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.
This is a follow up article from a previous article – 10 things you must know before buying a new launch property (click HERE). Some readers wrote to me after reading the article, I’m glad that the article provided good insights. Some even came to me for my opinions on what to consider when selecting a new launch. This article is for anyone who needs an un-biased view on new launch property selection. Some of the points may seem like common sense, but you would be surprise that many homebuyers miss out these.
1.Avoid over hyped areas (following the herd)
Image 2: Herd mentality / Source: medium.com
Unless you believe that a new launch condo is a “die die” must buy because you love the development, your family like it for your own stay, home buyers should really re-think when buying in areas with too much hype. This could mean that prices are over-priced, and if a home buyer is looking to profit from the property, the risk will be higher.
While I wont provide exact examples here on what happens when home buyers purchase an over-priced or hyped development, some of my other articles have briefly mentioned some case studies.
When buying a new launch property, there is a high probability to find good deals when the market is not hyped up, or when a development is not over hyped by the market. New launch vs Resale price premiums are also likely to be lower in areas with less hype.
Do note that this also does not mean that new launch properties which are not hyped up are good buys, home buyers need to analyse the property objectively. Over hyped areas are just one red flag to consider.
2.Identify if the project is investor dominant or own-stay dominant
Buyers should do research and find out whether a project is more investor dominant or own-stay dominant. In general, investor dominant projects tend to have wider and wilder price swings over the years, because contrary to what most believe, for residential real estate – investors are weak holders. Let me explain, property investors are more likely to sell their property in slow or bad markets, and will take profit when it is possible because their main purpose is to profit even though there are mechanisms in place to prevent speculation. There are observations of properties with investor dominant owners have larger price dips and/or more sale transactions during down time.
On the other hand, own-stay property buyers are more likely to hold on to properties for longer periods of time. They are the stabilizing force and the root of all units in a development. In times of slow economic growth and times are tough, own-stay owners will still do what they can to hold on to their property, which is home.
What causes property prices to spiral downwards during a property down cycle are consistent fire sales and sellers rushing to offload their units at almost any price possible, if there are little or no sellers, prices will be supported and unlikely to see much price drop, if any at all.
Finding out whether a property is investor dominant or own-stay dominant during the launch may be a challenge, however, with proper research and sound analysis, property buyers will be able to make a good judgment.
The question that should be raised here is whether a property that is own-stay dominant will be a good investment?
The answer, unfortunately, is that it depends on other factors that determine the rentability and desirability of the units.
3.Identify if there will be over-supply or under-demand after the new launch obtains TOP
Some properties that face under-demand will make residents feel like they are living in a “ghost town”. There are certainly case studies of such properties, where even after 9 months from TOP, many units are not occupied.
Image 3: Under-demand apartment / Source: Walter Dominguez
On the other hand, over-supply in the property cluster will lead to higher vacancy and rental and property prices will then not be able to move higher on a sustained basis. How this affects you depends on whether you bought the property for own-stay or to invest. As an investor, buying a property in under-demand or over-supply area can mean longer vacancy and hence reduced returns. If an investor has weak holding power, carrying costs will add up (maintenance fee, property tax, etc).
4.If buying within Masterplan growth area, consider if the wait worth it
Properties in a Masterplan growth area like Jurong Lake District or Greater Southern Waterfront are faced with long-term construction around the area. There will be road works, road diversions and in general construction works done for the next 5 to 10 years, if not more. This comes with dust, potential sound pollution and the area may be “messy”. If buying for own-stay, is all these inconvenience or potential disturbance acceptable? If it is not, perhaps a new launch project in such area may not be the right one for you.
Image 4: Jurong Lake District Artist Impression / Source: JTC, ST
The same would be true for a tenant, and so, if you are buying a new launch as an investment, do consider such issues and how this will affect your tenants. If you select the wrong unit, you could be in for a longer vacancy and much lower rents.
In addition, some growth areas will take 20-30 years to complete. For example, the Jurong Lake District (JLD) is slated to be Singapore’s Second CBD only by 2040. The Greater Southern Waterfront’s development will only start after 2022 and would also be completed after 20 years or so. Could the wait be too long? Is this new launch the right property for your investment objectives? These are questions you will need to ask when selecting the new launch property to buy.
5.Consider the price cycle of the property cluster
There is a general property market cycle, and there is also a property cluster cycle. The more accurate way to analyse a deal is to look at the price cycle of the property’s location or cluster. Below are some examples and a trend can be identified when comparing only New Sales transactions across different property clusters.
Image 5 – New Sales Price Trends D9 vs D15 vs All District Average
In the image above, we can clearly see from the period of 2011 to 2015, there is a divergence in the New Sales Price trend for District 9 (Orchard), and District 15 (Katong/Amber/Meyer) where the average market moved in similar direction as District 15.
Image 6 – New Sales Price Trends D13 vs D15 vs D19
In the image above, we can see that the trend for District 13, 15 and 19 are upward biased. The outlier seems to be District 15 where we see runaway prices in early part of 2018 till today.
Some property clusters outperformed the market and seen prices go up more than the market average. The decision here if you look at a value point of view, will be whether to chase, or to look at other clusters.
While selecting a new launch property development depends on a home buyer’s needs, the above are some factors that can increase chances of the property holding its value over a long period of time.
After shortlisting and selecting a new launch development, the next step would be to select a good unit. There are many factors to consider when selecting a unit, I will be publishing my views on how to select a good unit in a new launch property in my next article post. If you would like to find out more, stay tuned for that.
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.
Raymond can be reached at firstname.lastname@example.org. Do visit his blog HERE for more information.
Please refer to Raymond’s blog for the disclaimer HERE
Also, please refer to my disclaimer HERE