ANALYSIS: The price gap between new and resale condos has started to narrow
By Elizabeth Choong
/ EdgeProp Singapore |
EdgeProp Singapore: The price gap between new and resale condos has started to narrow.
SINGAPORE (EDGEPROP) – There is a noticeable trend where the price difference between new and resale condos is starting to narrow. This article delves into this recent shift in the pricing trend, following a period of a widening gap, and examines what it means for prospective buyers.
New condos, particularly leasehold ones, are often favoured by some buyers due to their longer remaining tenure. These properties usually come equipped with modern features such as digital locks and smart home technology, and typically require less repairs and maintenance.
On the other hand, buyers in need of immediate housing tend to opt for resale condos. Unlike new condos, which may still be under construction, resale condos are ready for immediate occupation. Investors often prefer resale condos as well, since they can be rented out immediately, and some are already occupied by tenants. Those inclined towards resale condos might explore areas where the price disparity with new developments is increasing.
Overall, the price difference is narrowing…
From 1Q2019 to 4Q2020, the price gap between new sale and resale transactions for condo units islandwide ranged between $322 psf to $556 psf before increasing to $642 psf in 1Q2021 and $704 psf in 1Q2022. The price difference peaked at $1,088 psf in 4Q2022 before declining to $962 psf in 1Q2023. The price difference fell further to $861 psf in 3Q2023.
The main reason for the narrower price difference could be that the pace of price growth for resale condo units islandwide has recently caught up with their new counterparts.
Since 2016, the average price for resale condo units has grown by only 28%, compared to the price growth of 76% for new units. However, the average price for resale condo units grew by 7.3% y-o-y this year, which is higher than the price growth of 5.8% y-o-y for new units. As of 3Q2023, average prices for resale and new condo units islandwide were $1,606 per psf and $2,467 psf, respectively. Overall, it seems that the price gap for new and resale condo units has started to narrow gradually.
…however, counterintuitively, freehold condos are bucking the trend…
Further analysis of the sales transactions for condos indicates that the price gap for 99-years leasehold condos follows the overall trend discussed above. The price difference for leasehold condos reached a peak of $1,069 psf in 4Q2022 before narrowing. The price gap ranged from $810 psf to $982 psf for the first three quarters of this year.
In contrast, the price gap for freehold new and resale condo units is widening. The price gap ranged from $647 psf to $752 psf for the four quarters in 2020 before widening to a range of $783 psf to $994 psf for 2021 and 2022. The price gap widened further this year and reached $1,158 psf in the third quarter.
This may be counterintuitive, as one might think that, since tenures are the same for both new and resale units, the price gap may be smaller. However, the wider price gap observed in freehold condo units can be attributed to the scarcity of new freehold condos, stemming from the fact that all government land sales sites are leasehold. As a result, freehold sites are mainly from the collective sale market, which is currently sluggish. Another source is the redevelopment of older freehold projects, which is a relatively rare occurrence. This limited availability of new freehold condos allows them to command a higher price premium.
In 2021, 2,457 new freehold condo units were sold, compared to 9,716 leasehold new condo units. Last year, there were 2,179 and 4,504 new sale transactions for freehold and leasehold condos, respectively. At the time of writing, the sales volume for new freehold condos was 1,447 units this year, much lower than the 3,933 transactions for new leasehold condos.
New freehold condos that had the most sales transactions thus far this year include The Continuum in District 15 with 275 transactions (average price of $2,733 psf), Leedon Green in District 10 with 129 transactions ($2,887 psf), and Pullman Residences Newton in District 11 with 123 transactions ($3,213 psf).
New 99-years leasehold condos that had the highest sales volume this year include The Reserve Residences in District 21 with 649 transactions (average price of $2,488 psf), Grand Dunman in District 15 with 595 transactions ($2,535 psf), and Lentor Hills Residences in District 26 with 421 transactions ($2,104 psf).
…price difference for condos in Districts 9 and 10 is also widening…
The price gap between new sale and resale condos in prime Districts 9 and 10 is also widening, but the difference is smaller compared to freehold condos islandwide.
The price difference for new and resale condos in Districts 9 and 10 peaked at $1,093 psf in 2Q2019 before bottoming out in 2Q2020 when it reached a mere $338 psf. For 2021 and 2022, the price difference ranged from $600 psf to $748 psf, before widening to $877 psf in the third quarter of this year.
The wider price difference for condos in the two prime districts could be attributed to stronger price growth for new condo units compared to their resale counterparts. Since 2016, the average price for new units in Districts 9 and 10 grew by 35%, significantly higher than the 17% price growth achieved by resale units.
Furthermore, the number of sales transactions for new condo units in Districts 9 and 10 is a mere fraction of the sales transactions for new condo units islandwide.
Last year, only 1,469 new units were sold in Districts 9 and 10 compared to 5,349 units in other districts. At the time of writing, only 846 new units in the two prime districts were sold this year, significantly fewer than the 4,561 new units transacted in other districts. The rarity of new condo developments in the two prime districts has given a boost to their average price.
New condos in Districts 9 and 10 that had the most sales transactions this year include Leedon Green with 129 transactions (average price of $2,887 psf), The Atelier with 100 transactions ($2,686 psf), and Klimt Cairnhill with 81 transactions ($3,597 psf).
…however, the price gap for the popular District 15 is narrowing
District 15 accounts for the highest new sales volume with 1,343 transactions from January to October. During the same timeframe, there were 714 resale transactions in District 15, second only to District 19 with 923 transactions. The active sales market in District 15 is a good indication of the district’s popularity among buyers.
Source: EdgeProp Singapore and URA Realis (as at 14 November 2023)
The price difference between new sale and resale transactions in District 15 reached a peak of $977 psf in 2Q2021 before narrowing. A smaller peak of $945 psf was achieved in 3Q2022 because the average price for new condos hit a high of $2,560 psf. This could be attributed to the robust sales performances of Meyer House (23 transactions) at an average price of $2,741 psf and LIV @ MB (12 transactions) at an average price of $2,606 psf during that quarter. The price gap has since narrowed to $854 psf in the third quarter of this year.
Other new condos in District 15 that sold well this year include Grand Dunman with 595 transactions (average price of $2,535 psf), Tembusu Grand with 373 transactions ($2,473 psf), and The Continuum with 275 transactions ($2,733 psf). Popular resale condos in the district include Costa Rhu with 20 transactions ($1,552 psf), Neptune Court with 20 transactions ($1,031 psf), and Water Place with 19 transactions ($1,637 psf).
The price gap is expected to narrow further for District 15 because the average prices for new and resale condos in the district have inched down from $2,563 psf in the second quarter to $2,544 psf in the third quarter this year. Meanwhile, the average price for resale condos has remained stagnant at $1,690 psf for both quarters. Furthermore, the current average price for resale condos in the district has grown at a faster pace of 7.5% y-o-y, compared to a 4% y-o-y growth for new condos.
What does this mean for prospective buyers?
Our study of transacted prices for both new and resale condos reveal a trend where the price difference between these two types of condos is gradually narrowing. This is potentially advantageous for buyers intending to move from a resale condo to a new one, as the funds from selling their current unit might be able to substantially cover the cost of the newer unit.
However, this does not hold true for freehold condos, possibly due to the scarcity of such properties. Therefore, buyers looking to purchase a freehold condo might find better value in resale units, which are becoming more affordable compared to their new counterparts. The increasing affordability of resale freehold condos suggests that they may continue to be a more economical option than their new counterparts.
Our research also shows that in prime districts 9 and 10, the price gap between new and resale condos is widening, although not as markedly as in the freehold market. In contrast, District 15 is aligning with the overall trend of a narrowing price gap. The limited availability of new homes in Districts 9 and 10 could be driving up their average prices, thus leading to the widening price difference.
The growing price disparity in prime districts suggests that buyers on a tighter budget might find better deals in the resale market. Furthermore, opting for a resale unit would allow buyers to inspect the actual property and move in almost immediately.
Conversely, the smaller price difference in District 15 indicates that new units there are not significantly pricier than resale ones in the same area. Hence, the narrowing price gap might be a signal for astute buyers to consider new units, particularly for those seeking leasehold properties.
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