SINGAPORE: When choosing between a shiny new launch and a well-maintained resale condo for your investment property, here’s a key tip: Consider whether you are a new landlord or seasoned investor.
One popular argument is that investing in resale units are less risky for new landlords, while new launches are better suited for seasoned investors to assess.
Bear in mind that when you are 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 - how pretty (or otherwise) a property might look could matter less.
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 is ready to be lived in, whereas tenants can move into a resale unit immediately.
In fact, there is even a chance a resale condo might already be tenanted if the owner rents it out.
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 is not surprising that some investors will only consider resale units.
2. Rental income is more predictable
It is 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, in the neighbourhood in general), as you can sometimes see the actual rental rates, for the specific unit you are buying. Agents also have access to past rental transactions of a particular resale condo, so you can roughly work out the vacancy rate.
3. There are fewer surprises, if you make proper checks
With resale units, you would have done your due diligence and have 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 is 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 is 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 does not physically exist yet.
4. There’s a better chance of spotting underpriced 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 letting go of the property.
Sometimes, if it is due to issues such as inability to service the mortgage, 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 their recent divorce, and they are eager to get away from the bitter memories.
If you are lucky, this could mean finding a very underpriced 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 is, 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 do not. For example, some condos today are smart homes, allowing the resident to control elements such as 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 are obliged to fix it for free, so long as you spot it within a year of buying.
Outside your unit, there is 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.
While there is greater potential to spot underpriced units with resale units, the flip side is that it does not 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 is 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 facing, or which have 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 better for investment, new launch or resale condos?
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. That there is also a transaction history for you to check helps you reasonably estimate capital appreciation and rental yield.
As for new launches, unless there is a lack of willing sellers/sale listings in a specific area you have identified, our frank opinion is that they are better suited to seasoned investors.
You would need to estimate the unit’s probable rental yield, appreciation and overall appeal. You must possess a certain level of acumen, and a good ability to read the location before the property even exists.
The other exception for new investors buying new launch condos, of course, is if you can find yourself a property and financial advisor you can trust, who has zero vested interest in the new launch project and gives you the green light given your financial situation.
In any case, remember you are paying the mortgage even before you have a tenant, so any mistake in investing in a new launch unit will be much more expensive.
This article first appeared on 99.co.