You may have heard that the first phase of any new property launch is the “cheapest”. This is to get a good initial response and get the ball rolling; that’s why you often read editorials about how “Development X sold out 80 per cent of units” over its weekend launch (developers will get their publicists to push such news). An example will be the new property launch at Penrose that had achieved 60% sales in 2 days over the launch weekend.
However, what you may not have heard is that sometimes, those who buy later get bigger discounts. In June, for example, 38 Jervois had a fire sale that saw 13 to 24 per cent discounts; these discounts were as big – and in some cases bigger – than some of the discounts in the earlier phases.
In light of such possibilities, should we still rush to buy in the earlier phases? Let’s dive in to find out.
THE APPEAL OF “INSTANT GAINS” FROM BUYING EARLY
Early discounts have significant appeal to investors, because of how quickly the gains can arrive. For example, say you were to purchase a new property launch development at the VIP preview; it costs $1 million after discount.
After this early phase, the developer “normalises” the price, at $1.15 million. After two years the condo is built, and on the fourth year, you are no longer obliged to pay Sellers Stamp Duty (SSD) when selling.
If you then sell the condo, even at close to its base price of $1.15 million, you would have seen a 15 per cent return over a short four years.
This is an angle that’s often used to persuade you to buy early, so be prepared to hear it when you enter a show flat.
IN PRACTICE HOWEVER, THE EARLY PHASES IN THE NEW PROPERTY LAUNCH DON’T ALWAYS MEAN THE BEST DISCOUNTS
Some of the factors you need to consider are:
- Whether the discount is real
- Sometimes there may be similar discounts in later phases or during a relaunch
- Due to ABSD deadlines, discounts sometimes come late as well as early
1. WHETHER THE DISCOUNT IS REAL
This part is tricky. The first thing to do, even before you set foot in a show flat, is to look at surrounding property prices.
As a loose rule of thumb, new property launch will be around a third higher – on a price per square foot basis – than neighbouring condos (note that this is true as of 2019). So if the surrounding condos average $1,300 psf, then you would expect the new launch to be in the range of $1,690 psf.
Now say you step into the show flat, and you’re told the price is going to be $1,750 psf. However, during this initial phase, they are going to discount the price to $1,700 psf.
You can see that the discount is not as big as it seems, as $1,700 psf is close to the expected price of the property anyway.
The tricky part is that, unless you have data sources on surrounding prices, this can be hard for the layperson to determine. Note that simply going on property portals to check listing prices may not be accurate, as you’re seeing prices before any negotiation (listing prices are sometimes much higher than the actual transaction price).
Also, the rule of thumb – that new launches will be third higher in price – doesn’t apply universally (e.g. if there’s only one condo nearby and it’s reaching 30 years, the price discrepancy can be much higher).
If you have your doubts, drop me a message before you head into the VIP preview or launch, and I can help you work out the likely prices.
2. SOMETIMES THERE MAY BE SIMILAR DISCOUNTS IN LATER PHASES OR DURING A RELAUNCH
One example of this was Bishan Sky Habitat, back in 2014. During the initial launch of this development in April 2012, prices were between $1,435 to $1,893 psf.
Cooling measures kicked in soon after though, causing the developer to relaunch at a range of just $1,276 to $1,590 psf.
In general, developers don’t like to give equal discounts in the later phases, as they know they could lose the trust of the buyers. But realistically, there is a risk it could happen.
Developers are not immune to market situations. For example, if the fall out from Covid-19 proves too heavy for the property market, a developer may decide to maintain discounts of the new property launch even in later launch phases.
3. DUE TO ABSD DEADLINES, DISCOUNTS SOMETIMES COME LATE AS WELL AS EARLY
Developers also have to pay the Additional Buyers Stamp Duty (ABSD). They put down 30 per cent of the land price when they first acquire it; if they can complete and sell all the units in the new property launch within five years, they can get back 25 per cent of the land price (in essence, they pay 30 per cent tax if they don’t meet the deadline, and just five per cent if they do).
As this is a tremendous sum, few developers are happy to pay it just because they have five or six units left over. It may make more sense for them to sell those units at slashed prices, rather than incur the ABSD loss.
As such, some bargain hunters look at the start and end of a condo development; there are good discounts to be found in the earliest phases, and potentially also at the end as the ABSD deadline nears.
However, you shouldn’t count on this happening too often. Most developers are able to sell all their units a comfortable time before the deadline; and remaining units may be sold en-bloc to investment firms, major buyers, etc. rather than to the general public.
OVERALL, BUYING EARLIER OFTEN MEANS EARLY BIRD DISCOUNTS, BUT BEWARE OF EXAGGERATED CLAIMS
I would hesitate to accept claims like “you’re only buying at cost if you buy early”, or that “you’ll definitely make money once they start selling at the normal price”.
Most early bird discounts range between seven to 10 per cent; and again, there’s no guarantee that earlier = biggest discount.
For most home buyers, I would say the main advantage to buying early is being able to pick the best units; the ones with a good facing, more efficient floor plan, or which have the better views. Those who buy later – such as upon TOP – won’t just be paying more; they also have to choose from “leftover” units, which may be undesirable.