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DTZ analysis hints at increased speculation in strata retail units

The proportion of strata retail units changing hands within three years in the resale market is on the rise – pointing to increased speculation in the sector.

Similarly, the proportion of resale deals involving strata retail units bought less than a year earlier is also up, according to DTZ’s analysis of URA Realis caveats data. Correspondingly, the average holding period in resale transactions in strata retail units has fallen.

DTZ found a total of 3,315 caveats of strata retail units (excluding collective and bulk sales) between 2008 and the first quarter of this year – across both primary and secondary markets. Out of this pool, 2,045 caveats were for resale transactions (secondary-market deals of completed properties) – of which the property consultancy could trace previous caveats for 1,127.

From analysing these 1,127 matched strata retail unit transactions, DTZ found that the proportion of resale transactions that were carried out within three years of the units being previously transacted has increased from 27 per cent in 2010 to 33 per cent in 2011, rising again to 42 per cent last year. In the first three months of this year, the proportion of strata retail units climbed further to around 55 per cent.

Similarly, the proportion of resale strata retail deals which involved units bought less than a year earlier has risen – from 10 per cent in 2010 to 15 per cent in 2011, 16 per cent last year and 25 per cent in Q1 this year.

Conversely, the average holding period in resale strata retail unit deals has contracted steadily – from 6.5 years in 2010 to 6.1 years in 2011, 5.8 years in 2012 and 4.7 years in Q1 2013.

In January, the government had stepped in to cool speculation in industrial property. It was then revealed that 15 per cent of all transactions of multiple-user factory space in 2011 and 18 per cent in the first 11 months of 2012 involved resale deals carried out within three years of purchase.

In comparison, strata retail units changing hands within three years in the resale market accounted for 13 per cent of all retail unit transactions in 2011 and 9 per cent in 2012.

“However, we note that the proportion… has increased to 17 per cent in Q1 2013,” notes Lee Lay Keng, head of Singapore research at DTZ.

Resales refer to secondary-market transactions in projects that have received a Certificate of Statutory Completion (CSC) and where property titles for units sold have been transferred to the buyers. Secondary-market deals in projects for which CSCs and titles have yet to be issued are known as subsales.

Pavilion Square@Geylang

Increasing Strata Retail Units Subsale

DTZ found caveats for 54 subsale transactions of strata retail units (which it could match against previous sales records) among new projects launched from 2010 to Q1 2013. While the 54 subsales make up a relatively small 4.7 per cent of the total 1,148 new strata retail units sold by developers in projects launched over the same period, DTZ highlighted that more than 80 per cent, or 45 of the 54 subsales, involved units that had been purchased less than a year earlier from their respective developers.

Market watchers say that many strata retail units at the freehold Pavilion Square in Geylang Road, which were sold by its developer like hot cakes barely a fortnight ago at between $2,000 psf and $10,879 psf, are now being offered by their new owners for sale at higher prices.

Says DTZ’s Ms Lee: “Transactions with a holding period of under one year are likely to be of a speculative nature. If speculation increases, driving up prices of strata retail units and increasing business costs for genuine end-users, we do not rule out cooling measures for retail property similar to the seller’s stamp duty implemented in January for industrial property.”

Savills Singapore research head Alan Cheong said: “It is less of a political hot-potato if the authorities were to clamp down on speculation of retail units as it affects a small segment of society.

“However, the authorities must be objective in what they want to achieve because once any measures are enacted, it is more difficult to reverse them without losing credibility.”

Of the 45 strata retail units subsold within a year of being bought from the developer, 27 were flipped within two quarters, which in turn included 21 units that changed hands within a quarter.

For instance, a second-floor unit at Oxley Tower was bought from the developer in May last year for around $1.028 million and divested four days later at $1.065 million.

In Balestier, a first-storey strata retail shop in the mixed development One Dusun Residences was purchased from the developer in September last year for $1.345 million and flipped 17 days later at $1.48 million, resulting in a profit of $135,000 or 10 per cent.

The resale market too saw a few quick flips, though typically these entailed longer holding periods. A second-floor strata retail property at Peninsula Shopping Centre in Coleman Street acquired last December for $980,000 was resold in early March this year at $1.1 million, reflecting a $120,000 or 12 per cent gain.