Over the course of our advisory work, my research partner and I do get this question repeatedly. If I buy a new launch project, will it surely make money? Thus, in our attempt to answer this question (based on the recent property market situation), we have committed our time and effort to study the price trends of new launch condo performance.
Basis of our study
First, we downloaded the new launched unit sales price from the URA website for units transacted in the year 2017. Then, we downloaded corresponding information for the same set of condos for their sales price in 2020.
We understand that usually within the same condo, the smaller units will usually fetch a higher per square foot price (psf) compared to the larger units. So, we breakdown the sizes of each condos into the following 3 categories of sizes before making any comparison:
- Units smaller than 700sf
- Units between 701sf to 1000sf
- Units between 1001sf to 1500sf
After all these are done, we then take calculate the average psf prices of these condo in 2017 and compare them to the corresponding average psf prices in 2020.
Market conditions over the last 3 years
Looking the URA price index from 2017 to 2019, the price has increase is over 10%.
|Year||URA price index % change|
While some of us will expect all condo projects to experience similar price increase over the same period, however, this is not true here.
So, what do we find out?
The results from our analysis of the URA data, only 58% of the new launch projects registered positive price increase over the 3 years from 2017 to 2020. The remaining 42% registered a zero or negative growth. The top 3 projects registered an increase of over 20% gain, while the bottom 3 registered over 15% loss.
What are the reasons for the price increase?
For us to understand the reasons behind the price increase/ decrease, we decided to make a trip down to the actual condo location to understand why the price of that project can register a price increase or a price decline.
After going on the ground and taking closer look at and around the condos, we summarized the 5 main reasons that we felt was the reason for the price increase:
- Valuation (Affordability)
One of the reasons for the price increase is the correct valuation of the condo project. While overall condo prices have increased from 2017 to 2020, if the increased in the price remains affordable to buyers living around the area or those who are looking to buy in that project, the prices can go up. However, the reverse is true. If today, I buy into a condo project which prices or valuations are already too high, I may have a hard time finding a buyer if I resell it later.
- Limited Supply
Prices of properties has direct relationship with demand and supply. If the supply of property in the particular town is limited, if anyone wants to buy a resale unit, they got to buy from whatever that is available there.
Take Gems Residences (located in Toa Payoh) as an example.
|Condo||TOP||No. of units|
There is currently a limited supply of condo in Toa Payoh town. Currently only about 1,870 units. Furthermore, looking at the years that which these condo TOP, they are quite far apart. Meaning, if you want to buy any new launch condo in Toa Payoh, the wait could be long. For example, from the TOP of Trevista to that of Gem Residences, you need to wait for 8 years.
Thus, today if a buyer wants to stay in Toa Payoh, there are limited choices/supply for him to buy from. In this limited supply situation, seller can usually ask for more.
- Land bid price
If the future land bid prices around the current condo is higher that the current one, it can help to bring up the prices of the existing condo. For example, for The Alps residences. We can see that the initial average psf launch price is around 980psf to around 1100psf. Comparing with the neighboring plot, Tapestry, which is launch at around 1440psf, the tapestry selling prices helps to “pull” up the prices of the alps residences.
Of course, the reverse can be true. If the new launch is going to sell at a lower price or the same price as the resale condo, then the price of the resale condo may suffer.
- Unique selling point
If there is a unique selling point about a given condo, the sellers can usually ask for more. Especially in an area that are completely surrounded with other condos, a unique selling point of a condo will make it stand out from the rest.
Looking at Potong Pasir as an example. The condos along both sides of Serangoon road all looks similar. Looking The Poiz Residences, one unique selling point compared to the rest is that it is a mixed development. With shopping below the residences.
Are there any upgrade or changes in the town that will cause the value of the property to go up? There must be a reason to cause the prices of the property to increase. For example, an upgrade of amenities, additional of transport nodes, recreation facilities, MRT train stations…
If we compare 2 towns, one with a lot of such transformation or “upgrades” compared to one that does not have any changes over the last 10 years, which do you think will have a better property value?
Limitations of our study
In the comparison that we are doing here, we are not comparing exact same unit to unit transaction done in 2017 and 2020. We use the average of all the units transacted in the project. In addition, some condo projects may experience small number of transactions; thus it may not be fully representative of the actual situation.
The 5 reasons above are not exhaustive of all the reasons why new launch property prices can increase after they TOP. We believe they are the main ones based on the properties we visited. Going forward, we have 5 main recommendations if you are considering buying a new launch project:
- Get objective property investment knowledge
- Consider your investment time horizon
- Check your affordability
- Do a property risk management
- Consult an expert in this field