Singapore property market's unprofitable deals

These days, everyone in Singapore seems to want to invest in properties. It is not surprising, as anyone who had bought a property several years ago would likely be sitting on good returns right now.

While you may have probably heard stories about how some investors managed to snag good deals to make a few hundred thousand dollars worth of profits, what you do not often hear about are the losses they make. And the harsh reality is that even in a boom market, there are some property owners who made losses from their properties.

Naturally, the question on everyone’s mind is how much are the losses and what are some examples of such unprofitable transactions? To answer these questions, my company’s research team went through some of the past property transaction data and uncovered some interesting findings. I will be sharing 2 of the more interesting findings in this article.

How many unprofitable transactions were there from 2009 to 2011?

We all recalled that the Singapore property market recovered during 2009 to 2011. However, during that phase of market recovery, there were about 106 unprofitable transactions. Of the 106, there were 10 units that sustained a loss of at least $1million.

The top two most unprofitable transactions saw losses amounting to $5.4million and $3.1million for detached houses at Cove Drive and Paradise Island respectively.

What is the average holding duration of unprofitable deals?

On average, the unprofitable transactions were held for about 9 months while the profitable transactions were held for 1 year 3 months. In other words, profitable transactions were held for slightly longer than unprofitable deals; in this case – about 6 months longer. This trait of unprofitable deals is consistent for all the research that we have done using different sample sizes (i.e. using data from 2003 to 2008).

Intuitively, we expect profitable transactions to have a longer holding period, as the owners are able to wait until an attractive offer comes along. In comparison, the unprofitable transactions tend to have shorter holding period as the owners could already be in some form of financial difficulty and had to quickly liquidate the property.

Conclusion

To conclude, my purpose of highlighting unprofitable transactions is to offer a more balanced view and to temper expectations some investors may have when it comes to property investing. There is no such thing as a “sure-win” investment, and even something like property has risks and some unlucky investors have lost money before. More important, it is to let investors be aware of that fact that even n a booming market, there are unprofitable deals.

However, to put things into perspective, there were a total of 65,536 residential caveats lodged from 2009 to 2011. Of these, 7,920 units were bought and flipped within the 3 years time horizon. Considering that only 106 made losses, the percentage of profitable transactions works out to be about 98.60%. It is important to note that such a good showing was due to the recovering market, and past performance is not indicative of future performance.

As the global economic situation becomes more uncertain, the number of unprofitable deals would potentially increase. However, as long as you do not pay peak prices for your unit, you will stand a good chance of not adding to the unprofitable deal statistics.