New Reporter
23-06-23, 16:56
When new condo units are pricier than older ones by over 70 per cent
Market watchers noted that many people are willing to shell out a lot more for new homes because of the fear of missing out.
Jun 19, 2023
New condominiums have become much pricier than similarly sized resale units in the same area, so buyers need to ask themselves whether the market is just too hot to handle.
New condos have always commanded higher prices than nearby resale ones, but the gap has become so wide of late that potential buyers face a dilemma: Get in quickly before values rise even higher, or hold fire?
Take the highly anticipated 816-unit freehold condominium The Continuum, where units were sold at a median price per sq ft (psf) of $2,720 at its May launch.
Market observers were surprised by the high price premium buyers were willing to pay for the development in Thiam Siew Avenue, off Tanjong Katong Road in District 15.
After all, a freehold resale unit in the same district was selling at a median price of $1,595 psf, or 70.5 per cent lower. This means that a new 1,000 sq ft unit will cost over $2.7 million, while a similar-sized older unit in the same area is selling for about $1.6 million.
The property market has evolved dramatically since before the Covid-19 pandemic.
Previously, new launches were typically priced at between 20 per cent and 30 per cent above resale prices in the vicinity.
But since 2021, prices of new units have gone up by as much as 90 per cent over the prices of resale units, noted CBRE Research.
Lentor Modern, a 99-year leasehold integrated private residential project in Lentor Hills, sold 84 per cent of its 605 units at its weekend launch in 2022. The median psf price of $2,105 as at May 2023 was 90 per cent above those of resale units in the same postal district.
Precincts that have not seen new launches for a longer time are seeing wider premium gaps as resale units in the same area would be much older, said Ms Tricia Song, head of research for South-east Asia at CBRE.
The widening price gap can be attributed to various factors, such as high construction costs and land expenses, said Ms Wong Siew Ying, head of research and content at PropNex.
New v older
Market watchers noted that many people are willing to shell out a lot more for new homes because of the fear of missing out, which is a significant driving force due to the anticipation of possible gains down the road.
Buyers are jumping on the bandwagon, firmly believing that home prices will continue their upward trend, while some are enticed by the prospect of higher rental yields offered by new units, said Ms Song.
Rents of private residential properties increased by 29.7 per cent in 2022, compared with a 9.9 per cent increase in 2021, according to Urban Redevelopment Authority data. These rents rose a further 7.2 per cent in the first quarter of 2023 over the last three months of 2022.
But experts warn against relying solely on rental income to fund property investments.
Mr Nicholas Mak, chief research officer of Mogul.sg, pointed to a potential downturn in the leasing market as the effects of the pandemic subside and a wave of new private housing units enter the market.
“The current high residential rental rates are due to a ‘perfect storm’ of low supply caused by the Covid-19 pandemic and rapidly recovering demand,” he noted.
“This exceptional situation in the leasing market may not last very long as the effects of the pandemic wane.”
He added: “There is a large supply of new private housing units expected to enter the property market this and next year, which will cool the high rate of rental growth.
“Property investors who are counting on the rental generated from the residential properties that they purchased may have to come up with more cash every month to service their mortgage instalments when the rent can’t cover the entire instalment.
“This is risky because the investor is injecting cash, a highly liquid asset, into a property, which is a fairly illiquid asset.”
Mr Aaron Chwee, head of wealth advisory at OCBC Bank, said: “Rental agreements are typically signed on a one- to two-year basis, while mortgage loans can stretch up to 30 years.”
This means there is a time-horizon mismatch between the rental income and the mortgage. When rental income drops or if the property is vacant for a period, there is a possibility that the owner may face problems in servicing the mortgage repayments.
Other reasons for buying a new home include how new launches are perceived to enjoy better capital price appreciation potential compared with older resale properties, where values may grow more slowly or turn stagnant over time, said PropNex’s Ms Wong.
New launch projects also offer a product with locational or physical attributes that may not be readily available in the resale market, she added.
Ms Wong cited the 165-unit One-North Eden, which hit the market in April 2021 – the first launch in the area in 14 years.
That long fallow period, coupled with the growth of the one-north research and development hub, would also have created pent-up demand for new homes in Blossoms by the Park, a project that was launched in April.
Buyers snapped up 75 per cent of the 275-unit leasehold development in Buona Vista on the first day of its launch at a median psf price of $2,427 – 55 per cent higher than the median psf price of $1,561 for a resale unit in the same district.
Better to invest in new home?
The million-dollar question often boils down to this – if you are paying a high price for a new unit, what are the chances of your future buyer paying even more for it years later?
After all, your unit will no longer be new and will be viewed as another resale home.
PropNex compared the median new sale prices of 128 projects during the last property peak in 2013 against their respective median resale prices in 2022, and found that the values of about 70 per cent of the projects had appreciated between 0.5 per cent and 41.7 per cent. Resale prices of the remaining 30 per cent of these projects had fallen between 0.1 per cent and 45.2 per cent.
Ms Wong noted that the top 10 gainers were mostly mass-market projects, with A Treasure Trove in Punggol topping the chart. The top losers included several high-end projects with median new sale prices above $2,500 psf in 2013.
The Scotts Tower, which was sold at a median psf of $3,610 in 2013, saw its median psf dip to $1,980 in 2022, marking the highest fall in value from 2013’s peak. Marina Bay Suites and OUE Twin Peaks were ranked second and third in highest loss in value.
https://i.imgur.com/3ipgnWV.png
Despite rising prices for new properties in recent years, experts warn about buying into markets that are spiking.
Ms Wong said: “The real estate prices vary from location to location, and prices in some areas may rebound more quickly following a downturn, perhaps because of... gentrification or urban transformation.
“Investors should thoroughly evaluate the properties they are keen on, understand their investment objectives, have an exit strategy, and most importantly, buy what they can reasonably afford.”
She added that property is not meant for short-term speculative play and buyers should ensure “they have financial holding power over time”.
Investors often ignore the investment risk tied to real estate, said Mr Mak, noting: “The maxim ‘higher returns will entail higher risks’ holds true in the real estate market.
“Some property investors are fixated on the upside, such as capital gains, and ignore the accompanying risks. Sometimes, they are blinkered by property agents and overlook the risks involved in owning real estate.”
https://www.straitstimes.com/business/invest/when-new-condo-units-are-pricier-than-older-ones-by-over-70-per-cent
Market watchers noted that many people are willing to shell out a lot more for new homes because of the fear of missing out.
Jun 19, 2023
New condominiums have become much pricier than similarly sized resale units in the same area, so buyers need to ask themselves whether the market is just too hot to handle.
New condos have always commanded higher prices than nearby resale ones, but the gap has become so wide of late that potential buyers face a dilemma: Get in quickly before values rise even higher, or hold fire?
Take the highly anticipated 816-unit freehold condominium The Continuum, where units were sold at a median price per sq ft (psf) of $2,720 at its May launch.
Market observers were surprised by the high price premium buyers were willing to pay for the development in Thiam Siew Avenue, off Tanjong Katong Road in District 15.
After all, a freehold resale unit in the same district was selling at a median price of $1,595 psf, or 70.5 per cent lower. This means that a new 1,000 sq ft unit will cost over $2.7 million, while a similar-sized older unit in the same area is selling for about $1.6 million.
The property market has evolved dramatically since before the Covid-19 pandemic.
Previously, new launches were typically priced at between 20 per cent and 30 per cent above resale prices in the vicinity.
But since 2021, prices of new units have gone up by as much as 90 per cent over the prices of resale units, noted CBRE Research.
Lentor Modern, a 99-year leasehold integrated private residential project in Lentor Hills, sold 84 per cent of its 605 units at its weekend launch in 2022. The median psf price of $2,105 as at May 2023 was 90 per cent above those of resale units in the same postal district.
Precincts that have not seen new launches for a longer time are seeing wider premium gaps as resale units in the same area would be much older, said Ms Tricia Song, head of research for South-east Asia at CBRE.
The widening price gap can be attributed to various factors, such as high construction costs and land expenses, said Ms Wong Siew Ying, head of research and content at PropNex.
New v older
Market watchers noted that many people are willing to shell out a lot more for new homes because of the fear of missing out, which is a significant driving force due to the anticipation of possible gains down the road.
Buyers are jumping on the bandwagon, firmly believing that home prices will continue their upward trend, while some are enticed by the prospect of higher rental yields offered by new units, said Ms Song.
Rents of private residential properties increased by 29.7 per cent in 2022, compared with a 9.9 per cent increase in 2021, according to Urban Redevelopment Authority data. These rents rose a further 7.2 per cent in the first quarter of 2023 over the last three months of 2022.
But experts warn against relying solely on rental income to fund property investments.
Mr Nicholas Mak, chief research officer of Mogul.sg, pointed to a potential downturn in the leasing market as the effects of the pandemic subside and a wave of new private housing units enter the market.
“The current high residential rental rates are due to a ‘perfect storm’ of low supply caused by the Covid-19 pandemic and rapidly recovering demand,” he noted.
“This exceptional situation in the leasing market may not last very long as the effects of the pandemic wane.”
He added: “There is a large supply of new private housing units expected to enter the property market this and next year, which will cool the high rate of rental growth.
“Property investors who are counting on the rental generated from the residential properties that they purchased may have to come up with more cash every month to service their mortgage instalments when the rent can’t cover the entire instalment.
“This is risky because the investor is injecting cash, a highly liquid asset, into a property, which is a fairly illiquid asset.”
Mr Aaron Chwee, head of wealth advisory at OCBC Bank, said: “Rental agreements are typically signed on a one- to two-year basis, while mortgage loans can stretch up to 30 years.”
This means there is a time-horizon mismatch between the rental income and the mortgage. When rental income drops or if the property is vacant for a period, there is a possibility that the owner may face problems in servicing the mortgage repayments.
Other reasons for buying a new home include how new launches are perceived to enjoy better capital price appreciation potential compared with older resale properties, where values may grow more slowly or turn stagnant over time, said PropNex’s Ms Wong.
New launch projects also offer a product with locational or physical attributes that may not be readily available in the resale market, she added.
Ms Wong cited the 165-unit One-North Eden, which hit the market in April 2021 – the first launch in the area in 14 years.
That long fallow period, coupled with the growth of the one-north research and development hub, would also have created pent-up demand for new homes in Blossoms by the Park, a project that was launched in April.
Buyers snapped up 75 per cent of the 275-unit leasehold development in Buona Vista on the first day of its launch at a median psf price of $2,427 – 55 per cent higher than the median psf price of $1,561 for a resale unit in the same district.
Better to invest in new home?
The million-dollar question often boils down to this – if you are paying a high price for a new unit, what are the chances of your future buyer paying even more for it years later?
After all, your unit will no longer be new and will be viewed as another resale home.
PropNex compared the median new sale prices of 128 projects during the last property peak in 2013 against their respective median resale prices in 2022, and found that the values of about 70 per cent of the projects had appreciated between 0.5 per cent and 41.7 per cent. Resale prices of the remaining 30 per cent of these projects had fallen between 0.1 per cent and 45.2 per cent.
Ms Wong noted that the top 10 gainers were mostly mass-market projects, with A Treasure Trove in Punggol topping the chart. The top losers included several high-end projects with median new sale prices above $2,500 psf in 2013.
The Scotts Tower, which was sold at a median psf of $3,610 in 2013, saw its median psf dip to $1,980 in 2022, marking the highest fall in value from 2013’s peak. Marina Bay Suites and OUE Twin Peaks were ranked second and third in highest loss in value.
https://i.imgur.com/3ipgnWV.png
Despite rising prices for new properties in recent years, experts warn about buying into markets that are spiking.
Ms Wong said: “The real estate prices vary from location to location, and prices in some areas may rebound more quickly following a downturn, perhaps because of... gentrification or urban transformation.
“Investors should thoroughly evaluate the properties they are keen on, understand their investment objectives, have an exit strategy, and most importantly, buy what they can reasonably afford.”
She added that property is not meant for short-term speculative play and buyers should ensure “they have financial holding power over time”.
Investors often ignore the investment risk tied to real estate, said Mr Mak, noting: “The maxim ‘higher returns will entail higher risks’ holds true in the real estate market.
“Some property investors are fixated on the upside, such as capital gains, and ignore the accompanying risks. Sometimes, they are blinkered by property agents and overlook the risks involved in owning real estate.”
https://www.straitstimes.com/business/invest/when-new-condo-units-are-pricier-than-older-ones-by-over-70-per-cent