Pros and Cons of buying Brand New Condos Direct from Developers
Updated: Aug 10
They say, early bird catches the worm. How true is that when it comes to being the very first owners of a brand new condo?
The verdict is out - there are indeed many advantages in buying directly from developers and being the first owners.
First most straightforward reason is - Price.
Preview Initial Launch Prices
The initial launch for most projects is the best time to buy. Why?
Developers usually price their units at the lowest during the initial launch. This is to achieve hype and positive media coverage upon the launch. Imagine a project that is the talk of town and oversubscribed, with an overwhelming demand from buyers hoping to grab a unit because prices are so attractive. Versus a project that buyers are hesitant about.
With good publicity, it paves the way for future sales. The developers also look good in front of their shareholders.
Another reason why prices are usually most attractive during the initial launch is, developers need to achieve a 30% sales mark in order for banks to release loans to the developers. Yes, developers like you and me, need to take loans as well. Usually, more funds are only released when developers hit the 30% sales mark. And that is why they want to spur sales and achieve target as fast as possible to reduce their own risks.
Hence, we have a win-win situation for both the developer as well as buyers.
After the initial launch phase, the sales progresses to Phase 2, where there is slow but steady momentum of sales. There will usually be price increases and developers may dangle discounts and freebies. While these discounts and freebies encourage sales, they are almost always less than the amount of the price increment.
Phased 3 continues with more price increases until TOP, which brings in buyers who are willing to pay a premium to see the finished product before making the purchase.
It is true - if you manage to buy at Preview early bird discount prices 3-4 years ago, you would probably had paid less.
While TOP prices have probably undergone a few increments and higher compared to the initial launch prices, there are still many good reasons for buying.
Pros of buying at TOP
1. Avoid ABSD
When you buy a TOP already condo, you can time the sale of your current property such that A) you do not have to pay ABSD of the new place, and B) you also don't have to rent a place in between!
Of course, to execute this, I'd recommend that you consult an experienced agent who can guide you in your sale and purchase. You will need to plan your execution in a timely fashion so that you can avoid the hefty amount of ABSD.
2. No need to rent!
When you buy a new launch, the TOP is usually 3-4 years later. If you want to avoid ABSD, you'd have to sell away your current property before you buy the new one.
Which means you don't have a place to stay in the next 3 years.
So you need to rent.
Effectively, you will need to sell old place, buy new place, rent, and move TWICE. For many of us especially families with children, that is a lot of work!
You can avoid all these inconveniences when you buy a just TOP already condo.
3. No need to renovate
Chances are when you buy a resale, you would need to do some renovation work. At least change the toilet bowls?
But when you buy a brand new condo from the developer, everything is first hand. Everything is brand new! What is there not to like? You can simply move your furniture, bring your bags, and start staying there once you get the keys! The entire process is so simple and straightforward, with no need to hire a contractor and go through numerous meetings and potentially headaches to renovate anything.
There is also a 1 year defects warranty period from the developer. So that is another safety net for the buyers.
4. See the actual unit you are buying!
When the project is already TOP, you can visit the actual unit and check out the facilities and nearby amenities. For those of us who need to see before buying, this is important! Yes, you have to pay a premium to see the finished product (vs buying a floor plan), but to many of us, it is worth it.
5. Immediate Occupation
Honestly, some of us can't wait. We want it, we want it now. And life is short! Why put our lives on hold waiting for our next milestone when we can move into our dream home immediately?
Of course, to enjoy this immediate occupation, your finances also need to agree.
With purchasing of BUC (building under construction), one of the advantages is the Progressive Payment.
This is how it works -
Payment of the First 20% Downpayment
Day 1 - Buyer pays Booking Fee 5% (Cash)
Day 14 - Developer sends Sales and Purchase Agreement to Buyer's lawyer
Day 14 + 3 weeks - Buyer exercises at lawyer's Office (Confirm the purchase)
Day 14 + 3 weeks + 2 weeks - Buyer pays Stamp duty (Cash/Direct from CPF)
Day 1 + 8 weeks - Buyer pays 15% down payment (Cash/CPF)
Effectively, you only need to pay 20% of the purchase price within the first 8 weeks. After that, your payment will be progressive. Which means you only pay up to the stage of construction.
Progressive payment for the remaining 80%.
Estimated Timeframe Stages Payment
Est 6 – 9 months Completion of Foundation Work 10%
Est 6 – 9 months Completion of Reinforces Concrete Framework 10%
Est 3 – 6 months Completion of brick walls 5%
Est 3 – 6 months Completion of roofing / ceilings 5%
Est 3 – 6 months Completion of electrical wiring, etc 5%
Est 3 – 6 months Completion of carparks, roads, etc 5%
Notice of Vacant Possession (Temporary Occupation of Permit - TOP) 25%
Legal Completion date (Certification of Statutory Completion - CSC) 15%
If you had taken a loan of 75%, then after you have paid the initial 20%, you will need to get ready the next 5%. After which, you just need to sit back and let the bank take care of the rest of the payments. You will need to start servicing your loan in monthly mortgage instalments, but your instalments will also be progressive, starting small before progressing to the full loan repayments.
To be fair, new launches might not be suitable for everyone. What are some of the cons?
1. Purchase from floor plan
Developers follow a rather tight timeline. They must complete building and sell all units in the development within 5 years from the acquisition date. Hence, they have to start selling even before the development has started its foundation.
So with nothing concrete to show its buyers, developers sell through showflats, floorplans, and mockups. And buyers have to scrutinise the information provided and buy based on the potential.
That is also why you get to buy at such good prices, because there is a certain level of risk involved in buying something that is not even there yet.
Fortunately in Singapore, the Housing Developers (Control and Licensing) Act and its rules hold a tight rein over the developers, so the quality is mostly upheld and well controlled. What buyers need to be concerned about is more of whether they like the floor plans, the prices, whether there is potential for growth in the area they are buying into etc.
While there is no guarantee in life, part of my job is to help buyers increase the chances of a good investment and reducing the risks with our 7-step framework to help clients shortlist good projects.
2. Preview launches usually happen 3-4 years before the condo reaches TOP. You may have made plans for the next 3-4 years, but sometimes, life happens and things may not go as planned. The unpredictability of buying something so far into the future may throw some curve balls into your plans.
Fortunately, there is an option of selling off the unit since you would most probably have fulfilled the 3 years holding period to avoid any Seller Stamp duty.
And most new condos that were resold made projects.
This is actually one advantages of buying directly from developers. When a big group of buyers buy at around the same price e.g. at the Preview launch, each one of the buyers has an unspoken "obligation" to protect each other's interests. Nobody would want to sell at a price lower than what s/he bought at, so in that way, everyone's prices are being protected.
Even if in future when properties change hands, the first buyer will always have the upper hand. Why?
Because in normal circumstances when properties change hands, prices will usually go up with each transaction since everyone wants to make a profit when they sell. As the first owner with the first mover advantage, you are sitting on the lowest initial preview prices. With every transaction of your neighbours, you get to reap the most paper gain.
Resale VS New Launch
How about if I compare new launches with resale? Is it always better to buy new launches?
The truth is there is no right or wrong answer. What matters most is still your individual needs.
New launches are now much smaller. Some buyers prefer to go for resale units for the space.
But precisely because of their smaller quantum, some buyers find it easier to secure loans for the purchase.
Buying new launches means you may not have a place to stay for 3-4 years before you get the keys. You may need to rent or bunk in with your parents.
But on the flip side, you get to take advantage of the progressive payments.
The psf of new launches are much higher than those of resale, but are you aware that the growth and potential capital appreciation may also be higher?
And the list goes on.
There are always 2 sides of a coin. And what is most important is to recognise and understand your own needs, requirements and limitations, and choose the most suitable arrangement for yourself.
If you need to chat with someone to clear any doubts you may have, feel free to give me a call/whatsapp at 8268 1409.