Sunday, April 30, 2017
New Launch Project or Resale Unit?
New projects such as new launch condos are developments under construction. These properties have not yet been built, and developers sell their units off the floor plan. Sometimes, the developer builds show suites or a mock-up of the layout to help prospective buyers visualize the space and placement of furniture.
On the other hand, resale units are completed properties, and buyers go into the actual unit to inspect and observe what they are going to buy.
At first glance, it may seem that the resale unit is the better investment choice. Firstly, the buyer can see exactly what she is getting. Is the unit bright and breezy? Is the view blocked? Can the noise from the busy roads be heard in the apartment? In a resale unit, the buyer can gauge for him or herself.
Secondly, since the resale unit is a completed project, the unit can be made available immediately, whether for personal residence or rental purposes. In a new launch project development, the property may take up to 5 years to construct. This results in a loss of enjoyment of property, or loss of rental income.
Nonetheless, despite these two disadvantages, there are significant benefits to buying a new launch project. Here are the nine main advantages of purchasing a new launch project.
Advantages of buying a new launch project
1) The buyer enjoys low installment repayments while the property appreciates in value.
The monthly repayment of new launch projects is low, due to the progressive payment schedule. As such, during the construction phase, the monthly installment is low. At the same time, the market price of the property is increasing. This results in a very good return on investment (ROI).
The monthly repayment for resale units is the full installment, which lowers the ROI of the investment.
2) There is no depreciation of the asset before the property is completed.
All properties depreciate (it is the land that the property is on, that appreciates in value. As such, from year 0 onwards, the property is declining in value. When a buyer buys an older resale property, the property has already lost a significant portion of its value.
However, if she buys a new launch project, the property does not depreciate. As it is not completed. The property does not even hit year 0.
3) In Singapore, there is a Seller Stamp Duty (SSD), levied on the seller, if they sell their units within the first four years of purchase.
As such, a buyer of a resale unit must quickly find a tenant. If she doesn't, she will be paying hefty monthly repayments while having an untenanted unit. Selling is not an option for her as the SSD is very expensive and if she sells, she will make a big loss on her investment.
However, a buyer of a new launch project is spared from hefty monthly repayments, as mentioned in point 1. The construction period of the property is counted into the four-year period. Usually, when the property is ready for occupancy, the four-year period is up, and SSD is no longer applicable. The buyer of the new launch project now has both the options to rent the unit out or sell it away. Both options will give her a profit on her investment.
4) A new launch project is a new property. A resale property is a second-hand property, or third-hand property, and so on. There is a novelty factor in staying in a new property, for the buyer, or for the tenant.
5) In promoting and marketing new launch projects, the developer sometimes gives huge discount, subsidies, or vouchers. However, for resale units, individual owners do not give discounts, subsidies, or vouchers. As such, it is possible to negotiate a better deal with developers, than with individual sellers.
6) When purchasing a resale property, there could be hidden costs that are not apparent, such as repair costs, or pest extermination costs. This is common, especially if the buyer is not accustomed to checking a unit carefully for defects and problems.
Thus, the ROI may be lower than expected after the repair costs are factored in.
For a new launch project, there is peace of mind for buyers as developers are required by law to rectify any defects in the first year. There are no hidden repair costs and no nasty surprise when the buyer or tenant moves in.
7) When a new launch project is completed, the condominium facilities are in the best possible conditions to be enjoyed. The gym has fully functional equipment, the gardens are beautifully landscaped, and the pool is clean and nice.
For an older resale property, the facilities may be poorly maintained.
8) It is always cheaper to buy a new launch project when it is not complete. The price of the same unit is always higher when the construction finishes, and buyers and tenants can move in.
9) Brand new and complete unit. New properties come with newer designs and better facilities than older properties.
For an investor with a keen eye on good ROI, it makes sense to purchase a unit when it's still under construction as the price is lower.
Therefore, even though buying a resale property offers immediate use of the property, buying a new launch project is the better choice for investors. As elaborated in the nine points, buying a new launch project offers a better ROI. Investors can thus, fight inflation and increase personal wealth.
Making a Choice
Making a choice to buy a resale or a new house will depend on an individual's needs and wants. Both types of properties have benefits and drawbacks. There are plenty of factors that guide a person's choice in buying a resale or new house.
Location - most new projects are developed in suburban and peripheral areas while resale properties can be found in both centralised areas and suburban areas. The importance of location and accessibility is very crucial while making a decision. The level of security will be called into question too. Since resale properties can be purchased in more centralised areas, they are safer than new projects in distant localities.
Infrastructure - Infrastructure facilities, transportation and connectivity networks are well laid out in key city areas. However, the availability of these facilities might be a problem with new projects.
Renovating your house – One reason customers choose to purchase new properties is the liberty to customize their home. Buyers can decide on the color scheme of their house, fixtures, furnishing options, flooring, surfaces, and tiles according to their preference. They can build their dream home in this case.
Wide variety - A new homebuyer has a wide range of options. There are so many new projects by different developers. Every project has different features and amenities. Buyers can assess and rate the projects according to the type of facilities they value most, and whether the property is worth buying.
Budget - Resale properties are priced at a higher price. It is because they are located in more matured estates, with well-organized infrastructure. New assignments are typically more affordable. Moreover, you have a varied selection of new properties to choose from and can bargain as well.
Maintenance - The maintenance cost of a new house is nominal. As expected, the maintenance cost of older properties is higher.
Innovations - Designers today build new systems into homes. With wi-fi, intercom and other facilities, new projects offer modern-day homes. Also, the idea of saving the environment is being perpetuated, so new projects tend to be more eco-friendly. Green structures, eco-friendly building materials and eco-products are the building blocks of some new projects.
This post is brought to you by Property Guru.