Resale Vs New Launch Condos. Which Should you Choose?
Updated: Jun 2, 2020
I get this question a lot. "Should I buy a resale property or should I get a new condominium that is still under construction?"
2 key points always comes up.
Its only natural, pricing has always been and will continue to be a key deciding factor. However, we really need to peel back on the 'sticker' price and look beyond the dollar figure. It may be true that the pricing for resale units may compare favourably to new launch units. But there a few things to note and hidden cost to consider.
- For older condo units, maintenance requirements to upkeep the facilities would increase, and this would lead to higher maintenance fees.
- Resale units will also generally require more extensive renovation/internal work whereas for new launch units, the buyers will be entitled to a 1-year Defects Liability Period (DLP), meaning the developer will correct any defects in construction/fittings/fixtures within 1 year from the day you collect your keys.
- Most new launch units will also come pre-renovated with new flooring, kitchen cabinets, bathroom accessories, major appliances, air conditioning and in most cases now, smart home features which are all covered under warranty as well.
- The advantage for a resale unit is that unlike new launch units, there is no need to wait for up to a few years before the unit is ready for occupation. Resale transactions follow the typical timeline whereby within 10-12 weeks, the unit will be transferred to the new owners.
- New launch units follow a progressive payment structure whereby payment to the developer will be due once certain construction or regulatory milestones are completed. For some developers, there might also be the option to stretch out timing to exercise the option to purchase. All this has the benefit of providing more flexibility in terms of cashflow (eg. to receive funds from the sale of the current property) and also to avoid a situation whereby the Additional Buyer Stamp Duty is made payable.
Now, the key question that I will ask is, and this is something that is unique to each buyer's personal circumstances, "What is the reason for wanting a new property?"
Is it to upgrade to a bigger home? To move nearer to a school or be closer to their parents? Is it for an investment? Or many of the other myriad of reasons.
So it really depends on what the key motivating factor is.
For example, if it really is for family or academic reasons, it will be limited to what the choices are available in a location and most likely the new launches, if they are available within the desired area, will not be able to meet the timeline requirements.
But, if it is for the purpose of investments or even upgrading, here are 3 reasons why a New Launch will be a better choice:
1) New Launches are more Profitable
New launches tend to be more expensive on a per square foot basis when compared to resale units.
Resale units have hovered between $1300-$1400 per square foot, whereas new launch units have over the last 4 years increased from about $1500 to above $1800 per square foot. So the pricing gap has definitely widen.
So does that make resale units a better buy? Let take a look at some examples.
Artra Vs Ascentia Sky
Launched in 2017, Artra has not only seen strong interest with almost 99% sold to date (that's right, only 5 units remain unsold), but also a steady increase of over 20% in 4 years.
With a starting per square feet price that was above neighbouring resale units, it would have been tempting to put your money into a resale unit instead. Case in point would be prices over at Ascentia Sky. Average prices, though steady, have not moved much at all and the opportunity to achieve a profit would have been wasted.
Stirling Vs Queens
Just a MRT stop away over at Queenstown, we have Stirling Residences which was launched just 2 years back. Right next to it is the Queens condominium. Even closer to the MRT than Stirling, and at a price 20 to 30% lower, it would seem the obvious choice if we were to go back to 2018. However, the numbers tell a different story. A 7.75% average price appreciation vs a slight decline of 0.41% should tell us which was the better option.
Seaside Residences Vs Mandarin Gardens
Expected to TOP in 2021, Seaside Residences will be one of the newer developments along the Marine Parade/East Coast stretch. Just across the road, we have Mandarin Gardens which some consider one of those older iconic projects built in the 1980s.
With prices hovering around the $900 per square feet mark, an investor would not be faulted for considering a unit over at Mandarin Gardens when compares to the $1700 per square feet that he would have to pay at the Seaside Residences at the time of launch. Fast forward to the present and again it is clear which of the 2 developments would provide the better investment return.
Price Advantage and Protection
An important and related point to profitability of new launches has to do with how developers typically sell new projects. Right at the start, they will often push out early bird discounts to attract buyers and create a buzz around the latest development in the market. That is when the best prices can be had though not all available units may be made available for selection. Developers might even be willing to take a loss on these units to "get the ball rolling" and to get positive market news.
Subsequently as constructions gets underway, and depending on the sell-through rate, we may see slight upward adjustments of 1-3% on the pricing. Once the project achieves certain sales milestones (for example 60%), the developer can again decide to adjust prices upwards. This also has the added effect of persuading undecided buyers to commit before the increase in prices.
Nearing to the TOP date, another group of buyers that have a need for a ready unit and feel more comfortable seeing a finished product would show interest and this again would cause an uptick in demand and lend good support and reason for a further price increase.
It is an irrefutable truth that all buyers would want to make a profit from their investments. Given the transparency provided by various official sources, it is easy to ascertain the current pricing that the developers are selling their units for.
In addition, the starting point in terms of pricing for buyers of new launches, regardless of when they purchase their unit, is tightly group together. Therefore this helps to create a price expectation and floor that most buyers would adhere to. Of course there may be cases when certain buyers face personal difficulties and would need to sell at a lost. However, by and large, and with the incremental increase in pricing by the developer, there is a certain price protection for buyers of new launches.
2) Lower Maintenance Cost
Apart from having newer and better designed common facilities, new condos will come with brand new appliance, air conditioning, flooring, wardrobes, plus a one year defects warranty by the developer. These days, most will also come equip with a Smart Home System.
What this means is that the unit is in good shape to accept owners or tenants and there will be no need to spend more money on renovations and electric appliances. A new condo with everything brand new would also naturally attract more potential tenants.
Resale units on the other hand may require further capital expenditure, which can range greatly, to get the unit up to a move-in condition. From changing the air-conditioning and pipes to a new coat of paint, all this would require more funds to be allocated.
Maintenance cost for older resale units tend to be higher as well as common facilities start to suffer from wear and tear with age. This additional cost to upkeep the condominium premises will result in higher contribution requirements into the sinking fund from all owners.
3) Better Rental Yield
To put in simply, rental yield is the amount of rental income the property generates, versus its purchase price. In other words, it will be the annual return, in percentage, from your property investment.
With all things being new, new condos tend to command a premium in terms of rental when compared to the surrounding older projects. While the per square feet selling price of older condominiums may be lower than new condominiums, they tend to be bigger in size for a unit with the same number of bedrooms. For example, a 3 bedroom apartment at City Square Residences will be between 1195 to 1238 square feet whereas over at Sturdee Residences, 3 bedroom units will range between 947 to 1044 square feet. The extra area will have an impact on the total quantum paid by the landlord but this will not correspond with an increase in rental rates for a unit with the same number of bedrooms.
As you can see from the above, Sturdee Residences which just TOP in 2020 has the highest rental yield compared to the older developments nearby. This is despite the fact that their units on average are smaller.
Some Final Words
You know, whether you select a resale or a new launch condominium as your next property will be based largely on your personal requirements at that point in time. From a purely investment perspective, the research and data does show that new launch condominiums can help to achieve those investments goals at a faster rate.
If you have plans to acquire a property for investment but unsure of what your best options and strategy should be, please feel free to get in touch for a non-obligatory discussion. I'll be happy to share more with you!