Saturday, April 6, 2013

Investors packing in nice gains from retail resales

The Business Times  |  APRIL 04, 2013
Liquidity, residential cooling measures boost deals in strata retail units

[SINGAPORE] Resales and subsales of strata retail units in the past couple of years have been predominantly profitable, shows a DTZ study.

Those who buy and then sell such properties have largely ridden on a crest created by price appreciation amid strong demand from investors and speculators flush with liquidity and put off by the cooling measures imposed on the residential sector.

DTZ had analysed URA Realis caveats data for resales and subsales for which it was able to find records of previous caveats.

Take resale transactions, which are secondary-market deals in completed projects. (Secondary market transactions in uncompleted projects are referred to as subsales.)

DTZ found caveat matches for 260 resale transactions in 2011, 291 last year and 51 in the first quarter of this year. Of these, between 96 per cent and 100 per cent put their owners in the black.

The average percentage gain from these profitable deals, calculated without factoring in the holding period, was 72 per cent for 2011, 91 per cent for last year and 75 per cent for deals sealed in Q1 this year.

On an annualised basis - using the compound annual growth rate formula - the average gains were in the 25 per cent to 30 per cent range for the three periods.

In its analysis of subsales, DTZ looked at new projects launched between 2010 and Q1 2013 and found 54 subsale transactions with previous caveat matches.

Of these, all but three made a profit.

The most profitable subsale in dollar terms raked in $819,780. This was for a ground-floor unit in Parc Elegance in Telok Kurau, picked up from the developer in May 2010 for $1.13 million and sub-sold last August for $1.95 million.

In just 2.3 years, the transaction generated an absolute gain of 73 per cent; this translated to an annualised gain of 26.5 per cent.

Along Robinson Road in the Central Business District, a second-floor unit in Oxley Tower was flipped in the subsale market at $1.3 million last April - after a mere two-week holding period - generating a gain of $394,000 or 43 per cent.

Subsales of at least three other second-floor Oxley Tower retail units, with holding periods of between three and nine months, produced gains ranging from $231,000 to $361,000 each.

However, a subsale transaction in the same development ended with a loss of $102,400. The third-floor unit was acquired from the developer for $670,000 last June, and offloaded at $567,600 two months later.

The other two loss-making subsales in the 2010-Q1 2013 period involved units at Viva Vista in South Buona Vista Road and The Arizon in Geylang Road.

Among completed retail units that changed hands in the resale market between 2011 and Q1 2013, the most profitable transaction in absolute dollar terms was a sixth-floor unit in Lucky Plaza. Held for a little over five years, the 12,540 sq ft unit generated a profit of nearly $15.05 million.

It was bought for $17.6 million in March 2007 - also off the resale market - and resold last June for $32.6 million.

The biggest absolute loss - $600,000 - was chalked up by a fourth-floor Sim Lim Square unit. It transacted in April 2011 at $1.7 million; the previous caveat record for the unit, dated July 2007, shows it changed hands at $2.3 million.

In percentage terms, the biggest streak of red ink for a resale was for a ground-floor unit in Midpoint Orchard. The owner suffered a 56 per cent loss over a 17-year holding period. The property was bought for $675,890 in June 1995 and next transacted for $300,000 last May.

DTZ's methodology entailed looking for matches in caveats. Where matches were found, it worked out the length of time the property was held. Gains or losses were reflected as the simple difference between the sale and purchase prices.

Stamp duties, interest expense and commissions were not factored in.

Mary Sai, Knight Frank's executive director for investment, said that the prices of strata retail properties in older developments benefited from a spillover of high prices of units in new launches.

Her advice for those thinking of investing in retail units in existing or new developments: "You have to look at the whole development, whether it has a critical mass to attract the shopping crowd."

"For example, Lucky Plaza, with six levels of shops, can occupy a local or tourist for hours. In contrast, some new mixed-development projects, with only, say, 10 to 20 small shops, may not generate the same shopper traffic; they are likely to be tenanted to operators in service trades, such as laundries and hair salons. Someone who has invested in such a property may not reap the desired net rental yield of about 4 per cent, said Ms Sai.

Potential investors should also consider the neighbourhood: the presence of good malls nearby will generate beneficial spillover benefits, she added.

Martin Koh | 86666 944 | R020968Z
Sherry Tang | 9844 4400 | R020241C

Senior Sales Director
DTZ Property Network Pte Ltd (L3007960A)

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