In this column, Bernard Tong, managing director of The Edge Property, assesses the advantages of buying a new condo as soon as it is launched versus waiting for the initial buzz to die off.
Gem Residences was the most-talked about property launch last month, for some positive and not-so-positive reasons.
The Toa Payoh condominium sold 300 units, slightly more than 50 per cent of the entire development in the first two days, which was a huge success given the current housing climate.
However, sales momentum slowed in the following week, with only a handful of units sold. The developer also had to tweak its highly publicised triple-key units from three kitchens to one to comply with plans approved by the Urban Redevelopment Authority (URA).
What is the best strategy for property buyers when it comes to new launches? Should you try to beat the crowd and buy your choice units during the initial launch? Or do you wait patiently for the early hype to settle before finding a space which suits you?
Data provides some guidance. Sales analysis of Gem Residences based on caveats lodged up until May 29 paints an interesting picture: In total, there were 309 transactions; of those, 273 were for two bedrooms or smaller units, representing 83 per cent of the available units within those sizes. In contrast, only 14 per cent (35 units) of the available three-bedroom or larger units were sold. In other words, for every large unit sold, there were eight small units being taken up.
Is this unique to Gem? A study by The Edge Property on projects launched in 2015 and 2016 found that, on average, sales of small units (two bedrooms or less) in the first month of a property launch outperformed sales of larger ones (three bedrooms or more) by 3.3 times.
Sims Urban Oasis was the most extreme, as there were 104 sales for smaller units in the first month, in contrast to only 12 for larger ones.
ONLY FOOLS RUSH IN?
So, does it make sense to wait? That depends. If you’re an investor or first-time home buyer looking for a small space, you probably should not be too picky. Statistics show that it helps to decide quickly.
Besides Gem Residences, two other projects, namely Cairnhill Nine and Sturdee Residences, sold more than 50 per cent of its available small units within the first month of launch. In the case of Cairnhill Nine, it was almost 90 per cent.
The same conclusion can be drawn even for the large-scale developments. For example, in the case of Poiz Residences, a development with 731 units, 189 small flats were sold in the first month alone.
Although smaller units tend to be more expensive in terms of the average per square foot (psf), in our sample, smaller units are priced at a relative 4 per cent premium – they offer greater pricing flexibility in terms of overall quantum and generate higher rental yields.
However, if you are an owner occupier or looking to upgrade to a larger space, your best bet is to wait. For every 100 large units built by developers, only 16 were sold in the first month of launch. In 12 out of the 13 projects, the sales of large units in proportion to what is available are considerably lower than smaller ones.
The only exception was Principal Garden, UOL’s project in Redhill, which sold 24 per cent of its large units compared to 15 per cent for its smaller ones. The lower entry cost and the lack of larger offerings in the surrounding neighbourhood were possible reasons.
It also pays to wait. Developers are likely to cut prices to move unsold large units. In seven out of the 11 new launches we looked at, average transacted prices for larger units were lower after the initial launch month. For instance, in the case of Kingsford Waterbay, the transacted prices of larger units were 2 per cent lower on average in the period after the first launch month.
LESSONS FROM GEM
There are a few possible explanations why sales of larger units at Gem, and other recent launches, paled in comparison to smaller ones. Upgraders, a critical pool of potential buyers for large units, could be sidelined as Housing Development Board (HDB) prices continue to fall.
Since its peak in 2013, resale HDB prices have fallen by about 11 per cent. Many upgraders who were thinking of selling their flats to buy private condos may no longer afford to do so.
Recent rule changes on HDB flat ownership may shrink the size of this pool even further. The new regulations, which took effect Apr 1 this year, prevent flat owners from “decoupling” or transferring their share of property to their spouses, unless under very strict and unique circumstances.
Lastly, the pricing of the larger units at Gem could also be a factor. Interestingly, the average transacted prices for three bedrooms and above are only 1 per cent lower in terms of average psf (compared to an average of 4 per cent discount in our analysis of recent launches) than the smaller units.
Nonetheless, this could be a strategic move by developer to move the smaller units first, before offering discounts for the larger units in the later stages.
In buying property, the obvious drawback of waiting is that you might not be able to select your most preferred unit.
Ultimately, understanding what you’re buying for to help time your decision-making process can be a good practice to follow in the current market.
Source : Channel NewsAsia – 17 Jun 2016