New or resale property? Homing in on the issue | Straits Times: Sun, Apr 15 |
| There is a clear preference among buyers for new homes. While buyers bought a record 18,920 new homes directly from developers last year, it is a different story where the secondary market is concerned. The number of resale homes changing hands last year fell 25 per cent to 15,013 from 20,103 in 2010. New sales, including those of executive condominiums (ECs), accounted for 46 per cent of all transactions lodged last year - the highest level since 2003 - according to an analysis of caveats lodged with the Urban Redevelopment Authority (URA). Developers sold new units at projects like Flamingo Valley, euHabitat, d'Leedon, Reflections at Keppel Bay and H2O Residences last year. Let's examine the different dynamics between new homes and resale homes. Anti-speculation measures Some experts believe that the slew of measures to cool the red-hot property market has caused buyers to favour new homes rather than the resale market. The revised sellers' stamp duty of up to 16 per cent, introduced in January last year, penalise home buyers who re-sell their property within four years. This gives an edge to new home sales. Buyers of new launches know that by the time the apartment is physically completed in about three to four years, they are likely to be subject to less stamp duty or none at all if they sell it. On the other hand, if they buy a resale home for investment, there may be some concerns with securing a tenant in the current uncertain global economic climate. Hence, this trend towards new sales remains intact even as the resale market languishes with tepid volumes. Financing Investors may also prefer new homes as they can enjoy a progressive payment plan in which the purchase price of the home is paid in instalments based on the completion rate of the project, experts add. Buyers can, thus, spread out their payments, rather than service a housing loan of up to 80 per cent of the purchase price of a resale unit right from the start. Size and affordability Buying from the resale market has its advantage. Older, completed projects offer units that are typically larger in size than new launches. This is due to the trend of developers pushing out smaller apartments to maintain the affordability of homes on an absolute basis even as prices in terms of per square foot have climbed steadily. Buyers keen on acquiring larger and more affordable living spaces should, therefore, look towards well-managed resale projects. Mr Ku Swee Yong, chief executive of International Property Advisor (IPA), prefers completed units that an investor can 'see and feel'. This allows for the quality of the home to be assessed and for the buyers to ensure that the management is upkeeping the common areas well. 'If you're buying an uncompleted unit on plan, you don't know what might be delivered to you,' he cautions. Prices Resale home prices are also generally lower compared to new homes. The demand for new homes has allowed developers to charge a premium through clever marketing and contemporary design. Buyers looking at resale homes may find bargains - units priced below valuation - if they spend time doing their research. Mr Colin Tan, research head at Chesterton Suntec International, says: 'Developers are in a healthy position but the secondary market has some weak spots, so there might be opportunities to find bargains from sellers who might be more leveraged and willing to sell.' Credo Real Estate executive director Ong Teck Hui gives some examples of resale alternatives - that come with a bigger floor area and freehold title - in older projects. In Seletar Hills, for instance, a three-bedroom, 1,227 sq ft apartment at Greenwich - a newly launched project, has sold for about $1.6 million - or $1,300 per sq ft (psf). Yet further into the estate, units at an older freehold condo, Nim Gardens, have transacted for between $1.36 million and $1.48 million. With a floor area of 1,830 sq ft, this works out to just $740 to $800 psf. Nearby, Mimosa Park also offers a similar price range with unit sizes of 1,755 sq ft and upwards. If a buyer has a limited budget, say up to $1 million, he may not be able to afford these big units even if they are cheaper on a psf basis. However, he can get a unit at that price from the new sale market, provided he is willing to settle for a shoebox unit - typically with a floor space of 500 sq ft or less. Instant yields Buying a resale unit may be a good bet if it is located in a tested market, like the Central Business District. As the buyer can lease out his unit immediately he can start earning back his capital investment right away. 'There are plenty of new homes in the pipeline so it is unclear how the rental market might be in a few years,' says Chesterton Suntec's Mr Tan. 'It is also unclear how many of these small apartments sold by developers recently will be received when completed since they are an untested market,' he notes. If the purchased resale unit is already tenanted, there is certainty in the yield. In comparison, an uncompleted home sale can provide only the projected yield, IPA's Mr Ku says. The allure of new homes New homes have many advantages such as having a unit decked out in the latest brand-name fixtures and fittings. The bumper supply of state land has also led to a plethora of new launches with developers offering creative product offerings such as themed-condos and throwing in various sweeteners like stamp duty absorption and furniture and shopping vouchers. There is also the snob factor in being able to boast that your new home is designed by current renowned international architects like Zaha Hadid and Moshe Safdie. Esther Teo Source: The Straits Times | |
Opt for 'collectibles' when investing in property | Straits Times: Sun, Apr 15 |
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| Sky-high home prices and a slew of cooling measures have heightened the risk of investing in residential properties, leaving investors unsure as to what their next step should be. Investors hoping to lock in capital gains are likely to have slim pickings this year. After almost three years of gains, home prices have taken a breather, with preliminary estimates showing a 0.1 per cent dip in the first three months of the year. Experts say that the dynamics of the property market has changed after five rounds of cooling measures since September 2009 to tame escalating prices. Private home prices have skyrocketed 55 per cent since the middle of 2009 as the flush of liquidity in the market and low mortgage rates have kept the market robust. Sales volumes also surged, with buyers snapping up a record 18,920 units last year - including executive condominiums (ECs) - on the back of the bumper supply of land. This eclipsed the previous high of 17,344 units in 2010. But with soaring demand and prices came measures to cool the market. They ranged from tighter financing rules to additional stamp duties for both buyers and sellers. These were fairly tough measures and could have caused the market to tank if they had been introduced in the past. However, these are exceptional times we are living in, no thanks to the global flood of cheap money that has resulted in bank deposits paying next to nothing in interest. While home prices remain stubbornly high, some of the speculative fervour has been dampened by the stiff measures. For instance, the seller's stamp duty has creamed off speculation from the market, tipping investors towards taking a mid- to long-term view on their purchases instead. The seller's duty can be as much as 16 per cent. It is applicable for up to four years from the purchase of a home. The duty is tiered, meaning that sellers stump out less in taxes the longer they hold onto their purchases. This led to near halt in subsale activity - a handy indicator of property speculation. Subsales as a percentage of total sales fell to about 8 per cent last year. Before the curbs were introduced, they were as high as 16 per cent in the fourth quarter of 2008. Jones Lang LaSalle's (JLL) South-east Asia research head Chua Yang Liang notes that property investment has become a longer-term game. 'The asset is chunky and illiquid, it typically requires more time to transact than other investment instruments,' he adds. 'So, one should not focus only on making short-term gains, as that could potentially damage the health of the property market in general.' Since the 2008 Lehman Brothers crisis, the action in the residential market has swung from luxury to mass. While suburban projects have seen record pricing amid strong demand from buyers, high-end homes have languished. As a result, experts say the high-end segment may offer better capital appreciation as it is the only segment where prices are still below their peak. On the other hand, home prices in the suburban regions have already eclipsed their last peaks in 2008. Mr Ku Swee Yong, chief executive of International Property Advisor, says that as there are still risks and uncertainties in the market given the current global climate, it is important to invest in 'collectibles'. This means homes that are in low supply but of good quality such as landed homes or non-landed, high-end projects like The Marq, Parkview Eclat and Ardmore Park, he notes. On the other hand, mass market homes should be avoided due to the large supply expected to be completed over the next few years, Mr Ku asserts. 'The high-end market has been in the doldrums regardless of the recently imposed additional buyer's stamp duty and so, with rich foreigners stepping aside for a while, investors can take the opportunity to get back in,' he says. 'But the mass-market segment should be avoided because you'll be competing with HDB and EC segments as well, whose owners might be divesting or leasing their units out at the same time,' he notes. PropNex chief executive Mohamed Ismail, however, holds a different view. His picks are landed properties due to their limited supply, EC homes that have passed their five-year minimum occupation period and freehold resale homes in suburban areas, which he said are 'underpriced'. These resale suburban homes can be picked up in areas like Hillview, Pasir Ris and Serangoon, he added. 'The stalemate in the high-end market has created a buyer's market so if you can find a good bargain, then why not. But if not, you can afford to wait a little longer because there might be a correction in prices,' he added. Mr Ismail expects city centre and city fringe home prices to fall 5 per cent but suburban prices to rise 3 to 5 per cent. It is unclear who is right. But the general consensus is that home prices are expected to remain soft this year. If the capital gains game is up, what about investing for rental yields? Credo Real Estate executive director Ong Teck Hui notes that yields for residential properties are generally low and so measuring investment performance by yields alone is inadequate. Hence, total returns - both rental yields and capital gains - must be taken into consideration when deciding on a home purchase. Says Mr Ong: 'What is the point of having good yields if say, a property was bought at the peak of the market and subsequently suffers capital depreciation wiping out the gains from rental yield?' Gross residential yields are typically between 2.5 per cent and 3.5 per cent. But despite the low yields, experts note that there is still positive cash flow for investors who rent out their units since mortgage rates are less than 1.5 per cent. If an investor is to focus on the yields front alone, however, resale homes are likely to be more attractive. This is because they are generally priced lower than newly completed units but rental income is the same, notes JLL's Dr Chua. But if the product is good, uncompleted homes can get a lift in prices once they are completed as potential buyers are able to get a sense of what they are buying into, experts say. Source: The Straits Times | |
what to invest: New or Resale; Mass or High-end Properties
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