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Are Early Bird Discounts At New Launches Genuine Or A Marketing Gimmick?
TLDR
When considering investing in new property projects, understanding developers’ pricing strategies is crucial. Early bird discounts are not just sales tactics; they help developers manage risks and maintain profits. Developers aim to sell all units within 5 years to avoid extra charges like ABSD and QC extension fees. Pricing stages progress from the primary launch to post-launch and TOP phases. The initial low pricing in phase 1 may lead to minimal profits, balanced out by price increases in phases 2 and 3. Capital appreciation in new launches is not guaranteed, and resale markets also come with uncertainties. Prices tend to rise after the TOP phase, with most units making profits due to developers’ pricing strategies. Owners typically wait for profits before selling, minimizing losses. Consider factors like market uncertainty and developer reputation before investing to make informed decisions.
You’ve probably heard marketing agents using phrases like “Early bird discounts” and “First mover advantage”. They use these terms to talk about the benefits of buying a newly launched property.
Typical Sales Pitches:
- “Being the first to invest can lead to substantial financial growth.”
- “Prices are at their lowest for those who buy early.”
- “The builder makes the least profit when the project just starts.”
Today, I want to talk about how property developers decide on their prices for new projects. I also want to explain why the early bird discounts aren’t just a sales trick. They actually help developers manage risks and keep their profits healthy. To understand their pricing approach, we need to know both the good parts and the challenges of being a property developer. Sure, developers want to make as much profit as they can from each project. But, most of them need to sell all the properties in a project within 5 years of buying the land.
If they don’t, they face a big extra charge called the Additional Buyer’s Stamp Duty (ABSD). Also, if they don’t sell everything within 2 years of the project being ready, they get hit with another charge. This one is called the Qualifying Certificate (QC) extension charge. It’s designed to stop people from buying up lots of land and not using it on our small island. So, most developers use a well-proven strategy to balance cost pressures, profit margins, and the ever-ticking clock.
Developer’s Pricing Strategy
In a fresh new launch project, there are often several key stages.
The first stage is the primary launch, followed by post launch, and finally, the TOP stage. This is when the temporary permit for use is given and keys are turned over to purchasers.
Let’s Start With Phase 1 – The Main Launch
The first group of buyers were quite happy. They saw their money grow a lot in just one year. You can tell from the different starting prices for the first and second groups, which we’ve shown in different colors.
In the second phase, we managed to sell 149 units over the weekend. By the time Sunday evening rolled around, Park Place was almost full – 84% to be exact. Only 70 units were left, and most of these were of a larger size.
What Happens In The Middle Phases (Phase 2 and 3)
The developer often makes little profit from their initial low pricing, known as phase 1. However, they balance this out in phase 2 and 3 by raising prices or offering fewer discounts. This strategy typically causes new launch prices to rise. It also makes the developer’s loyal customers, or VIPs, happy because they can make money from the developer’s plan.
Is Capital Appreciation In New Launches Always Guaranteed?
Nope, it’s not always like that. Buying from the resale market doesn’t come with any surety either.
Sometimes, new launches have offered extra discounts after their initial release. But this doesn’t happen often.
Recently, you might have heard about more discounts at places like 38 Jervois, 8 St Thomas and One Pearl Bank among others. These are giving today’s investors a cost benefit over those who bought earlier.
Does this happen all the time? Luckily for those buying new homes, it rarely does.
It’s key to remember that developers are businesses that need to make money. They also have to manage how much cash they have on hand so they can keep running and keep people in jobs. When the market is uncertain, they have to do whatever they can to keep going.
The good news is, you don’t actually lose money until you sell. Most owners can wait until their property starts making profit, or until the rent they collect makes up for any drop in value.
What Happens To Prices After TOP
When the final phase of a property project arrives, known as TOP, usually there are only a few, or sometimes no units left for sale.
By this point, prices would have risen several times. So, it’s fair to say, those who buy during the TOP phase usually pay the top price.
At this stage, more units start appearing on the market. Not just from the developer’s leftover stock, but also from early owners who want to sell their units for more than they paid.
These owners have owned their properties for a long time. They’ve dealt with mortgage interest costs, stamp duties, and missed out on other opportunities. So, most of them hope to make a good profit when they sell.
It’s rare to find units sold at a loss, as people generally don’t like losing money. If they can’t get a good return, they usually prefer to keep their properties and rent them out.
Consider for instance, Botanique at Bartley, Coco Palms and Commonwealth Towers shown below.
You’ll often see several units making a profit, and very few or none at all making a loss. This is mostly because of our natural human dislike for losing money, which affects how much we’re willing to sell for.
Maybe this explains why, as you can see below, the study of past records reveals that more than 90% of new launch owners earn a profit.
Most New Condos Were Resold With Profits
Among the three areas in Singapore, properties in the Outside (OCR) and Rest of Central Region (RCR) had a better chance of making money with fewer losses.
People living in these places, who needed a home right after selling their government flats or were about to have more family members soon, didn’t have the time to wait for 3-4 years for a new launch. They had no choice but to opt for ready-to-move-in properties.
So, should you consider early bird discounts and getting in first when you’re thinking about investing?
It’s good to be ahead if you’ve done your homework before putting your money into a project and you know your builders well.
Some builders are known to give discounts faster than others, which can cause harm to those who buy first. It would be smart to think about this before investing with them.
We shouldn’t assume that all new launches are safe or even that past events will happen again affecting your chances of gain. I hope this gives you a clearer idea of what marketing agents mean when they talk about early bird discounts.
Should You Buy, Sell or Wait?
If you’re reading this, you must be trying to figure out the best course of action right now: is it the right time to buy or sell?
It’s difficult to give an exact answer since everyone’s situation is unique and what works for one person may not necessarily work for you.
I can bring you a wealth of on-the-ground experience and a data-driven approach to provide clarity and direction. From beginners to experienced investors, our top-down, objective approach will help you on your real estate journey.
I can help you by:
- Offering Strategic Real Estate Advice – I can help create a comprehensive plan to guide you through your property journey.
- Connecting Your Home with the Perfect Buyers – Through stunning visuals, an effective communication strategy, and an in-depth knowledge of the market, we’ll ensure your home is presented in the best possible way to fulfill your goals.
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