extend the sales period for another year if they do not sell their inventory by year-end, according to a study by OrangeTee Research - PHOTO: ST
'As unsold inventory builds up, there will likely be more bargains in the market if developers want to avoid paying penalties to extend the sales period, especially high-end developers who have already paid premium prices for their lands.'
- OrangeTee research head Christine Li
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Singapore
DEVELOPERS have collectively paid up to $55.1 million in extension fees for unsold units in their private condo projects since 2012. They could potentially fork out another $80.7 million to extend the sales period for another year if they do not sell their inventory by year-end, according to a study by OrangeTee Research.
"As the penalty amounts to millions of dollars per project, we believe that it will incentivise some developers to reprice some of these projects to move sales in the near term," said OrangeTee research head Christine Li.
A total of 24 condo projects, mostly high-end ones, are still not fully sold two years after receiving their temporary occupation permits (TOPs) between 2010 and 2012, the study showed. Under the government's Qualifying Certificate (QC) rules, developers have to pay extension charges to extend the sales period after two years of the project's TOP.
All developers with non-Singaporean shareholders or directors need to obtain QCs to buy private land for new projects because they are deemed "foreign developers" under the Residential Property Act (RPA). This means the QC rules apply to all listed developers. Privately owned Far East Organization and Hoi Hup are among the few developers exempted from the rules.
Given that the QCs allow developers up to five years to finish building a project and two more years to sell all the units, the heat is on developers to clear their stock by the deadline.
To extend the sales period, developers pay 8 per cent of the land purchase price for the first year of extension, 16 per cent for the second year and 24 per cent from the third year onwards. The charges are pro-rated based on unsold units over the total units in the project.
Such fees drove luxury residential player SC Global to delist from the Singapore Exchange last year after sales slowed significantly due to the government's property cooling measures.
Analysts warn that more extension charges will kick in. The charges paid up so far are just the tip of the iceberg as projects built from land acquired during the 2006-2007 en bloc fever have just crossed a seven-year mark, they say.
"More developers are caught between a rock and a hard place" as they have to decide whether to pay the extension charges or cut prices to move the units, said SLP International executive director Nicholas Mak.
If they pay for extension charges, there is also the question of whether they can recover these costs later on, he said. This is why some developers of luxury projects are resorting to selling the units in bulk to mega investors.
OrangeTee's study of the 24 projects excluded three projects whose land costs could not be determined. It tracked sales of projects through caveats lodged, which it conceded could be lower than actual sales.
At the end of the first quarter of this year, there were 10,295 unsold units in the Core Central Region (CCR), 8,089 in the Rest of Central Region (RCR) and 12,433 in the Outside Central Region (OCR).
Based on URA caveats, there are 71 unsold units in Wheelock Properties' Scotts Square that TOP-ed in 2011 and 16 unsold units in Wing Tai's Helios Residences, which also TOP-ed in the same year.
"As unsold inventory builds up, there will likely be more bargains in the market if developers want to avoid paying penalties to extend the sales period, especially high-end developers who have already paid premium prices for their lands," Ms Li said.
The study excluded the fees that developers need to pay to extend the completion of projects beyond five years, as they can typically extend without paying the charges "based on technicalities".
Even in a more optimistic scenario where developers manage to sell 20 per cent of the remaining units for the rest of this year, further extension charges to be paid by developers by end-2014 will amount to around $68.3 million.
Some market watchers noted that the QC rules should mark a distinction between larger and smaller projects, given that it takes a longer time to move all the units in large projects in a difficult market as the current one.
Century21 chief executive officer Ku Swee Yong said that demand for high-end projects had been hit hardest by higher additional buyers' stamp duty (ABSD) since January 2013 and a borrowing cap under the total debt servicing ratio (TDSR) since June last year.
Even if a developer decides to set up an investment company to buy the units and rent them out, the company could be hit by a 15 per cent ABSD and is restricted by a loan-to-value limit of 20 per cent.
While there is good reason for having QC rules to regulate foreign participation in the housing market, these rules were in place before the ABSD and TDSR. "It is about time we review these measures," Mr Ku said.
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#2
Mmmm, can we expect great singapore sale? Big Grin
1) Try NOT to LOSE money!
2) Do NOT SELL in BEAR, BUY-BUY-BUY! invest in managements/companies that does the same!
3) CASH in hand is KING in BEAR! 
4) In BULL, SELL-SELL-SELL! 
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#3
My perceptions are Developers earn insane profits. More is needed to skin them further to lower cost and improve social productivity.
So far i only see crocodile tears. Greed makes people and companies to go so low. The equilibrium point probably is where we see losses in 10-30% of them consistently. They will then try to cut corners and regulations have to come in more tightly.

Just my Diary
corylogics.blogspot.com/


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#4
Besides greed, do you think high property prices are good for singapore's competitiveness? Big Grin
being a island state and conceived lack of land, we can say that land is valuable, yet it's NOT that's full-house yet!
there's still plenty of land to develop around! Smile

Bring on the 20 million population! Big Grin
1) Try NOT to LOSE money!
2) Do NOT SELL in BEAR, BUY-BUY-BUY! invest in managements/companies that does the same!
3) CASH in hand is KING in BEAR! 
4) In BULL, SELL-SELL-SELL! 
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#5
I agrees that there are still some interest in ppty.

Skywoods - I was monitoring one particular unit for discount ( Developer call Starbuy).

The starbuy came out on 2nd June (the unit I aiming)
It sold on 3rd June b4 I can take some actions.

Heart LC


Earth day - save the world everyday.
感恩 26 April 2019 Straco AGM ppt  https://valuebuddies.com/thread-2915-pos...#pid152450
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#6
Lower price will alway attract interests. I agreed lower volume can be easily fixed ! Hit them hard enough to prevent hoarding at low interest rate environment.

Just my Diary
corylogics.blogspot.com/


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#7
QC is a great rule to force developers not to land bank or hoarding inventory in a herding mentality market
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. –William A. Ward

Think Asset-Business-Structure (ABS)
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#8
You will be surprise how small the key players are that can act in concert under low interest rate environment. If the gov do not have the resolve to be firm, we need to show them our vote wisely.

Just my Diary
corylogics.blogspot.com/


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