In the past whipsaw pandemic year, the Singapore properties market went from essentially shut down to an unprecedented rally. But, the Singapore residential property markets recorded growth in 2021. According to sources, there were a total of 28,734 non-landed residential transactions for condominiums, apartments, serviced apartments and so on in 2021, registering sales of USD 2 billion. This was a 57% increase from 2020, when total transaction volume came to 18,295.
Of the total transactions, 12,574 were new launch properties, while 15,677 were resale properties. Compared to 2020,this is a 34 per cent surge compared to the 9,982 units sold in 2020 for new launch sales and a 79 per cent increase for resale units.
There have been numerous new project launches in 2021 across the different regions of Singapore – particularly in the Core Central Region (CCR) sales volumes jumped about 84.5 per cent over the year, from 3,008 to 5,549 units. This was mainly due to the good performance from launches in the past two years and the preference for larger homes due to enduring work-from-home arrangements.
Despite prices commanding a premium in CCR, the overall number of residential transactions for new luxury properties sales volume have increased by 2,627 units from the total number of 5,549 in 2021 compared with 1,260 units sold in 2020 from the total number of 3,008.
The sustained growth over the past 1.5 years of the private property market in Singapore is a strong signal of home sellers’ unwavering confidence in the market. The housing price growth is likely to continue, but it is showing signs of slowing down, alongside decreasing transaction volumes.
A slowdown in the residential real estate market may be bad news for speculators in the housing market – but good news for genuine homebuyers and long-term investors. Now it’s a good time for you to make decision on purchasing a condo. The question is, when you are looking for an investment property should you be looking at a newly launched condominium or well-maintained resale condo? Which one has more potential to help you make some gains in the future?
Price is definitely one of the most important considerations for condominium buyers when choosing between a new condo or one from the resale market. Generally, new launches are generally smaller and higher $psf if compared with resale units.
But does that mean resale condos are better buys?
In a recent research report by List Sir for for Q4 2021, it shows that the price gap between new launches and resale condos is getting further apart. The price gap widened significantly during the pandemic period of 2020-2021 mainly because the limited supply of new landed homes fell short of the strong demand. This, coupled with the shortage of labour and rising construction costs due to supply-chain disruptions, resulted in a steep rise in the prices of new landed homes. Based on URA Realis in Q4 2021, the average price of new homes was S$2,247 psf as opposed to S$1,414 psf for resale condos.
Over the 2010-2021 period, the price of new landed homes nearly doubled from S$1,146 psf in 2010 to S$2,247 psf in 2021 while the price of resale landed homes grew by 74 per cent from S$811 psf to S$1,414 psf. This in turn translated to a gap of 41 per cent between new and resale landed home prices in 2010 which widened to 59 per cent in 2021. If newlaunches are smaller and more expensive in terms of $psf, but why are more buyers buying new launches?
Capital Appreciation #1: New Launch Buyers Enjoy First Mover Advantage
In the resale market, when a homebuyer purchase a property from the seller, the home seller is likely making some profit from the buyer, commonly refer to as capital appreciation. This way, the homebuyer who buy the resale property will usually have lesser room for capital appreciation in the future.
Whereas in the new launch property market, homebuyer buy direct from developer, without the middle man (the seller in resale market) making a profit, so buyer will have potentially much higher upside potential in the resale market. This is proven with facts and figures, where many homebuyers who purchased a unit from developer in the new launch are making nice profit in the resale market after the property is completed. Some called this a first mover advantage.
Based on research by OrangeTee & Tie, about 9 out of 10 who bought new homes from the developers in the last 10 years made profits. Developers sold 115,610 new homes in the last ten years. About 15% (16,017 units) were resold with an average gross profit of $220,000. These profitable resales were across different market segments.
Why did most of the homebuyers of these new launches make money for their investment property? The reason was they enjoyed the first-mover advantage. As the saying goes, “early birds catch the worms.” The best time to buy is during launch. Developers typically offer their lowest prices to entice buyers and to spur sales. This approach helps to create hype. Over time, as the project sales move, it is not unusual for developers to start increasing their prices at various stages. There is a TOP effect where buyers are willing to pay a premium to see the finished products and enjoy immediate occupation. So those who buy at launch generally will make a profit.
Price Preservation
Owners who bought first hand will rarely sell at a loss because of price preservation. What if you buy a unit from the first owner who paid the developer’s launch price? Let’s suppose the launched price of the unit you bought was $1,400psf, but you paid $1,700psf. Five years later you want to sell at a 10% profit. So, you need to sell at $1,870psf. But you would be competing against many first owners who bought at an average of $1,400psf. These owners will limit your upside potential. If you buy a new condominium, you are on an equal playing field as all others when putting their property on the market. Since every owner wants to make a profit, you will likely make a profit too on your investment property.
Low Move-in Cost #2: New Launches Have Lower Cost of Maintenance
One of the major considerations when choosing between a new launch and resale for your investment property is the cost of renovations for the latter. This cost involves your cash reserves. For an investment property, it is not ideal to eat too much into your cash reserves.
With a brand new property, all features and fittings in the unit are brand new. You will enjoy the latest facilities and design in your unit without having to fork out additional cost beyond your purchase price. Also, you won’t need to spend tens of thousands of dollars for renovation and repair costs, like having to knock out the in-built cabinet or wardrobe that a previous owner installed, or to tear out an interior design that you don’t like, which could happen with a resale property. And if there is any defect, they are covered under the one-year defect liability period by the development’s TOP. The saving can be quite substantial.
Older resale properties however, do not have such solutions and may even come with problems such as choked plumbing, damp ceilings from air-conditioning leaks that are solely your liability as the incoming owner. Full renovation and repair works can include carpentry, electrical wiring, plastering, flooring, painting and wet works that can add up to quite a large sum, over and above the purchase price of the property.
Rentability # 3: New Launches are Easier To Rent Out
If you are buying an investment property and deciding between a new launch versus a resale condo, new launch will definitely has an edge when looking for tenants simply because it is new and better, even if it is smaller.
Today, tenants are spoiled with choices. Potential tenants will almost always go for condos that are newer and nicer. New condos not only are easier to rent out than the older ones but also they enjoy better rental yields.
The older developments lose out to the brand new condos on the facilities. For the interior of the units, owners will need to renovate the apartment, sometimes extensively, to make it more tenantable.
It is not uncommon for tenants to be concerned about the state of the air-conditioners if they are old. They are worried about things breaking down, such as washing machine or refrigerator.
If the apartment is brand new, everything that comes with it is brand new and under warranty. The developer covers even the first year servicing of the air conditioners. So it’s hassle-free both for the landlord and tenant.
Features and Perks provided by Developer # 4: New Launches Have Better Designs and Facilities
Another advantage of a brand new condo is that it usually comes with features that older ones do not. For example, some condos today are smart homes, allowing residents to control the lighting, air- conditioning and even security systems of the unit remotely through their smartphones.
Outside of the individual unit, the main appeal of a new launch is that its facilities are also brand new, instead of being worn down by use, like with a resale property. These new condos also come with newer types of facilities such as rock-climbing walls and concierge services that are unheard of with older resale condos. This does have an impact on rentability. Many tenants prefer a condo where the pool is new, or a gym that has state-of-the-art all-new equipment.
Developers also usually offers perks to the first residents of a new condo. Some perks include services such as free shuttle bus rides to the MRT station. Other perks may include access to wellness facilities such as one year free club membership for classes like yoga, aerobics, cooking, and tennis, to name a few.
Chance for Early-Bird Discounts # 4: Half of developers likely to cut prices of Singapore new launches
New launches most of time – start with loss leaders. The first few units sold, such as the VVIP preview, are often just to start the ball rolling. The buyers in the first phase could manage to shave off 10 to 15 per cent of the price. This could be a direct price discount, or it may involve absorbing some stamp duties.
Early bird discount at the preview before the official launch. The purpose of this is to stimulate demand and to create a buying momentum. Once this purpose is achieved, the developer would then remove the discount so as to maximize his profitability.
Another way to get a good deal is by purchasing a fire sale property. This is when developers provide buyers with discounts for projects nearing the 5-year Additional Buyer’s Stamp Duty (ABSD) deadline.
ABSD rule means developers need to complete and sell all their projects within five years, or they’ll have to pay 25% of the land price with additional interest. This leads developers to reduce their prices to sell off remaining units as fast as possible.
So which is better for investment, new launch or resale condos?
No matter you are homebuyers or real estate investors, the new launch residential property would be ideal for purchase, considering their high ROI. When the prices start escalating after 3 years, you may sell them off. In case you are ready to expand the portfolio of your residential real estate investment, it’s logical enough to go for new launch projects. The investment would be worthy indeed, considering that you save a significant amount. Moreover, you would be able to enjoy a decent profit margin and get to save on seller’s stamp duty (SSD) in case you sell it off after holding it for 3 years.
However, you need to take guard on certain aspects. Firstly, make sure to purchase branded high-end residential from established real estate companies. This would prevent you from landing upon unnecessary legal and financial issues. Secondly, check out the location of the project. Places with infrastructural developments going on close by are likely to witness a spike in the price of real estate. This implies that the investors would be gaining more when they sell them off after a few years.
Well, now you know why it makes sense to investing in residential property while they are in the new launch phase. Apart from making good savings, you can customize the housing property as per your requirements. Moreover, chances of making monetary gains on selling off the properties are higher.
Even though the CCR might be made up mostly of high-end properties, there can still be a few value finds. Below are some best-selling new launches CCR in District 9 for you to consider for expand the portfolio of your real estate investment.
Best Selling CCR New Launches in District 09
Source: URA Developer Sales plus December 2021 data as of 30 December 2021.
Considered one of the best-selling project in CCR, The Avenir sold 199 units in 2021 at an average price of $3,150 psf.
10 River Valley Close, Singapore 238438
Conclusion
These are but a few of the reasons why you should consider buying a new launch condo as opposed to a resale property. If you are planning to buy an investment property but not sure as to what is the best option, do feel free to contact us for a non-obligatory discussion.
And alas, if you find yourself stuck in a rut even after weighing all possible options, you may need a professional’s opinion. In this case, schedule a visit with us or book a free consultation with our trusted and renowned representative.
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