The previous article on capital gains from property that I wrote received a lot of attention and interest. I received a few PMs and WhatsApp messages.
There is a lot of interest to enter the property market but many out there remain unsure of what are the next steps to take.
Based on my experience, here are the most common questions lingering in people’s minds:
- Should I consider upgrading to private property from HDB?
- How can I finance and pay for a private property?
- Which are the private property I should go after – resale or new launches?
- Is it worth buying a private property for investment?
- Which locations should I consider buying?
So much doubts. So many questions.
And yet everyone seems to have an opinion on the type of property to invest in.
Common Opinions Usually Means Common Misconceptions
Here are some of the common opinions people have:
Freehold is better than leasehold!
The entry price is important – never enter when the price is the highest!
Don’t buy now! Wait for the market to crash!
Some of these opinions might be based on facts but it usually reflects half the story.
For example – freehold is fantastic if you are planning to hold on to a property for the long term and plan to put it as a legacy for your children and grandchildren.
That’s why those old towkays with multi-generational businesses do their estate planning using the vehicle of freehold properties. It is part of their estate their children will inherit.
But if you are simply looking to hold a property for about 8-10 years, leasehold is still a better choice due to its lower price. A lower price means there is still some opportunity for the price to appreciate in the future.
Opportunity for capital gains is much clearer in leasehold properties when compared to freehold properties which is already priced at a premium.
Entry price is important.
But I showed how J-Gateway still made huge capital gains for the owners even when they bought it at the most expensive entry prices of $15XX PSF back in 2013. People actually made money even when they they entered at the peak prices!
Finally, the opinion of waiting for the market to crash? That is actually very dangerous. It means something really terrible has happened.
Because if the property market were to really crash – the ripple effect will impact everyone – no matter how prepared you might have been.
Wishing for the market to crash just so you can buy properties? Will you even be able to move past your fears?
You are more likely to sit on the sidelines – being scared stiff to even consider to enter the property market. It is basic human psychology.
Resale vs New Launch Condos
There is another opinion that people have regarding buying resale versus new launch condos.
Some people think buying resale condo is better – it is ready and complete – there is no waiting time. You can move in or rent out the apartment immediately.
Some people thinking buying new launches are better – it is brand new with a fresh lease. Facilities are new, everything is new!
To be honest – there is no right and wrong answer here. Because it boils down to you and your personal preferences.
Since you are reading this article – I am going to assume that capital gains are important to you.
Based on my experience handling dozens of transactions in recent years – the property investor will tend to buy new launch properties as compared to resale properties.
Advantages of New Launch Properties
Here are some of the reasons why investors prefer buying new launches:
- First mover advantage: There is greater upside of price appreciation as you will be purchasing the property at the launch day which will set the trend for other existing developments in the vicinity.
Developer will also tend to stage up the sale prices for the unsold units as time goes by which is commonly seen in some residential developments.
Here’s an example of prices increased on a new residential development located close to Queenstown MRT Station
Another example of a new unsold residential development with prices increased.
- Brand new design concept and facilities vs older condominium designs and facilities: It will be much easier to lease the new property as there will be a pull factor to attract expatriates.
- There is a defect liability period of 1 year given by the developer upon Temporary Occupation Period (TOP) period: which means you get the reported defects rectified by the developer within the 1 year period
- Unlike a Resale property, you are directly dealing with one seller: who is the developer and will have a wider choice of units for you to choose from.
- Payment of the property purchase is made progressively: It will be based on the development construction time-frame. This means smaller mortgage loans at the beginning.
Example #1: Gem Residences vs Trevista
For Gem Residences versus Trevista, the trendline is clear below:
Example #2: Alex Residences vs Ascentia Sky
Here the trendline is more obvious – Alex Residences appreciates almost by 20% over the same period that Ascentia Sky depreciates by 10%.
Example #3: Commonwealth Towers vs Queens
Both Commonwealth Towers and Queens are located nearby to Queenstown MRT.
The Queens condo is much more cheaper but being a resale, it’s price is trending downwards over the same period.
A resale condo does still have some distinct advantages – the prices are lower and if you choose to rent it out – you can immediately start earning from rental yield.
But if capital gains is an important priority, you might want to consider new launches.
However, there is no guaranteed outcome. Some people do make little gains or even losses therefore you need to do a thorough research before you enter the market.
More importantly, you must have a safety net to hold onto the property if the capital again that you hope to achieve in a particular timeframe have yet to materialise.
You also have to be clear on your investment objectives. The next few questions I will ask you are:
- What are your goals?
- Do you plan to stay here for the rest of your life?
- Or do you plan to sell to extract gains later on?
- Is capital gains important to you? (For some clients, capital gains are not important)
- Do you need to move in immediately?
The bigger question is – there are over 60 new and existing property launches.
Which one do you choose? Not all of these launches are sensible buys.
However with my research and experience , what i can provide you is to help you check those blindspots and minimise the risk of making a loss.
I only highlighted a few examples above.
But there are actually about a dozen more examples of where new launch properties have outperformed resale properties in terms of capital gains in the short term. If you wish to find out more, feel free to drop me a message.
All progress starts from telling the truth. I wrote this article to reflect the realities on the ground and what I experience everyday as an agent.
Change will come when each of us has the courage to question our own fundamental values and beliefs. This applies to our investment knowledge which may have its own gaps and blindspots.
If you are considering entering into property investment as a way to ride into the upwards trend, I invite you to contact me for a discussion. Everyone has different financial resources and backgrounds – so you will need your own customised options.
Of course, there is no obligation for you to follow my recommendations.
During our discussion, we can explore your untapped funds that are sleeping…. and channel it towards properties that can provide better performance than your existing ones.