New Launch vs. Resale Condo: Which is a Better Property Investment?

|Posted by | Home Loans
Tags: , ,

Which is a better property investment: new launch or resale condo?

When deciding between a shiny new launch and a well-maintained resale condo for your investment property, ask yourself this: are you a new landlord or seasoned investor?

One popular argument is that investing in resale units is less risky for new landlords, while new launches are better suited for seasoned investors to assess. Bear in mind that when you’re buying an investment property to rent out, you have a different set of considerations from the typical homeowner. That means looking at things in terms of cold, hard numbers, and how pretty (or otherwise) a property might look could matter less.

Regardless, if you’re buying for investment purposes, this article might help you make a wise choice between a new condo versus a resale unit.

Why choose a resale condo as an investment property?

By and large, most investors prefer a resale condo. This is not always the case, but going down the resale route does provide a few big advantages:

1. You can start renting out the place immediately

This is the most common reason for choosing a resale investment property, if you are buying for investment purposes. A new launch might take two years before it’s ready to be lived in, whereas tenants can move into a resale unit immediately. In fact, a resale condo might already have tenants, at the time you buy it (if you buy from another landlord).

Most investors want to avoid paying the mortgage altogether, by having at least sufficient rental income to cover repayments (or at least subsidise it). As such, it’s not surprising that some investors will only consider resale units.

2. Rental income is more predictable

It’s relatively easy to predict the rental income of a resale unit. You just need to look at what the current (or past) tenants have been paying.

This is even more accurate than looking at rental income in the general vicinity (for example, around the neighbourhood), as you can sometimes see the actual rental rates, for the specific unit you’re buying. Agents also have access to past rental transactions of a particular resale condo, so you can roughly work out the vacancy rate.

3. Fewer surprises, if you make proper checks

With resale units, you would have done your due diligence and inspected the physical condition of the property. You know what needs to be repaired, and have a contractor give you a ballpark figure and time frame.

While it’s true that new launches come with a defects-free period*, remember that this alone may not compensate you. For example, say you purchase a new condo instead of a resale, and then find out the kitchen flooring is uneven with popped tiles. Even if the developer fixes it for free, it could cause a delay in securing a tenant for the unit.

Furthermore, when it comes to new launches, there’s a risk that some defects are not possible to rectify. These become lasting problems. For example, if the garbage chute for the condo block is poorly designed (causing choking and foul smells), that may be a permanent issue that will affect rentability and resale value.

These sort of surprises are more easily avoided in a resale investment unit, provided you inspect the condo thoroughly before you buy.

Finally, with resale units, you can gauge issues such as traffic noise, bug or rat problems, or neighbours that play mahjong till four in the morning. These sorts of issues are hard to predict, when dealing with a new launch that doesn’t physically exist yet.

4. Better chance of spotting under-priced units

New launches are a little cheaper due to early-bird discounts, and you can still negotiate the sale price a little. But ultimately, what you pay for a new launch is almost always close to the real value (otherwise developers would be going out of business).

With resale units, there are different reasons why the owners are selling the property. Sometimes, if it’s due to issues such as inability to service the mortgage, and the sellers will be in a rush to liquidate their property in a fire sale. Some sellers have emotional motives – the unit may remind them of unhappy memories, and they’re eager to move out quickly.

If you’re lucky, this could mean finding a very under-priced unit.

Why choose a new launch for investment?

The main reasons for choosing a new launch include:

1. Newer facilities and features

The main appeal of a new launch is that it’s, well, new. You know it won’t be worn down by use, and everything will be bright and shiny. This does have an impact on rentability: many tenants prefer a condo where the pool is new and clean, the walls are still pearly white, the gym has all top-notch new equipment, and so forth.

Newer condos also have features that older ones don’t. For example, some condos today are smart homes, allowing the resident to control elements like lighting and air-conditioning with their smartphones, and to view the interior of the house by remote.

Other types of new facilities – such as rock-climbing walls and concierge services – are not common on older condos. These ideas just weren’t around at the time they were built.

2. Lower maintenance costs

The older a condo gets, the higher the maintenance costs tend to be. This is true inside your condo unit, as well as for the communal areas.

Within your own unit, older resale condos are more likely to have issues such as choked plumbing, yellowing walls, damp ceilings (usually from air-conditioner leaks) or failing water heaters. New launch condos have fewer such problems; and if you do spot them, most developers have a one-year defects-free period. That means they’re obliged to fix it for free, as long as you spot it within a year of buying.

Outside your unit, there’s the issue of monthly maintenance costs. Older condos may see rising maintenance bills, with fewer visible returns. That is, the maintenance fees may cost just as much as a new condo, even though the facilities are clearly older and in poorer condition. That’s because some facilities, such as sauna rooms and pools, can cost more to maintain as the systems age.

3. Early bird discounts

Most developers offer discounts for buyers at new launches. This could be a direct price discount, or it may involve absorbing some stamp duties.

We mentioned earlier that, among resale units, you have greater potential to spot under-priced units. But the flip side is that it doesn’t always happen. Sometimes, there is no desperate seller, and the better, likelier deal is a developer’s early bird discount. If you just can’t find a good resale deal, maybe it’s time to look at new launches.

4. Wider range of unit choices

With resale condos, you must choose among the units that are on sale. With new launches, you typically have first pick of the unit you want (depending on the luck of your ballot and/or how early you buy). Being able to choose allows you to pick units that you know are easier to rent out. For example, you can pick units with a better view, or better access to the car park or pool than other units. Assuming you understand your tenant demographic, you can pick the units that you know will appeal to them.

So which is a better property investment: new launch or resale condo?

For new landlords, we suggest resale units – they are simply less risky. You can see the current rental rates for a resale unit, and physically inspect the property. Recent transaction history also helps you reasonably estimate capital appreciation and rental yield.

As for new launches, unless there’s a lack of willing sellers/sale listings in a specific area you’ve identified, our frank opinion is they are better suited to seasoned investors. You’d need to estimate the unit’s probable rental yield, appreciation and overall appeal among other factors. You must possess a certain level of acumen, and a good ability to read the location before the property even exists. (In rare cases, a new launch project might have certain attributes that give them a huge advantage over resale condos in the vicinity).

The other exception for new investors buying new condos, of course, is if you can find yourself a property and financial advisor you can trust, who has zero vested interest in the launch project and gives you the green light given your financial situation. In any case, remember you’re paying the mortgage even before you have a tenant, so any mistake in investing in a new launch unit will be much more expensive.

Compare home loans with the lowest interest rates on SingSaver

If you found this article interesting, 99.co recommends 9 quick property hacks to spot a good investment unit and Your property buying checklist to maximise rental yield.

 


99.co logo

By 99.co
Discover the best way to find houses, condominiums, apartments and HDBs for sale and rent in Singapore with 99.co, Singapore’s Fastest Growing Property Portal. 99.co is a property search engine with the overarching goal of building a more transparent and efficient property market. We are working towards that future by empowering people with the tools and information needed to find a place to live in the best way possible.