This write-up was reproduced with permission from Ray’s Estate Clinic, written by Founder, Raymond Chng. Please refer to the end of the article for more information on Raymond.
In 2019, there are close to 60 new launches coming onto the market. Many of my clients and readers have been asking me which new launch I think is the good value buy. I think what is more important is to understand more about new launch properties first, before analysing which is a good buy.
Source: Colliers International Research, URA / Image 1: Total # of units and new projects 2019
That is why I decided to blog about the 10 things you must know before buying a new launch property, dedicated to anyone who want to make a well-informed decision. Let’s dive straight into the 10 points.
1. There are buyers who bought new launch properties and did not make money until years or decades later.
Many buyers think that buying a new launch property in general is a sure-win way to make money in the property market because you are the first owner, and the price is the lowest. Let’s look at actual cases which these property owners I met faced.
The Bayshore (99years leasehold condo at East Coast):
If you bought during the launch of 1996/1997 period, you can see from the chart that prices went down and it took more than 10 years for prices to go back to their launch prices while it took 15 years for property price to breakevenfor most units as seen in the image below. In fact, prices in 2019 are still transacting close to 1996 prices as seen in the sales transaction shown in the image below.
Source: Edgeprop, collated by REC / Image 2: The Bayshore price chart
Vivace (Freehold condo at Robertson Quay):
If you bought during the launch of 2009 period, as seen from the chart, prices remained almost the same for 10 years. There are only a few profitable transactions after deducting interest payments, taxes and upkeep costs.
Source: Edgeprop, collated by REC / Image 3: Vivace price chart
To sum up the first point, it does not mean that if you buy a new launch property, you will be buying at the lowest price or you will make money. There are many case studies of profitable new launch transactions, but one must also understand the unprofitable ones.
There are many other examples of properties that have similar performance as The Bayshore and Vivace. These are just two examples which I use to discuss with some clients, especially those who remember about The Bayshore story during the Asian financial crisis.
2. Know where we are in the current property market cycle
If you are buying a new launch as a home for your own stay, this may not be important for you if you think that making money is not important to you and choosing the unit you like most is the priority.
If making profits is a priority, then knowing where we are in the property market cycle will certainly help you to make better buying decisions. Especially if you are buying near the peak of the property cycle, then you should exercise caution. There is a general market cycle and there are also market segment cycles. Although it is difficult to time the market, it is possible to identify where we are in the market cycle. Knowing the market cycle will help you be more profitable in your investments and reduce your potential losses.
Source: Mueller / Image 4: General Real Estate Market Cycle
This chart can provide us a general idea on where we are in the property market cycle based on the conditions given in each quadrant. It is important to note that if you do a deep dive analysis into each individual property cluster or district, you may be able to find different cycles in each property cluster and property type.
3. If you are buying to invest, be prepared for longer vacancy period and lower expected rents when the property completes.
When buying a new launch property, investors usually make estimates and assumptions on the future rental market when the property obtains TOP. When the property just obtains TOP, keys are usually issued in phases. The landlords who gets the key first may have an advantage to quickly furnish the unit in preparation for the start of tenancy, while landlords who get the units later may face competition between other landlords also trying to rent out their units.
Source: Wirlproject / Image 5: Choices
This is an important factor to consider especially if you are buying the property to rent out, ensure that you cater 3 to 6 months of vacancy by having the funds to pay for maintenance fees, upkeep costs and mortgage payments for those taking a loan. The first wave of tenants are likely to get a bargain because there will be some landlords who just want to rent out to reduce vacancy period, and hence accepting a lower rent.
The vacancy period and expected rents also depend where the property is located and how many units are on the market for rent.
4. Some New launch properties have huge price premium vs surrounding resale properties.
While it is common for new launch properties to have some price premium versus nearby older properties, as at time of writing this article (July 2019), some property clusters are seeing new launch price premiums of up to 40% or more.
Source: REC Research / Image 6: Illustration of price difference
Currently, this is phenomenon is happening across many property clusters. My personal opinion is that the higher the premium may mean more risk when buying the new launch property.
5. You must do your own due diligences. (dyodd)
If stock market investors take their time to do due diligence on companies, managements, balance sheets, etc. Property buyers should also do their own due diligences, especially when property is usually the most expensive purchase in our lives.
Walk the actual site area especially if the Developer’s show gallery is off-site. If you are buying a property that is 10 minutes’ walk from the MRT, take a stroll yourself to get an idea of the exact time taken (tip: google map’s estimated time might work too). You may be surprised that a 10 minutes’ walk may be longer than you expect.
6. Make sure you check how the lifts work.
While most new condos units have direct access from the unit’s floor lift lobby straight down to the carpark without having to transfer to another lift. There are some condos that require residents to change lifts at level 1 or level 2 to the carpark lift (yes, even in 2019).
If this is an important factor for you, especially for drivers, then you might get a shock when you collect your keys if you don’t do such checks and just make assumptions.
7. Check the URA Masterplan to check what are the potential buildings surrounding your condo.
Imagine the shock you get if a petrol station is built beside your condo, only after your condo obtains TOP or another tall building starts construction 1 year after you collect your keys and your view will be gone.
Source: URA / Image 7: URA 2019 Masterplan for Fort Road
It is important to check the URA Masterplan for clues on what the empty plots of land nearby the new launch property that you are interested in to avoid surprises later. Although land in Singapore can always be repurposed, the URA Masterplan serves as a good guide on land planning and zoning for the future.
8. Progressive payment is not always good.
While progressive payment is one of the advantages of buying an new launch property, especially for first time buyers whom are still building their career and businesses, make sure you don’t be over optimistic in your projection of income.
Some buyers whom projects an income that they do not hit later may face difficulty paying their monthly mortgage payments and other costs including renovations when it is time to collect keys years later. Hence, it is important buy within your means and not overextend yourself.
9. It is important to understand who your future tenants may be.
What will the location be like when the project TOP since it may take 3 to 4 years for the project to be completed. The last thing you want is to buy a condo because of a certain school / international school and when your condo TOP, they move.
Of course, there is no sure way of making sure this won’t happen, but you need to put in some effort to ask and find out.
10. Buying at launch day may not always get you the best value buy.
Unlike Executive Condominium (EC) launches where the full price list is revealed before the launch day for buyers to examine and decide on their unit choices, as at writing, developers do not release price lists before launch day. What developers do are release indicative prices.
As a buyer, when you go for launch, there will be a lot of people and you need to decide on a unit very quickly. To avoid buyer’s remorse, it can be beneficial to wait for the launch to be over before taking some time to look at the prices of units. There are times when a 3 bedroom with decent view is priced at the same price as a 2 bedroom with great view, as a buyer, you will have to think about the pros and cons of both units and consider which will provide a better overall return and which suit your needs better.
Of course, if you already know what you want, then the launch day will be your best bet at getting your choice unit.
I sincerely hope that this article is informational and benefits buyers who are interested in new launch. There are many factors to consider when buying a property and it certainly helps by understanding the market more so that you can make a well-informed decision.
As always, this article is just my personal opinion and discussions that I have with my clients and readers collated into an article. Feel free to contact me if you would like to discuss about a new launch property.
About the Author
Ray’s Estate Clinic (REC), founded by Raymond Chng, is a platform for Investors’ and homeowners to have a Property Portfolio Health Check by utilizing data analytics, ensuring that their portfolio remains healthy providing optimized returns.
“Health is Wealth” is what Raymond believes in, and it is not related only to your own body’s health, but it also refers to one’s financial health. Having a Property Portfolio that is not performing does not help improve an investor’s wealth. Hence, converting non-performing assets into optimized performing assets is essential to portfolio’s health improvement.
Please refer to Raymond’s blog for the disclaimer HERE
Also, please refer to my disclaimerHERE