Saturday, August 25, 2012

Developers may slash prices to boost luxury home sales

Even as government policies and an economic slowdown dampen investor interest, the growing number of unsold homes could bring about further price correction leading to renewed buying interest, according to Savills Research & Consultancy.
“Bargain hunters may come out in greater force when more developments reach the end of their two-year post-completion deadline to sell all the units,” Savills noted.

“Developers who fail to dispose of all their units will incur a charge of eight percent, 16 percent and 24 percent of the land purchase price if they were to extend their sales period into the first, second and third extra years respectively, pro-rated according to the number of unsold units.”

Moreover, Savills stated that some developers have appealed for a waiver to the extension charges. But if these are not granted, developers with limited capital will likely block-sell units at lower prices or offer larger discounts before the two-year window period ends. 

On the other hand, developers with holding power could resort to paying for the extension of their sales window while maintaining their current prices. Others may even opt to pay the ABSD and transfer unsold inventory to an investment company to lease out units as investment assets while waiting for the price to appreciate in the medium term.

Savills added that a price correction could occur in the luxury segment as prices for these units remain high. Along with the supply of 19,056 units expected in the coming years, “any price cuts could trigger a resumption in demand, possibly resulting in sales hitting 1,000 units per quarter until the end of the year”.

“Already, more than seven major developments are slated to be launched within the next six months. We could expect moderate take-up of up to 30 percent in the initial launch period.”

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