New uncompleted private homes may be better buys than resale units amid high interest rates

May 31, 2023

Leslie Yee

HIGHER home loan rates are driving down housing prices in some global cities. Yet, private home prices in Singapore have thus far been resilient.

Time will tell if prices here will teeter because of high interest rates and property cooling measures. Nonetheless, higher home loan rates make the funding of home buys costlier, for people who borrow to buy.

For such buyers, there may be clear advantages to buying a new home that is sold off-plan over a resale unit, even though the price per square foot (psf) of a resale unit is generally much lower.

At its recent launch, the 99-year leasehold The Reserve Residences in Upper Bukit Timah sold 520 homes at an average price of S$2,460 psf. Meanwhile, freehold resale units at developments in the area such as The Cascadia and The Nexus along Bukit Timah Road are available for around S$2,100 psf.

Better design and facilities can, to some extent, justify higher psf prices for new homes versus older resale units. For 99-year leasehold homes, one enjoys more years of land lease outstanding with a new home compared with an older one. Also, an owner of a new home can avoid the hassle of carrying out too much renovation works.

Crucially, it can pay off financially for buyers who use home loans to choose a new uncompleted home over a completed resale unit.

Today, a new floating rate home loan can cost about 4.6 per cent per annum, versus slightly over 1 per cent per annum in early 2022. For a borrower who takes a 25-year loan of S$800,000, the monthly instalment is S$4,492 at an interest rate of 4.6 per cent, or around 45 per cent higher than that of S$3,088 at an interest rate of 1.2 per cent.

Progressive payment scheme

Costlier home loans can help make uncompleted new homes that are sold off-plan relatively attractive.

Under the progressive payment scheme, a buyer of an uncompleted condominium unit at a project’s launch pays cumulatively 20 per cent of the purchase price. This is typically within eight weeks of receiving the option to purchase.

Another 40 per cent of the price is payable based on various milestones as the project gets built. This could take place over the course of, say, three years. The remaining 40 per cent of the price is paid at project completion and shortly thereafter.

With a resale private home, a buyer may have around three months from receiving the option to purchase to complete the transaction, whereupon full payment is made.

In short, a buyer of an uncompleted new home need not draw down a home loan as quickly or fully as a buyer of a resale unit. Such an advantage is accentuated when interest rates are higher.

Another plus of having more time before fully drawing down a home loan is that interest rates may peak and soften subsequently. Central banks may cut rates as inflation gets under control and economic growth slows.

A buyer of an uncompleted home in mid-2023 may only need to start making more substantive monthly home loan repayments two or three years later, when home loan rates could be lower than today.

Singapore’s job market remains tight, with wages expected to grow. A person enjoying good career progress who buys an uncompleted new home could be in a much stronger position to secure and/or service a home loan, say two to three years later, when he needs to pay up a larger part of the purchase price.

Buyers, who have ring-fenced cash to fund a home buy under the progressive payment scheme, can use these monies to earn decent returns from Singapore-dollar fixed deposits or Singapore Treasury bills (T-bills) of a few per cent per annum before deploying the funds.

Investment angle

While many new home buyers are Singaporeans buying for owner occupation, there are locals buying investment homes.

Even as the rental market is strong, the annual net yield for residential investors on entry price is often tight, at possibly just over 2 per cent. Such a yield level is unappealing when the annual home loan rate is 4.6 per cent instead of 1.2 per cent.

In short, the borrowing cost may exceed the yield from investing in a private home here. Also, one can get a better yield by investing in safe instruments such as Singapore dollar fixed deposits or T-bills.

Nonetheless, many investors in private homes in Singapore focus largely on potential capital appreciation and not yield.

For a Singapore citizen buying his first home for investment, with a time horizon of a few years, an uncompleted new home can be an attractive proposition.

Such a buyer pays no Additional Buyer’s Stamp Duty. He may not need to fork out much in home loan repayments between the time of purchase of a home at a project’s launch and sale of the unit at its completion in a few years time.

For homes bought today, no Seller’s Stamp Duty is payable for a holding period of more than three years.

The return on equity (ROE) and internal rate of return for a first-timer investment home buyer, who may have loan-to-value (LTV) of up to 75 per cent, can look interesting.

Based on 70 per cent LTV, annual ROE for a home bought off-plan under the progressive payment scheme could be in the high single-digits, assuming a holding period of four years and annual price growth of 4 per cent.

In 2022, developers sold 6,834 units of new uncompleted private homes, excluding executive condominiums, amid limited new home launches. Also, there were 14,026 resale transactions of private homes last year. In Q1 2023, developers sold 1,163 new uncompleted private homes.



Rising interest rates make sales of uncompleted new homes more challenging. Still, developers can use snazzy show flats, motivated agents and engaging marketing campaigns to help drive sales.

Strong sustainability features, biophilic elements, flexible designs and comprehensive facilities can up the wow factor of new projects. Some new homes also have strong selling points – direct connectivity to retail amenities and MRT stations.

Higher interest rates hurt housing developers by increasing development costs. But there is a silver lining for developers. Some people may opt to buy uncompleted new homes because they value having more time to fully pay up for their homes.

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