Lately, there were media reports every other week on a new condo launched with a bang. On the other hand, a check on URA monthly data on sales by developers also reveals the fact that the number of returned units from buyers is on the rise.
What are returned units to developers?
Returned units are new units of uncompleted projects. Homebuyers have already placed a deposit. But in the next and subsequent months, they are given up and returned to the developers.
You can check other new projects that present the same puzzle to consumers to solve at the URA website under “Prices of Private Residential Units Sold By Developers”. Compare the sales figures of any new project month by month. Calculate the difference between the project’s “cumulative units sold this month” and “reported units sold this month”. Any discrepancy between this number and the cumulative units sold in the previous month gives you the number of returned units last month.
– Vina Ip, Behind The Scenes of The Property Market
Turn back the clock to November 2018. My blog post “New launch returned units and 3 mysterious cases” shared the trend of high number of returned units for newly-launched projects. Popular new launches could have 27 to 48 percent units sold being returned the following month. Two new condos even had a 3-digit number of returned units since their launch.
This was the gloomy time after the mid-2018 additional property cooling measures. What about the current situation in 2023?
A check on URA’s January data shows that this January 42 units had been returned to the developers. The following month in February, homebuyers returned 54 units they bought. Then March saw a total of 57 returned units. The April figures published this Monday showed another 54 units giving back to the developers.
So far we already have a total of 207 returned units this year. Expect to see the numbers going higher every month with more new condos launched in the coming months.
The season of returned units is back again!
Highest returned units = best-selling project?
In my book Behind The Scenes of The Property Market, I shared developers’ secret to top the monthly best-selling new project chart:
“In July 2019, a Straits Times article reported four new projects launched in June and that one of the June top sellers, Parc Botannia, sold 60 units (The Straits Times, July 15, 2019). Parc Botannia had first launched 19 months previously in December 2017. Why was it still a top seller among the new projects? A check on the URA data the following month showed that Parc Botannia had 48 out of 60 units returned to the developer. With a return rate of 80 percent, the project actually sold only 12 instead of 60 units for the whole month of June.
In January 2020, another article featured a new project sales table with Parc Botannia as the top-selling project again in December 2019 after 49 units sold (The Straits Times, January 15, 2020). But a check on the URA data the following month showed that Parc Botannia had 27 returned units out of 49 units sold. The return rate was 55 percent. The same tactic was deployed for many months until the project was finally sold out in March 2020.”
And history did repeat itself.
Last July, my blog post “How rate hikes hit developers and homebuyers” reported that there were a total of 89 returned units in the previous month in June. The best-selling project Florence Residences reported by our local media garnered a total of 48 returned units in the first six months of 2022. This was an impressive return rate of 31 percent out of 154 units sold.
Both articles highlighted the fact that the high number of returned units was the result of developers making use of the loophole that sales figures are based on voluntary submission with no counterchecking by the authority. Developers could issue any buyer an Option to Purchase, let it lapse and reissue it when it expires after three weeks. By doing so, developers could report as many closed deals as they liked. The following month they could conveniently report the lapsed option cases as returned units.
This trick helped developers, their marketing agents and the vested media to report impressive sales results to the public. They had high sales numbers to prove that there was pent-up demand from the market despite the cooling measures and the gloomy economy.
– Vina Ip, Behind The Scenes of The Property Market
And the winner with most returned units is …
Fast forward to 2023, guess which new projects have the highest number of returned units?
Tenet tops the chart with a total of 37 units returned to developer Qingjian Realty after its launch early last December. Remember the Straits Times headline “Executive condos continue to see strong sales as Tenet in Tampines sells 72% of units at launch”? The article said the EC “saw robust sales at its launch – a sign of the strength of this property segment amid the latest cooling measures, higher mortgage rates and an economic slowdown”.
Occupying the 2nd position is Copen Grand with 18 returned units this year. The EC in Tengah was launched last October with 73 percent sold over the first weekend. End of November developer CDL and MCL Land announced that the project was sold out in a month. But that month they had 17 returned units from their October launch.
The project with 3rd highest number of returned units is Pullman Residences. A “not-so-new” project launched in November 2019, it has quite a number of units returned, particularly in March. By coincidence, in April an EdgeProp article headline read “One-bedder at Pullman Residences Newton fetches record high of $3,496 psf”. A week later there was another encouraging EdgeProp title “Two-bedroom unit at Pullman Residences Newton fetches record high of $3,515 psf”. Targeted both to complete and pay ABSD by end of this year, the Newton project still has 15.6 percent unsold units.
The 4th project with high number of returned units is Leedon Green, especially in March. Again it had an eye-catching headline by EdgeProp in March that read “Leedon Green sees record high of $3,387 psf”. Launched in January 2020, Leedon Green still has 63 units or 9.9 percent of the project unsold.
Why buyers returned their new units to developers?
Both Tenet and Copen Grand are ECs. So it is understandable that there will be buyers who bought out of impulse without prior check on their eligibility, affordability and ability to secure a bank loan. What about non-EC projects?
We could only think of three possible reasons behind the large number of returned units:
Reason #1: Buyer’s Remorse
There might be impulsive purchases of buyers at the sales galleries. Buyers could be pressured by their property agent to make a quick decision. They committed without checking their sums or doing the due diligence.
Reason #2: Financing Problems
After placing a deposit, buyers found that they had insufficient funds, or the bank rejected their housing loan application. With uncertainties in the global economy, banks could be more cautious with home financing. Another possible scenario is HDB upgraders who are unable to sell their homes. They have no choice but to return the booked units to the developers.
Reason #3: Fake Sales
Developers or their marketing agents were not completely honest. To report impressive sales results, they were blowing their own horn. The number of units sold might include buyers who may not be ready to commit to the purchase of a new private home.
If you change your decision to buy, your option money is forfeited by the seller. If you return the off-plan unit to the developer, you have to pay 25 percent of the booking fee or 1.25 percent of the property’s price. If the purchase price is $1.5 million per unit, you will lose the hefty sum of $18,750.
– Vina Ip, Behind The Scenes of The Property Market
Monthly and quarterly URA sales numbers don’t add up?
After the Credit Suisse report was out, URA finally told the public that they would adjust the monthly sales figures submitted by the developers based on the number of returned units, starting with the January 2019 figures.
URA decided to clamp down on re-issue of OTP from 28 September 2020. The new guidelines were meant to:1) Restrict developers from providing upfront agreement to purchaser(s) to re-issue OTP; and
2) Restrict developers from re-issuing OTP to the same purchaser(s) for the same unit within 12 months after the expiry of the earlier OTP.
– Vina Ip, Behind The Scenes of The Property Market
We consumers are expected to see more accurate new unit sales numbers by developers after the URA clampdown. Because they have promised the public to do so, or have they?
At least that’s what I believe so, until URA released the 1st quarter 2023 real estate statistics. The report said “Developers sold 1,256 private residential units (excluding ECs) in 1st quarter 2023”. I was puzzled because after adding URA’s January, February and March monthly private residential units sold by developers, the total 1,315 doesn’t tally with 1,256.
Where have the 59 units gone by the end of the 1st quarter?
Are the media and analysts commenting on fake numbers?
I have to re-read all the January, February and March media articles on developers’ new private home sales. But all of them were based on the monthly private residential units sold by developers published by URA. None of the numbers in these articles could add to up 1,256. They were all filled with quotes from agency spokespersons cheering the jump in new home sales. Were these so-called “analysts” commenting on fake numbers all this while?
– “New private home sales more than double in January”, Channel NewsAsia
– “New private home sales up in January on Sceneca Residence’s robust sales”, Straits Times
– “New private residential units sold in January jump after December dip”, Business Times
– “January new home sales rebounds 130%, buoying confidence for upcoming new launches” EdgeProp
– “New private home sales up in February despite buyer’s stamp duty hike on pricier homes”, Straits Times
– “New private home sales up in March, driven by launch of The Botany at Dairy Farm”, Straits Times
– “Increased buyer’s stamp duty did not deter buyers as new private home sales rise in February: Analysts”, Channel NewsAsia
– “Demand for new private homes likely to remain ‘robust’, say analysts as sales rise 13.6% in March”, Channel NewsAsia
Are homebuyers still buying despite cooling measures?
This Monday (May 15) URA released the latest April figures of private residential units sold by developers. Excluding ECs, developers sold 887 units last month, up from 492 units purchased in March. The media all cheered for the sales results. The Channel NewsAsia headline reads “New private home sales jump 80% in April; cooling measures unlikely to impact local buyers: Analysts”. The Straits Times headline is “New private home sales hit 7-month high despite surprise round of cooling measures”.
These headlines are critical to please advertisers, keep market confidence intact and reassure homebuyers that everything is fine.
Is our private home market still going strong? Are buyers taking the plunge regardless of high interest rates and higher ABSD? Should the rest of us grab one as well in case we miss it?
Developers only started major launches these two months, including The Botany at Dairy Farm, Tembusu Grand and Blossoms by the Park. It is common sense that the more the launches, the bigger the projects, the more the units sold.
April launched a total of 779 new units for sale. It is 96.2 percent higher than a year ago when 397 units were launched in April 2022. However, sales volume of 887 units is only 36 percent higher than 653 units sold in April last year. Above all, agency spokespersons quoted in the media all seem to forget the fact that we used to have 4-digit figures for both units launched and units sold in a month. For instance, two years ago in April 2021, developers launched 1,038 units and sold 1,262 units amid another wave of Covid-19.
So what’s that to celebrate for a 30 percent lower sales last month compared with much better results two years ago against a pandemic outbreak?
Food for thought
With the start of the 2nd quarter, there are more new launches in the private residential market. Property ads posted by developers and agents flooded the social media.
Every now and then we are reminded by the vested media that there is healthy pending demand from homebuyers in the market in spite of banks’ revenge rate hikes and sky-high asking prices. Buyers are still snapping up new units over launch weekends amid punishing 20 to 60 percent ABSD.
Developers and agencies have their creative ways to report on new launch results that are published in the media to serve their own purpose. The media articles are written and published to help developers and agents to sell more units and at higher prices. None of them have the interests of the homebuyers, the property investors and the general public in mind.
Industry stakeholders are from MARS. We consumers are from Venus. Whatever we read in the media is for our reference only. We can only read with a pinch of salt.
Well, there are over 40 new condos waiting to be launched. Supply will well exceed demand. Developers, agencies and the media cannot let projects with low take-up rate (such as 26 percent units sold in the first weekend at The Continuum) spoil the market.
It looks like we have no choice but to continue to put up with more articles on property marketers congratulating each other, and more sales numbers that don’t tally at the end of the quarter.
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