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5 Frequently Heard Sales Pitches from Agents Encouraging You to Choose a New Development Instead of a Resale Condo: How Accurate Are They?
TLDR
While some agents may discourage resale condos due to personal incentives, the difference in profits between resale and new launches is minimal—91% of resale buyers and 89.8% of new launch buyers made profits in recent years. Arguments against resale condos, such as higher renovation costs, less efficient layouts, and greater mortgage expenses, are often overstated and depend on individual projects and circumstances. Renovation costs can be offset by purchase price savings, and some older condos offer unique features or potential en-bloc gains. New launches might offer progressive payments but require waiting for completion. Ultimately, whether to buy resale or new depends on your needs, goals, and specific property details. Always compare carefully and consult a mortgage advisor for financial planning rather than relying solely on sales pitches.
Some property agents are trying to steer you away from resale condos, possibly due to higher commissions from new launch condos or a lack of availability. This seems to be a growing trend. We will explore the reasons they provide and assess their validity. Here’s what to consider when you hear that resale condos are not as good as new launches:
To begin with, it’s essential to highlight the comparative performance of resale condominiums in relation to new developments.
In late 2022, we looked at how resale properties stacked up against new launches over five years. We found that 91% of resale buyers made a profit, while 89.8% of new buyers did. The difference is small, so we question any claims of major profit or loss differences based solely on whether a property is new or resale.
Ultimately, it’s not a clear-cut choice between resale and new launches; it depends on the specific project.
1. You are already purchasing at a price that exceeds what the previous owners paid, which means you are taking on greater risk by buying at a later stage.
The logic is like this: original owners of a resale condo bought it for about $900 per square foot ten years ago. Now, if you buy, it’s around $1,500 per square foot. So, you need to wait for prices to rise more to get a good return.
This isn’t much of an issue when the market is strong, as everyone wants to sell for the highest price. The problem comes when the market is weak. Original buyers may sell for less because they’ve already made returns, which can lower the average price of the project, hurting your investment. Therefore, it’s better to be an original buyer by purchasing a new launch at lower prices.
This logic makes sense, especially with older developments that haven’t sold in a while. Your neighbours would appreciate that someone bought at a new high price for the project.
However, this can be hard to confirm. Some older resale condos mostly have resale-to-resale transactions, meaning many current owners weren’t original buyers and may have bought at higher prices recently.
Also, buying a new launch doesn’t guarantee that your specific unit will yield better returns than a resale unit. Some buyers of older units have profited from en-bloc sales or found eager buyers due to unique features (like larger sizes). This is particularly true if you’re not one of the early buyers of the new launch and are buying later or at a higher floor, where prices tend to be higher.
2. The savings from purchasing a resale unit are often diminished by the increased costs of renovations.
Resale condos often cost more to renovate than new ones. With new launches, you might be able to move in quickly after buying furniture, needing minimal renovations like light installation and without buying appliances. However, this depends on a few factors:
Firstly, some resale units may have been recently renovated. If the previous owners renovated just two years ago, you could move in comfortably and plan for future renovations. This gives you time to save money for renovations.
Secondly, if you save $150,000 by choosing a resale unit over a new launch, it’s unlikely that renovation costs will significantly reduce your savings unless your renovation plans are very expensive.
Additionally, while resale flats may require more renovations, they save you time. Renovating might take a few months, but that’s quicker than waiting several years for construction on a new launch and then more months for its renovation.
Also, paying for storage and temporary accommodation between homes can further reduce your funds.
3. The initial launch prices may be steep, but it won’t be an issue as you can sell it for a higher price once it’s finished.
New launches often have higher and more certain profits because developers usually price them strategically. In Singapore, they often use loss leaders, selling the first few units at lower prices during initial phases, then raising prices later. This gives the impression that even if new launches are priced higher than resale, they can still be sold for a profit later, possibly before completion.
However, there is a risk that developers may not increase prices later; sometimes they even drop due to urgency or difficulty selling the remaining units. This has happened enough to warrant lists of such instances.
Additionally, it’s common to back up claims of rising property prices with examples of new GLS plots selling for higher prices. While this trend has been observed, it isn’t guaranteed. Recently, bids for land in areas like River Valley came in lower than expected. For instance, CDL and Mitsui Fudosan bid $1.1 billion for a plot on Zion Road, translating to about $1,202 psf, which is below the anticipated range of $1,300 to $1,700 psf.
4. Purchasing a resale condominium will result in higher expenses on mortgage interest.
This is true if the new launch is not finished yet. For condos still being built, you’ll use the Progressive Payment Scheme (PPS), where your monthly payments increase as the developer meets certain milestones. This helps you save on interest since it isn’t charged on the full amount until the condo gets its Temporary Occupancy Permit (TOP).
You might hear that resale projects need larger cash payments because sellers often ask for more than the property’s valuation. This is likely true: banks will lend a maximum of 75 per cent based on the lower of the property price or valuation. For new launches, though, the developer’s price is seen as its value, so there’s no difference; this means lower initial cash outlay.
However, the savings on monthly loans may not be as much as those from buying a cheaper resale condo, especially if your loan amount is small and interest costs are low.
Calculating the exact numbers is crucial, and it’s best to consult a mortgage broker rather than a realtor, as they have more expertise in financing.
Another aspect to consider is the time it takes to build and pay for a new condo. If you bought a resale condo and rented it out during that time, the rental income could offset the interest savings from the new launch condo. So, this benefit might not be as significant as it appears.
5. Resale condominiums may appear larger in documentation, yet they often lack efficient use of space, resulting in potential financial waste.
This is a counterargument if you prefer a larger resale condo due to its size. It’s true that some older condos have less efficient layouts, often featuring more corridors, separate dining rooms and kitchens, and larger balconies.
Condos built in the 2010s may also suffer from developers trying to maximise chargeable areas, creating larger air-con ledges and planter boxes. This means that while the floor size might seem bigger, the actual living space can be similar due to wasted areas. Consequently, a new launch could be less expensive even if the price per square foot is higher.
However, it’s important to remember that size isn’t everything. Some resale condos have unique layouts and features not found in newer ones. For instance, terrace-style condos from the 1980s boast large balcony spaces for outdoor activities. Some buyers may prefer enclosed kitchens or dining areas, or may not like modern layouts where the front door opens directly into the living room.
We don’t consider these preferences a “waste of money” if they make you comfortable at home.
While these points are valid reasons for choosing a new launch, sales pitches often oversimplify the situation, which can be more complex than it appears. If you need help comparing options, feel free to reach out to me.
For a more detailed consultation, you can contact me here.
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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