Quick Guide to Everything You Need to Know About Sub-Sale

sub-sale property singapore

So you know the difference between new and resale properties, but do you know what are sub-sale properties? In this article, we'll explain what it is, why a sub-sale property happens and more.

 

What's a sub-sale property?

The Urban Redevelopment Authority (URA) defines a sub-sale as: "The sale of a unit by one who has signed an agreement to purchase the unit from a developer or a subsequent purchaser before the issuance of the Certificate of Statutory Completion and the Subsidiary Strata Certificates of Title or the Certificates of Title for all the units in the development".

Confused? In simple terms, a sub-sale property is when the original buyer bought a new launch property but wishes to sell it to another buyer before the unit is completed. 

 

Sub-sale vs resale properties: what's the difference?

Resale property transactions are fairly straightforward; a seller puts a unit that's already been completed up for sale. 

A sub-sale property meanwhile, happens when a buyer of a new development decides to sell the unit to another buyer before the development is completed, or before the issue of the Certificate of Statutory Completion (CSC).

Also, unlike resale properties, sub-sales involve three parties, namely;

1.) The original buyer (or seller);

2.) The buyer of the sub-sale property (or sub-purchaser) and;

3.) The developer 

Bear in mind that the original buyer will need to pay Seller's Stamp Duty (SSD) because he/she hasn't owned the property for at least 4 years, and will probably mark up the price just to break-even.

 

How sub-sale properties work 

Before the original buyer decides to sub-sell the unit to the sub-purchaser, he/she must first sign the Sale and Purchase Agreement (S&P), and have paid the relevant stamp duties. 

Next, he/she will need to inform the developer of his/her intention to sell. Remember, this is because the property isn't completed yet, so the original buyer doesn't have the legal title (or the Certificate of Statutory Completion) of the property.

Once a sub-purchaser expresses interest to buy from the buyer, they'll both enter into an Option to Purchase Agreement (OTP)

Then, at the request of the sub-purchaser, the developer will enter into a new S&P Agreement with the sub-purchaser with the same terms and conditions, which puts the sub-purchaser in the same position as if the sub-purchaser was the original purchaser in the original purchaser in the
original S&PA. In other words, the new S&P will have the same terms as the original S&P between the original buyer and the developer.

After the sub-purchaser signs the S&P Agreement, he/she will receive the keys to the unit once it's completed. 

Here's the typical sequence of a sub-sale property:

  1. Original buyer signs the Sale & Purchase (S&P) agreement with the developer
  2. Original buyer pays the relevant stamp duties to IRAS (e.g. ABSD)
  3. Original buyer informs the developer that he/she wants to make a sub-sale to the new buyer (sub-purchaser), and now becomes the seller
  4. Seller and sub-purchaser enter into an OTP agreement with a sub-sale clause 
  5. The developer needs to enter into a new S&P agreement with the sub-purchaser
  6. Seller/buyer needs to provide a cashier’s order to the other party depending on the difference between the selling price and the original price of the unit

 

Why do sub-sales happen?

The two main reasons why sub-sales happen are:

#1. Change in financial situation for the original buyer

The main reason sub-sales happen is when the original buyer suffers a change in financial standing. For example, the buyer bought a recently launched condo. But COVID-19 pandemic came unexpectedly and caused a huge financial strain in the buyer's financial health. To keep afloat, the buyer decides to sell the unit in a sub-sale.

#2. Sub-sale to cash in on capital gains

Sub-sale is a quick way for the original buyer to cash in on the capital gains. However, before you start thinking that you can stand to make a quick gain through a sub-sale, remember that this is quite unlikely. 

In fact, there are only two scenarios where this can happen

1.) During a property boom

2.) The original buyer bought a highly desired unit (a popular project that's fully sold, a good-facing unit, etc.)

3.) The buyer bought the unit at a deep discount from the developer

Because of the demand for the unit, the original buyer is able to fetch a higher price than what he/she paid for initially when purchasing it from the developer. 

And with cooling measure mechanisms like SSD and Additional Buyer's Stamp Duty (ABSD) in place, it has become more difficult to flip properties for quick gains.

 

Should you buy a sub-sale unit?

The short answer to that is, “Why not?”. That’s because, inherently, there’s no difference between a sub-sale and buying a new unit directly from the developer. 

Besides the fact that you will have less waiting time and that the procedures might differ, you are still paying for the same yet-to-be-completed unit. Ultimately, it boils down to whether the property is something that you are looking for to settle down and whether it represents good value-for-money. It doesn’t matter if it’s a sub-sale or not.

 

Sub-Sale trends in 2020

According to PropertyGuru's Property Market Index Q2 2020 report, the number of non-landed private property listings on PropertyGuru has increased by 41.6% in Q2 2020 compared to the previous quarter.

Meanwhile, data from URA also showed that vacancy rates have hit 5.4% in Q2 2020, a 0.8% reduction compared to Q1 2020, the lowest since 2013.

2.5% reduction in the number of planned and under construction private residential units in the pipeline supports the observation that resale and sub-sale units newly placed on the market are
the main contributors to the growth of listings in the past quarter (as opposed to newly launched, uncompleted units).

Tan Tee Khoon, Country Manager-Singapore at PropertyGuru believes that buyers might be looking to cash out as infrastructural upgrades like the Thomson-East Coast MRT Line come into operation. This might increase the number of sub-sales happening in the next few quarters.

For instance, the Property Market Outlook Q1 2020 revealed that High Park Residences had 32 sub-sale transactions in Q4 2019 just before it got completed. There could be more of such trends occurring in the near future as more infrastructural upgrades come online.

 

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