Investment value of New vs Resale Property


 

A New Condo or New House Feel

When you are looking for a house you want to call home, you will most likely prefer a brand new property as compared to a house that someone else has lived in. With new condos and especially buying directly from new condo launches, you are assured that you have a better chance of getting to choose your preferred layout, view, facing, furnishings and location of what you will call home for the next few years. This also applies if you are intending to buy a new landed property or cluster house directly from developer during its initial launch.

 

Quality Guaranteed

Quality is guaranteed when you purchase a new home as they are built with the most up-to-date developments in construction and workmanship. They also come with a one-year defects liability period, so if anything does go wrong during this initial period, you will be covered and are not required to pay for any correctional work. In comparison to new condos or houses, if you have purchased a resale property, there are renovation costs and also the risk of unknown hidden costs that might surfaced after moving in. Defects such as leaking pipes, water seepage in walls and windows that are not known may only be discovered after handover.

 

Financial incentive

  • Investment Perspective

From the investment perspective, whether you should buy a new condos at launch or a resale property depends on the location your intended purchase is. If you are buying a property in an area where government is planning to develop into a 2nd CBD, buying a new condo during launches enables you to purchase a property in a high growth area at today's land prices (before growth).

A property's price is an aggregate of its land price and the building price. When you purchase a resale property, you are buying the property at today's land price and today's depreciated building price. In an established area, the land price would increase on a yearly basis but the wear and tear of the building would result in a decreasing building price. With the building price estimated at 2/3rd of the property's price, the price of a resale condo will decrease on a yearly basis (unless the land price appreciates fast enough to cover decreasing building price), resulting in what is term as depreciation. After about 10 years, the ratio of land price vs building price will gravitate from 1/3rd - 2/3rds new to 50/50. The reason why resale property are sold at higher prices than the buying cost is because the property is demanding the appreciation of the land. It is the building component which depreciates while the land is valued at market price. There are of course other factors in play such as the inflation rate.

 

All sums being equal, in comparison to resale condo, buying a new condo in a high growth area achieves 3 benefits :

  1. buy the property at today's land price
  2. depreciation does not kick in till completion
  3. the land price component is likely to have appreciated between the time of purchase and the completion.

 

This means that an investor will have a higher probability of achieving profits from the new condo purchase.

 

  • Price and Risk Perspective

From a price and risk perspective, a new property is recommended over a resale. Let’s take a look at this case study:

 

Assume Seller A bought his level 10 property in Aspen Heights of 1323sf  20 years ago for $1.45m.

His downstairs neighbour Seller B bought his level 6 property of 1323sf 4 years ago for $2m.

 

Both are priced at $2.2m for sale even though Seller B is at a lower floor. If you were a buyer and made an offer of $2m for both, Seller B is unlikely to accept  as there he will be making a loss after taxes. Seller A will be more likely to accept your offer as he will make $550k profit from the sale.

 

A resale property poses such risk as some properties have already been transacted a few times and there is very little room for negotiation if the seller bought his property at a high part of the property cycle.

New launches and newly-TOP properties from developers are usually priced at the same range and hence you and your neighbours would have bought roughly around the same prices after making adjustments for higher/lower floors, facing and views.

 

  • Hidden Cost

Resale condos, especially aging ones, have a hidden cost as the maintenance fee and sinking fund of the condo will go up. Major repairs and overhauls will be necessary after a certain number of years and will require contributions from property owners.

 

  • Early Bird Discount at New Launch

When you buy a property at a new launch, often developers will have early bird discounts for early property buyers.

 

  • Property Age Matters

A property that is purchased at the new launch stage has an edge over resale properties. For example, if you were to buy Martin Modern while it is under construction, 4 years later, it will be a brand new property (like age 0), compared to Martin Place Residences which was completed in 2011 (age 6).

 

Attractiveness to Tenants

 New condos and new houses hold a higher appeal to modern and better quality tenants (who can be very demanding), as everything is new, shiny, working and full of lifestyle features. Savvy tenants tend to go for newer condos as it means they are less liable to repairs. Most tenants also like the fact that there are still valid warranties on the appliances. Your new condo will not stay vacant for long.

 

Lower Renovation Cost

With a new home direct from developers, you are able to save on renovations to refurbish the place. There is no need to repolish the floors, replace used appliances or change the toilets. Typically renovation loans may go up to $30k or 6 months of your income. For new properties, you will just need to fix lights and curtains for a simple renovation before you can move in to stay.

 

Disclaimer : This article serves as a guide only, and you should not make your decision based solely on this article. You are advised to seek professional advice from a licensed real estate salesperson to assist you in planning your real estate portfolio.