Buying new condo units isn't a profit guarantee

By Ida West / EdgeProp Singapore | October 9, 2020 6:08 PM SGT
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SINGAPORE (EDGEPROP) - There’s a popular saying within the property circles: “Buy a new condo, sure make money”. This rule of thumb could be useful. Developers often offer early bird discounts, which gives those buyers a better chance of an upside. Additionally, as compared to a resale property, developers tend to launch a new development (especially the larger ones) in phases, and each subsequent phase is typically priced higher than the previous one.
However, does this hold true all the time? Do buyers always make money from new launches? We decided to use data to test this out.
We analysed transactions in projects completed between 2018–2020. There were almost no secondary transactions for projects launched within the three last years because selling your unit would incur a Seller’s Stamp Duty of between 4%–12%. We excluded Executive Condos (since there is a minimum occupancy period before you can sell it) and projects with fewer than three secondary transactions.
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Out of the 856 secondary transactions recorded for these newly completed projects, 56 of them, or 6.5%, resulted in losses. Although this may seem like a small figure, the actual realised and unrealised losses would be much higher. These losses exclude any additional stamp duties, legal fees and transaction fees that sellers have to incur.
Also, it is highly probable that an owner sitting on a property below their purchase price would rather hold on to it than to sell and realise their losses, hence underestimating the number of unprofitable transactions.
Buying new units from big brand name developers is not a guarantee against losses. For example, the 1,042-unit Marina One Residences, a development by M+S, which is owned 60:40 by Khazanah Nasional Berhad and Temasek, recorded five unprofitable transactions in the last 12 months.
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The reputation of developers and location of developments also doesn’t determine whether a project sees significant profitable transactions. The Siena, a development in Bukit Timah by Far East Organization, had just three resale transactions - and all three were sold at a loss.
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Projects with significant losses
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While the number of unprofitable transactions in recently completed projects are not mind-blowing, this has not always been the case. One such example was, Reflections at Keppel Bay,
a 1,129-unit mega condo project completed in 2011. Daniel Libeskind, the celebrity architect, was behind the instantly recognisable development commanding sweeping views of the sea.
Yet, out of the 250 resale transactions so far, 142 or 57%, were unprofitable. The largest loss was incurred by the previous owner of unit no. 05-58, who bought the unit for $2,769 psf, held it for 12 years, and sold it at $1,518 psf — or 45% below its purchase price — for a loss of more than $4.8 million.
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In terms of annualised losses, nothing beats the loss suffered by the previous owner of unit no. 08-02 at
The Marq on Paterson Hill, a development by SC Global Developments in the Orchard Road vicinity. The owner purchased the unit for $4,920 psf and sold it more than five years later at $3,328 psf for an annualised loss of 7.2% or $4.92 million.
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Entry price key to profitability
So, if brand name developers, celebrity architects, and prime locations are not guarantees of profitability, what are the factors that can help boost chances of a profitable resale?
From the data, they tend to occur in projects where the initial launch price or entry price is reasonable relative to the surrounding projects. For example, Botanique at Bartley, which recorded 65 profitable resale transactions, was launched with an average selling price of $1,280 psf back in April 2015.
Bartley Ridge, a development 300m away, was launched two years earlier at a similar selling price. The price premium for Botanique at Bartley as a new condo relative to older ones in the surrounding area wasn’t hugely significant as well.
Land replacement cost is also another important consideration. Developers which bought parcels of land before the upturn in property cycles enjoy the added advantage of pricing their projects at a far more reasonable price relative to the ones who bought nearby land much later.
At the end of the day, doing your own research and understanding the dynamics at play will help you pick the right condo for investment -- and avoid losses when you sell them later.