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Buying a new launch condo or a resale property. Which is a better property for investment.
Buying a condo is always one of the biggest investment decision facing the buyer.
Whether you are buying a shiny new launch condo or a well maintained resale condo, the onus is on the buyer. Is the buyer a first time landlord or a seasoned investor.
For those who are seeking a property to rent out, the buyer will be looking at many other criteria instead of just beauty. The investor will look at more numbers such as age, price , ROI, rental yield, or potential upside before deciding on a unit.
In the real estate market, the market is very dynamic, the prices of resale property is always up for negotiations while prices of new launch property is fixed by the developer according to market conditions.
Why choose a resale condo as an investment property?
Many investors prefer to start investing with a resale condo. This is because resale route does provide a few big advantages:
- Immediate rental of unit is possible. I guess this is the most common reason for choosing a resale condo for investment purposes. As a new launch might take two to three years before it is ready to be able to rent out, whereas tenants can move into a resale unit immediately
- Also, there is a high chance for resale property to sell with tenancy. (that is the resale condo is already tenanted) , this will reduce the time loss in finding tenants.
- Most investors want to avoid paying the mortgage, this can be achieved by having sufficient rental income to cover mortgage repayments. As such, it is not surprising that some investors will choose resale units for investment.
If you intend to rent your condo out, buying a resale condo makes sense because you will be able to rent the finished property out as soon as you buy it, and pay for the mortgage with your rental.
There is also the added benefit of using specialized leasing agents who help in renting out units.
A) RENTAL INCOME CHECK. To an investor, It is relatively easy to predict the rental income of a resale unit. You can look at what the current (or past) tenants have been paying, or check out the URA website for Rental contracts of private residential properties.
By checking the website you can even look at rental income in the neighbourhood. Then you can compare the actual rental rates, for your specific unit or other unit sizes. This can help you ascertain the estimated vacancy rate.
To invest in Resale Condo, the choice is simpler because the end-product is standing in front of you You can see and touch the resale unit.
B. BIGGER UNITS . Most buyers opt for resale unit because older properties are bigger in size, and layout is usually more spacious. This is particularly important if the inlaw or parents are staying with you, the need for bigger room size matters and space between rooms is desirable to give space.
The set back for resale unit is that you may not be able to get units of your choice, such as unit numbers or unit facing or floor levels. More patience or prudence is needed in resale unit selection.
For Resale Condo, there is a great chance of haggling for some great deals, especially in cases where the owner is in a hurry to sell, whether because of relocation or job loss.
C. DEFECTS . With resale units, you would have done your due diligence and have inspected the physical condition of the property before committing to a purchase. You should know what defects needs to be repaired, and have a contractor to quote renovation cost and time frame.
As for new launches, this comes with a defects-free period, but it may not compensate you as repairs or rectification works takes time and it might delay your plans in finding a tenant.
Furthermore, there is a risk that some defects are not possible to rectify and it become lasting problems. For example, if the garbage chute for the condo block is poorly designed (causing choking and foul smells), that may be a permanent issue that will affect rentability and resale value.
These sort of surprises are more easily avoided in a resale investment unit, provided you inspect the condo thoroughly before you buy.
Finally, with resale units, it is you buy what you see. So you can gauge issues such as traffic noise, leakage or pest problems, or poor neighbours. But for new launch , these sorts of issues are hard to predict, because they do not physically exist yet.
Why choose a new launch for investment?
There are many pros and cons in buying a new launch condo . Of course the main factor against buying new property is the time line. It usually takes 3 to 4 years before the property is available for vacant possession. This may hinder some investors choice if they cannot afford the waiting time or they prefer immediate rental returns.
The main reasons for choosing a new launch include:
1. First Mover Advantage. Potential upsides are good due to the changing landscape of the area. If you purchase a new launch and the area surrounding it is still under development, there is potential for the property value to grow when the development and construction is completed. Resales in that area would then be of a premium level compared to initial stage.
2. Newer facilities and features . One main appeal of a new launch condo is that everything is new. No need to worry about worn down by use in case of resale units. This newness does have an impact on rentability. Many tenants prefer a new condo where everything is new and clean. Newer condos also have more features that older ones do not. For example, smart homes technology which allow the resident to control elements of the house. For new properties, it has a warranty period, guaranteed by developers to rectify any defects.This usually last for 12 months, after obtaining the TOP. Resale apartments do not have this advantage, and for resale you get what you see.
3. Different payment methods. New launches offer different payment methods as compared to resale condo. The most common methods is Progressive Payments, this is a form of payment for properties that are still under construction. For buyers who do not have sufficient cash this method is good because you pay only a percentage of the total cost, 5% deposit and 15% on exercising deal. Thereafter the amount can be settled by mortgage payments if you are buying 1st property. This means a lower entry point when it comes to investing.
4. Discounts. Usually for new launch condo, developers will offer some discounts such as Star Buy units, early bird discounts, absorb stamp duties and other promotional discount to attract buyers. You don’t get this from resale units. And most importantly, buyers do not have to pay any agents commission for the purchase of new launch units, it is all borne by developers, that is a huge savings to buyers.
5. Lower maintenance costs. For resale unit or older condo, the maintenance costs tend to be higher. This maintenance cost is higher for both within unit and communal areas. Within your unit, older resale condos may have issues such as choked plumbing, yellowing walls, damp ceilings, spoilt water heaters, all these require repairs.
New launch condos do not have these problems; and it is protected by warranty from developers over a one-year defects-free period. Outside your unit, there is the issue of monthly maintenance costs.
- Wider range of unit choices . With resale condos, you can only select those units that are on sale. With new launches, you typically choose your unit (subject to ballot). By being able to choose unit means you can select units that you know are easier to rent out, eg. units with a better facing, better unit number, better floor level
Alternatively, you could also look at Ready-to-move-in properties from developers. These are new units that are not yet sold upon the project’s completion. These are usually a few remaining units available, and they are ready to move in when the ownership paperwork is completed. Compared to new projects or sub-sale units, ready-to-move-in properties is less available as most projects are sold out by the time they are TOP.
Conclusion :
So, which is a better investment property. Buying a resale property or a new launch condo?
Here’s some more reasons in favour of new launch condos.
• Budget: New launch condos can be bought at the developer’s price, cutting out the agent’s commission in the process. This saves you a lot of money since the developer foots the agent’s bill.
• Facilities: New launch condos have more facilities and better varieties to offer as compared to resale properties. Also, for resale properties, the common areas tend to be a little worn out and dated.
However, if you are not willing to wait for new launch properties to be constructed and want to have a rental unit right away, then pick a resale condo as a new property always carry uncertainties in timelines and project delays.
As mentioned before resale units are less risky. You can see actual unit and the current rental rates for a resale unit, and physically inspect the property. That there is also a transaction history for you to check helps you reasonably estimate capital appreciation and rental yield. Hence this is suitable for new landlords who are not used to rental calculations.
As for new launches, it is slightly more suited to seasoned investors, because it carries more risk and future projections of rental income.
You need to estimate the unit’s probable rental yield, appreciation and overall appeal. You must possess a certain level of acumen, and a good ability to read the location before the property is built.
And for new launch, you are paying the mortgage even before you have a tenant, so any mistake in investing in a new launch unit will be much more expensive.
Schedule time with me Schedule time with meArticle contributed by Rick Fok
Rick Fok is a realtor with OrangeTee & Tie Pte Ltd. He has been in this real estate business for 9 years. He is very focus in helping his clients rent properties and he does help many customers to buy new projects according to their needs. His interest include sports such as running and soccer besides just real estate work. He loves to connect with people to discuss properties related issues and gets enormous satisfaction in helping them fulfill their needs. If you have any queries on this topic or other , please do give Rick a call and we can discuss this over a cup of coffee.
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