What underpins home demand at developer sales

Recent private home buying has focused on developer sales, particularly those for suburban condominiums. The focus is driven by financial considerations and innovative product designs.

Developer sales can be significantly pricier than resale homes in the vicinity but may still be attractive because the buyer “wouldn’t have to pay instantly”. The attraction lies in the progress payment schemes where mortgage financing is effective only when the project is completed, whereas a resale property requires one to commit immediately.

To some extent, therefore, developer sales offer the attractiveness of “instant gratification” where the buyer can already boast about owning a property during the construction stage.

Shoebox apartments, which staged record sales last year, have a special place among buyers who are single. Many such apartments were purchased directly from developers – meeting the preference among the younger, economically active buyers for future payments.

It remains to be seen if prospective buyers of shoebox apartments will be interested in the new developments that will be completed from the second half of this year. For those units which will be completed this year and the first half of next year, the bulk may have been bought without the sellers’ stamp duty and hence may be priced attractively in the resale market.

Special project designs have been successful in wooing buyers, with buyers willing to pay a premium of 10 to 20 per cent to resale properties in the vicinity, depending on the age of the completed properties.

With buyers increasingly discerning and more educated, developers now try to outshine one another amid ample new supply and, as such, have created new genres of properties that are fundamentally different from resale homes.

The individualistic mindset “to settle for only the best” means that well-designed projects will meet the hearts of buyers who have sophisticated expectations. A developer sale also offers a brand new property with a total sense of freshness. The feel and thrill of a brand new home is present in all developer sales, including far-flung properties.

Resale segment has its own attractions

Although the resale property market has been inactive for a while and has only just now begun to stir, it may not permanently lose shine to developer sales. The increased preference for developer sales will lead to a sharper contrast between the two sets of properties. This will allow these two types of properties to better cater to two different profiles of buyers.

Resale properties that are priced attractively will be able to woo buyers who have financing power. Interestingly, such buyers are the ones who ultimately purchase at lower prices. Resale properties can be a long-term investment gem and may allow the investor to top up his overall wealth faster than the rest.

Buyers of fairly new resale properties in convenient locations or tried-and-tested developments can also feel safer than buying new properties in far-flung locations, although many new places may present exciting growth opportunities in the long term.

A persistent dichotomy in the resale and developer segments will mean that resale properties that have average concepts will cater to practical but financially-ready buyers, whereas creatively-designed developer projects will have a role in continual product innovation in Singapore’s mature housing market.

Changes to housing developer rules have just been announced to improve transparency and accountability and enable home buyers to make better informed decisions.

The rules are a good move as they better protect the interest of the buyers, particularly as there are now more private home buyers, and these may include first-timers who do not fully know the property’s specifics in their pursuit of their dream home.

Still, the rules are unlikely to reduce future home-buying interest as it is difficult to discourage a home-seeker who has already psychologically tuned himself into the buying mode. The rules will therefore help to give a final layer of confirmation to the buyers’ decision.

Meanwhile, recent discussions on price sustainability have been on new cooling measures to cope with increased buyers’ interest. But if home buyers’ interest remain strong and this cannot be downplayed, then any measure must be effective in ensuring that such strong buying interest is well considered and lasting, mitigating the possibility of buyers’ remorse.

By Ong Kah Seng – director at R’ST Research, an independent property market research company in Singapore.

Source : Today – 27 Apr 2012

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