JAPANESE tycoon Katsumi Tada’s eye-popping $15.8 million loss on a St Regis Residences penthouse may be the largest, but several other sellers also had hefty losses in the project this year.
Three other sellers each lost over $1 million, ranging from $1.06 million to $4.78 million.
This comes amid a rise in the pace of loss-making transactions in the residential market this year, characteristic of a softening market where sellers are coming under selling pressure, experts say.
Including two landed properties, 11 transactions this year sustained losses of over $1 million apiece, going by an SRX Property compilation. This is up from only five for the same period last year and three in the period in 2013.
Overall, 78 loss-making transactions have taken place so far this year, up from 46 last year and 45 in 2013, over the same period.
The number of unprofitable transactions also rose from 132 in the whole of 2013 to 188 last year, SRX Property said.
The pace of unprofitable transactions has picked up and is likely to grow even faster amid continuing cooling measures, as both the sale and leasing markets soften further, said JLL national research director Ong Teck Hui.
The trigger for such sales tends to be sellers saddled with heavy debt who are unable to service their loans, he added. “This tends to be exacerbated by a simultaneously declining rental market, when falling rental income impacts loan repayment.”
A more challenging economic and business climate is a contributing factor as well.
Among the 11 transactions with losses above $1 million, seven were in the Orchard area. For instance, a three-bedroom unit on the 36th floor of The Orchard Residences was sold for $5.5 million in January – a loss of $2.253 million. And a four-bedder on the 17th floor of The Grange went for $4.15 million the following month, at a $2.05 million loss.
Two large loss-making sales were recorded in Sentosa, where a four-bedroom, fifth-floor unit at Turquoise was sold for $4.55 million – at a $2.715 million loss – in January. That same month, a four-bedder second-floor unit at The Coast at Sentosa Cove was sold for $3.125 million, at a $1.215 million loss.
Two landed homes were also sold at significant losses. A Sunset View house on about 9,418 sq ft of land was sold at $9 million, a $1.88 million loss; while a house in Ponggol Twenty-Fourth Avenue was sold at $4.5 million – a $1.55 million loss.
Mr Ong noted that while landed homes are usually bought for owner occupation, their values tend to be high and the loans substantial. “This could increase leveraging risks for landed buyers.”
According to caveats, the biggest loss so far this year is at St Regis Residences, where a 4,941 sq ft, four-bedroom, 22nd-floor penthouse went for $9.5 million in January, at a $4.78 million loss.
Mr Tada’s loss for his 6,017 sq ft five-bedroom penthouse at the same project was far larger, but there was no caveat in this case.
Savills research head Alan Cheong said: “There are clandestine deals where larger losses have taken place, especially when the vendor needs money as soon as possible and wants to close the deal within a short period of time. Cash is involved and the vendor has no existing mortgage on the property.”
Many sellers are likely property funds with pressure to exit as their fund life ends, said Rodyk & Davidson partner Lee Liat Yeang. Many loss-making units at top projects were bought in 2006 or 2007, while the fund life could be five years on the shorter side or seven to eight years for longer ones.
ST REGIS RESIDENCES
What: Penthouse unit sold in February
Sold: $12.2 million
Loss: $15.8 million
OTHER BIG LOSSES
What: Four-bedroom unit on 17th floor sold in February
Sold: $4.15 million
Loss: $2.05 million
The Coast at Sentosa Cove
What: Four-bedroom unit on second floor sold in February
Sold: $3.125 million
Loss: $1.22 million
What: Four-bedroom fifth-floor unit sold in January
Sold: $4.55 million
Loss: $2.7 million
THE ORCHARD RESIDENCES
What: Three-bedroom unit on 36th floor sold in January
Sold: $5.5 million
Loss: $2.3 million