The previous owner, a Russian national, purchased the seventh-floor unit from the developer at $12.8 million ($3,146 psf) in June 2010. The unit was put up for mortgagee sale at an auction in January 2017 at an opening price of $6.8 million but did not find a buyer. It was subsequently sold at $6.2 million ($1,524 psf), by private treaty on February 7. This translates to an annualised loss of 10.4% and an overall loss of nearly 52% over a holding period of seven years.
So, what went wrong? We examine some of the causes that could have contributed to the eye-watering loss.
1) The unit was overpriced
First things first, the four-bedroom unit in question was in fact, also the most expensive unit to have ever sold at Seascape.
To put things into perspective, the previous owner had purchased the unit from the developer at $3,146 psf in June 2010, shortly after the eight-storey seafront development was launched. In comparison, units at the luxury development were selling at an average of $2,710 psf in 2Q2010, which means that the Russian buyer had paid about 16% above market price when he made the purchase.
Some investors justify buying properties at a high price when they expect earnings to outperform the market. But doing so can be risky, as there could be limited room for capital appreciation, as demonstrated in this scenario.
2) Possible liquidity woes
The exponential $6.6 million loss that resulted from the mortgagee sale of the Seascape unit is a strong indicator that its former owner was experiencing some major financial setbacks. The former owner was not alone.
In another loss-making sale at the condo, a 4,133 sq ft unit changed hands at a whopping $5.2 million loss in May 2015. The previous owner had bought the unit for $11 million ($2,661 psf) in December 2011 and sold it at $5.8 million ($1,403 psf). On top of that, the seller was also liable for a 4% or $232,000 Seller’s Stamp Duty. The sale accounted for the second biggest loss for condos at Sentosa Cove.
According to Bruce Lye, managing partner of SRI, a number of Sentosa Cove property owners who had worked in the oil and gas industry were forced to let go of their units at a loss when the industry experienced a downturn.
“Many owners also faced liquidity issues due to the challenging economic climate,” said Lye, who has brokered multiple sales transactions within the affluent district.
A recent Knight Frank report points to similar liquidity woes among cash-strapped property owners. Amid higher interest rates and a slumping rental market, mortgagee sales have hit a new high in 3Q2017, during which the total number of properties put up for auction had increased 26.7% q-o-q, or 14.8% y-o-y, the November report said.
3) Prices of Sentosa Cove properties are down as a whole
Based on the matching of URA caveat data, there have been no profitable transactions and seven unprofitable transactions at Seascape so far. But it’s not just units at the condo that have been selling at a loss.
Last year, 15 of 21 resale condo units at Sentosa Cove were sold at a loss. The sellers sustained losses ranging from $80,010 to $4.65 million, with the average loss at $1.35 million or 23%.
Many attribute the lacklustre sales to the cumulative effects of the eight rounds of property cooling measures that culminated in the total debt servicing ratio (TDSR) framework, which came into effect at end-June 2013.
The termination of the Financial Investor Scheme (FIS) in 2012 is also said to have impacted property sales, especially those within the Core Central Region (CCR). The FIS was introduced in 2004 to allow foreigners with a global net worth of $20 million to gain Singapore Permanent Resident (PR) status if they parked at least $5 million in the city-state, of which $2 million could be put into property. In 2010, the $5 million minimum investment sum was doubled to $10 million.
Ultimately, the scheme was scrapped due to growing public discontent over immigration, rising inequality and a surge in property prices, which all led to a plunge in property sales, most notably among foreign buyers.
It’s not all gloom and doom
As the saying goes, “What goes up, must come back down” - and vice versa. Low property prices present investment opportunities for buyers who are looking to buy to invest. Incidentally, the buyer of the four-bedroom Seascape unit that sold at a $6.6 million lost was a Singaporean investor.
SRI’s Lye also noted that there has been an increase in inquiries for Sentosa Cove properties in recent months.
“I am getting a consistent flow of inquiries now, compared to 2015 and 2016, when I would be getting maybe just one enquiry once in every few months,” he shared.
Further, foreigners are making a comeback in Singapore’s residential property market after pulling back from it in 2012.
Based on the number of caveats lodged, URA statistics show that purchases by foreigners increased by 48% to 794 units in 1H2017 compared to 535 units in 1H2016, while those by permanent residents (PRs) rose by 32% to 1,876 units in 1H2017 from 1,416 units in 1H2016.
While some signs lead to an uptrend, whether or not they will ultimately cause an uptick in Sentosa Cove property prices remains to be seen.
Seascape is a 99-year leasehold development was completed in 2011. Find units at the luxury condo here.
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