You often see property ads and flyers highlighting why a property is a “good buy” because it has a “low entry price” - meaning that it has a relatively lower buying price than other new launches. For many, this is the key factor they look at when buying a house because they assume that a low entry price would guarantee a higher profit margin when sold back into the market. To them, this would therefore mean that the property will definitely be a “good buy”.
If we use this logic, many would think that with the widening price gap between resale and new launch property flats, they should look at resale properties instead - after all, the new launches are clearly much more expensive than resale ones.
But, does a low entry price really mean that the property is a good buy?
Do you know that upon analysis, this might not be the case? In fact, a low entry price does not mean it will have a better capital appreciation, or that it can generate better returns.
Let’s find out more.
Case Study: Buy a 99LH new launch (TOP 2014) vs. older resale condo (TOP 2001)
To have a better understanding, we look into the case study of Eight Courtyards. Here we have a case where three projects have very similar locations and surrounding amenities. We have two resale properties, Yishun Sapphire and Yishun Emerald that TOP in 2001 and 2002 respectively. Then, we have our new launch in 2011, Eight Courtyards, that will TOP in 2014. Naturally, this would have meant that Eight Courtyards was more expensive (higher entry price) than Yishun Sapphire and Yishun Emerald.
However, what happened to their sales performance?
Clearly, you can see that there was a key significant difference - while Yishun Sapphire and Yishun Emerald have a lower entry price of approximately $658, their capital appreciation only rose to $772 - $793. This is an approximate 17 - 20% increase in value. However, while Eight Courtyards had a higher entry price of $812, it rose much more quickly to reach $1,052 in Oct 2021, successfully clinching an increase of almost 30% in value.
When it comes to a 17% vs. 30% price increase, it is clear that the newer launch, Eight Courtyards, had a better capital appreciation even though it started with a higher entry price.
Hence, it is not necessarily true that a low entry price = a good buy.
Why is this happening? We look into the specifics of why this could happen.
Resale properties are facing lease decay
When a property is completed for over many years, it will naturally face wear and tear. This is especially if the property has already gone through one or more homeowners. Hence, lease decay after the unit becomes second-hand or further down, will cause it to appreciate less. This means that when the surrounding new developments are complete, older properties will definitely see lesser price lifts as compared to new launches due to the age disparity.
New launch condos in the face of widening price gap: still worth it?
Well, other than entry price, we want to really know whether new launch condos are still worth the investment given its heftier price tag. Fortunately, it is still a very opportune time to get one, as there is still the first-mover advantage existing in the current market conditions.
First mover advantage exists when you purchase something before your competitors, gaining a competitive edge over others due to the timing of your decisions. In this case, buying a property gets you a first-mover advantage because future properties will definitely be much costlier.
This is firstly due to the rising land cost.
From some of the recently transacted land parcels, we see a clear direction of prices rising steeply - take a look at Tanah Merah Kechil, which was recently awarded at $930psfppr. Or at Ang Mo Kio Avenue 1 that was awarded this year at $1,180psfppr
Next, you have to consider the rising construction costs as well.
Take a look at the news article below – in the latest news, we see that construction raw material prices are looking to stay high amid supply chain and shipping disruptions. As quoted from a SCAL spokesperson, they are concerned that “steel rebar prices have risen 54%, aluminum prices 59%, copper prices 81%, concrete prices more than 20%”. With the uncertainties in logistics and operations arising from the COVID situation, we are seeing construction costs increasing at an alarming rate.
Hence, capitalizing on new launches right now before the prices spike will definitely put you in a good position to garner better returns.
That being said, new launches are across numerous regions in Singapore, and have different potential benefits depending on their surrounding amenities, the number of private condominiums in the area, and the trend performance for that district.
If you would like to have an in-depth analysis, feel free to reach out for the latest property news and updates.
The above is written by Kaeden Ong. To know more, contact him at +65 9048 0660.
The information provided is for generation information purposes only and does not have regard to specific investment objectives, financial situation and the particular needs of any recipient hereof. No information here should be used as legal, taxation or investment advice.