Understanding New Launches and Resale Properties
You might have experienced many real estate salespersons asking you to buy new launches instead of resale properties. As there are about more than 50 new launches in the market in 2020, real estate developers are competing with each other for the sale of their projects. The only way to do so it by rewarding their marketing agents with fat commission, and in order to maintain their profit margin, they will have to increase the sale price. Yes, property buyers are paying the commission to the real estate salespersons, indirectly. No wonder new launches are getting much pricier than resale properties in the same vicinity despite only slight difference in ages.
The reasons you buy new launches are that if you only want brand new houses, the project is the only one located close to next MRT station of your choice, or it is close (or far) from your parent’s house. You must be willing to pay top dollar, and patiently wait for 3-4 years. Other than that, you should avoid new launches, and instead go for resale properties. Here are the 5 reasons why.
1. Immediate Benefit
When you purchase a piece of property, you are paying for the right to use it for own stay, or the right to receive a stream of future rental income for investment. With new launches, there is years of delayed enjoyment. Your down payment and progressive payments that entail are collected by the developer to fund for the construction of the project. Now your money is stuck, and you need a temporary house to live in. Living with parents, you have to bear with the inconvenience. Living in your own property or rental property, there is opportunity cost and extra expenses to incur after already having to start paying for your monthly mortgage installments. Now I leave this to you if you would like to add this extra inconvenience or expenses into your new launches purchase price for consideration.
2. What You See is What You Get.
Show galleries are decorated tastefully to excite you. I would like to share with you feedbacks that I often receive from regretful buyers of new launches. Some complain that units are not as spacious as expected, there are design defects that are not possible to rectify, poor fixtures and finishing just to name a few. With resale properties, you can inspect the physical condition of the property and the common area of the development. You can also gauge traffic noise, pest or rat issues, and identify your future neighbours.
3. Resale Units Are Bigger in Size
With rising land and construction costs in Singapore, developers have to creatively figure out ways to create smaller units yet enticing enough to prospective buyers and within their affordability. Typical 3 bedrooms units were used to have sizes above 1,200 sqft, and now we can see many that are below 1,000 sqft. Mirrors are built in the show galleries to trick your mind into thinking the space that you are getting is bigger than the actual.
4. Resale Units Are Much Cheaper
Well, you might think the logic holds true that new items are more expensive than used items. After you begin staying in the property for a few years, the effect of the newness becomes dwindling and your property has also become resale properties. In certain places, new launches price can go 30-40% than the resale properties of 5 years old in the vicinity. When you decide to sell your property in the future, are you confident that it can fetch 30-40% higher than your neighbour project? And with point no.1 referring to you unable to immediately move-in to your new launches, you need to set aside budget for your rental house and you should add this cost to your total purchase price.
5. Higher Collective Sale (En-bloc) Potential
Our government aims to continuously rejuvenate our country, replacing the olds with the news. In making this happens, our government allows real estate developers to obtain lands privately from the secondary market. In strata-title properties, it is near impossible to obtain approval to the collective sale from 100% of owners. Differing opinions in terms of price, sentimental value to the property are often the reasons given by the disapproving owners, or commonly known as minority owners. Laws are placed to pave the ways for developers to obtain land while ensuring fairness to property owners. For residential properties that are 10 years and older, only 80% of owners (by share value) are needed to agree to the collective sale, whereas properties of less than 10 years of age require 90% approval.
You may have heard many property owners are getting fat pay check from real estate developers in the collective sale exercise. Why shouldn’t they? In a collective sale, owners can achieve sale price of between 30-40% higher than if he/she is to sell it to an individual buyer without the need to even pay the usual 2% commission. The commission fee payable to the marketing agent for collective sale is typically between 0.3% to at most 1% due to the large quantum. In 99-year leasehold new launches, collective sale may not even cross your mind. If you are prudent in your resale properties selection, you may be one of those future lucky owners.
Blog written by: Sumitro Ong (Key Executive Officer of Lands Way Real Estate)