Some of you may be gearing up when the Circuit Breaker ends to "chiong" (Singlish for rush) and buy a property if you have been eyeing one for a while already.
So in this current climate, which is a better investment?
Market watchers have observed that there will be a big downward price pressure and there are, more than ever, many eager sellers on the market.
The Property Guru Singapore Property Supply Index (SPSI) indicates a 41.6% jump in listings in Q1 of 2020 compared to Q4 of 2019.
There is also a large number of HDB flats that are hitting MOP entering the market, all the way till 2022. The upgraders will be propping up the market whilst there is also a healthy fundamentals put in place by the TDSR (Total Debt Servicing Ratio) and LTV (Loan to Value) limits.
Though the external market environment and the global economy will be struggling to get back on its feet, the Singapore property market in Q1 of 2020 has seen healthy volumes of private homes being sold.
The fundamentals of the property market in Singapore is strong, however, the trend of growth will be muted for the second half of 2020. Industry experts do foresee a slight downward trend of prices, which is to be expected.
Not all sectors will be performing the same though. Core Central Regions (CCR) tend to correct the most in the past crises like AFC (Asian Financial Crisis) and GFC (Global Financial Crisis). Outside Core Region usually will remain stable and sometimes even go against the trend.
Traditionally, comparing between resale and new launches in the private sector, new launches will be the preferred choice as the capital appreciation is much better for new launches.
The appeal of new outshines the ability to move in now into a resale. A new condominium comes with a 1-year warranty period for defects. The modern and up-to-date design makes the apartment more appealing to tenants as well.
1) New is more Appealing
In addition to the defect warranty of new condominiums, you also don't need to spend too much on renovations as everything comes looking modern and fresh.
Facilities such as a rock climbing wall, aqua gym and concierge services amongst others is not common in older condos. Some new condos are also installed with smart home features as such controlling the light switches with their smart phones and ability to see their home from their phone when you're outside.
2) First Mover Advantage
According to OrangeTee & Tie Research Consultancy, 9 out of 10 buyers who bought new launches made profits.
Out of the 115,610 sold by developers in the last ten years, about 15% (16,017 units) were resold with an average gross profit of $220,000.
For new launches, developers usually price the first phase of its launch attractively to gain positive write ups from the media as well as to have good sales record from the get go. The developers usually releases the condo in phases and with each phase released, the price increases slightly. They also tend to keep the better stacks for later phases of the launch as they can sell those for the highest psf. 3) New condos tend to have lower maintenance costs The older a property gets, the more maintenance it requires. This applies to the common area as well as to the internal area of the apartment. Inside the apartment, you may encounter yellowing walls, leakage, choked pipes etc. The maintenance costs of the facilities gets more costly as the older the equipment gets, the more it costs to maintain it. The amount you pay for maintenance for a new one may not differ very much for an old apartment. 4) New condos tend to have Lower Quantums When you look at the high psf of the new launches, how can they be more affordable? The size of new condos have shrunk over the years. In the 1980's-1990's, a typical 3-bedroom would be anywhere between 1600-2000 square foot. Then before 2009, a lot of the space goes to bay windows, large air-con ledges, double volume spaces and balconies. Today, the 3-bedrooms are a mere 900-1200 square foot. The land prices have risen over the years, and to make the prices more affordable to buyers, developers have shrunk the overall size of the apartment. TDSR Total Debt Servicing Ratio was introduced on 29 June 2013. This cooling measure had a huge impact on the market as it limits the maximum loan to 60% of the borrower's gross income. The loan includes all kinds of loans including student loans, car loans, credit card loans, property-related loans, unsecured or secured loans including revolving loans. The lower quantum therefore fulfils the TDSR criteria. E.g. 3 Bedroom at Gem is $1.2m vs 3 Bedroom at Trevista is $1.5m. To afford a 3BR at Gem, you need to have a gross monthly income of $7,500 whereas a 3BR at Trevista, you will need to have a $9,000 a month income.
Quantum, therefore, is more important than per square foot costs.
5) Price Preservation Owners who bought at the initial launch will have a vested interest in maintaining the prices. It is also human psychology to not sell at a loss. And many owners will feel the same way. What then is the advantage of buying resale?
1) What you see is what you get
You are able to accurately ascertain the actual condition of the apartment and the current rental rates, noise levels, actual neighbours, facing etc.
You will be able to get a return on your investment fairly immediately. You also will know what is the rental return for the apartment you are viewing. It may even be sold with a current tenancy.
2) Ability to move in without having to wait
You can view a renovated unit with minimal renovations needed or you can buy an original condition apartment and spend at most three months doing renovations.
New launches can take three to four years to complete. You will not have the immediate gratification of moving in like a resale unit.
3) Bigger Space
With new apartments getting smaller and smaller, resale units at the same quantum will most likely get you a bigger space. If you will be living in it, this is definitely one key factor to consider. 4) Higher Chance of Spotting a Good Buy What you have to know is buying new launches comes with a premium price tag. Though there may be discounts from developer and sometimes their price is even negotiable, it is almost a certainty that you are paying a cut above a comparable unit in the same location. When you have already narrowed down on a particular development, and have been combing the listings for months, you may be able to spot fire sale units and units that are selling under value due to a variety of reasons e.g. divorce, inability to service mortgage, etc. Especially in a time of crisis like this one, you can be sure there will be people falling into those categories.
5) You can choose the location that best suits your needs
If you need to stay near the in-laws, you can choose the location that is near them. The new launches are in more selected places that may not be as convenient as resale condominiums.
Conclusion is... It depends on what your goal is. If you are buying for investment and not for own stay, consider the numbers carefully. If you are a seasoned investor, new launch is the way to go. If not, resale units would be the better choice if you are a new landlord. However, if it is for your own stay, in this current climate, if you can spot a sure fire sale in the resale unit, that would be a good opportunity. If not, it is also safe to opt for new launches if the timeline isn't urgent. I would advise to start looking for units in the third quarter of this year. Do contact me to find out which new launches have slight discounts and is a good buy in this current crisis.
If you are feeling a little bit lost, why not schedule a 1-time free 30-min Property Wealth Planning (PWP) consultation via ZOOM?
A PWP consultation includes:
- An in-depth financial affordability assessment
- Highly relevant investment insights
- A clear and customised investment road map for your real estate investment journey ahead.
About the Author, Susanna Wong:
Susanna has been in real estate since 2006. She has transacted many private properties including GCBs (Good Class Bungalows) and Sentosa landed properties and of course HDBs. She is married with two lovely girls, Sophie, 6 and Sage, 1. Her husband, Roger and her share an obsession for MMORPGs and scrabble. They met on OKCupid (dating app) while challenging each other on Words with Friends (iphone App game). She loves watching binge watching Netflix in her free time (very rare with two children!) with a tub of Ben and Jerry's.
