Redditer: Why Some New Condo Owners Struggle To Sell Even After Prices Have Risen

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Why Some New Condo Owners Struggle To Sell Even After Prices Have Risen​

Opinion/Fluff Post




Today, the SSD has only “sort of” killed house-flipping in the market. While the policy incentivises most sellers to wait out the four-year period before selling their property, I think it still hasn’t killed the idea of the short-term hold.

This stems from the expectation, and assumption, of a few developer pricing strategies. Namely, that developers tend to price new projects at a relatively lower initial selling price compared to the average resale price of the area, before gradually increasing the average selling price in subsequent sales phases.

This means that when the development is completed, or attains its Temporary Occupation Permit (TOP), the units will be at their highest price in terms of developer sales.

Now this isn’t always clear cut. We see instances when developers may not raise the price if they feel sales are too sluggish, or they may not raise the price in response to black swan events such as new property cooling measures.

Alternatively, there are times when developers may not release the most premium units for sale at launch, or only release units of a certain size or floor level in order to sell them first.

Nonetheless, most of a project’s earliest buyers will end up seeing a higher capital return when the units are subsequently sold on the resale market. We’ve previously analysed over 20,000 buy-sell transactions involving new launches since 2011, and the results broadly support this.

Recently, I see more buyers who understand this approach towards purchasing new condo units, or it is introduced to them by agents. As a result, some of these buyers decide that since the average price in a new development is expected to increase by the time it attains its TOP, they can realise a healthy capital return without being locked into the unit for too long.

They just need to secure a good unit at the start of the sales phase – that is also at a competitive price – and then wait till the development completes its TOP, or right after the SSD period, to sell the unit and walk away. Some might realise this resale gain sooner through a sub-sale, which is selling the unit before the entire project is completed.

However, in reality, your listing has been up on various property portals for months, and no one is responding. I would point out that even before the Covid-19 pandemic, we had already identified cases of projects where prices fell instead of rising, during or just after the launch process.

About two years ago, a buyer purchased a three-bedroom unit in a high profile Bukit Timah condo. I can’t give out the details, but let’s just say it’s a project connected to an MRT station, and showed significant promise when it first launched for sale.

This buyer bought the unit with the intention of holding it for only a few years, and in fact the property did see its prices rise. However, it wasn’t a big price jump (around 15% over a roughly five-year period), and it took far longer for this to materialise than initially expected.

The subject unit by this seller remained on the market for close to a year before a buyer was eventually found.
For comparison, listings are usually the hottest within the first two weeks. Buyers already scouting out an area are quick to notice when units crop up for sale, and even those close to buying another project will typically want to view the unit just to make sure they’re making the right choice.

But in this particular case, the unit went without a successful enquiry for close to six months before seeing any real buying interest, and it took about a year for a deal to cross the line.

While the original buyer did make some profits in the end; firstly, it took far longer than originally planned to find a buyer, and the owners were fortunate that they had somewhere else to stay and could still rent out the unit to cover ongoing costs.

The rationale was familiar. The buyer entered early during the sales phase and heard the usual spiel about how prices in the development would rise. They were further encouraged by the explanation of the Progressive Payment Scheme (PPS).

Under the PPS, buyers only pay for their property in stages as construction progresses. In effect, they don’t pay the full monthly repayment from the start, as is the case with resale projects. Instead, the monthly repayments increase as the bank disburses more of the loan in stages.

This can contribute even further to potential resale gains, since the buyer is paying lower interest costs during construction, as the interest is applied to only a portion of the loan rather than the full full amount.

The buyer was also reassured that Novena is a mature, proven location with strong tenant demand. So, even if they couldn’t sell right after the development attained its TOP, it was “simple” to just rent out the unit until they eventually found a buyer.

This all sounds sensible on paper. But when the development was completed, the intended resale didn’t happen. Online listings were put up and the brand new unit was staged to attract buyers, but there were no inquiries for months. As a result, the buyer found herself becoming a landlord by necessity rather than by choice.

When a tenant was eventually found, managing the tenancy ended up being a major focus. Requests, complaints, maintenance issues, and even quarrels with the management ended up becoming problems for this buyer to manage

This highlights a problem with one of the most common reassurances given to short-term investors: “If you can’t sell, just rent it out.”

The reality is that renting out a property doesn’t always solve the problem, it might just replace one problem with another. Rental income can help offset holding costs and mortgage repayments. But once a tenant moves in, selling the property can become more complicated.

 

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Why Some New Condo Owners Struggle To Sell Even After Prices Have Risen​

Opinion/Fluff Post




Today, the SSD has only “sort of” killed house-flipping in the market. While the policy incentivises most sellers to wait out the four-year period before selling their property, I think it still hasn’t killed the idea of the short-term hold.

This stems from the expectation, and assumption, of a few developer pricing strategies. Namely, that developers tend to price new projects at a relatively lower initial selling price compared to the average resale price of the area, before gradually increasing the average selling price in subsequent sales phases.

This means that when the development is completed, or attains its Temporary Occupation Permit (TOP), the units will be at their highest price in terms of developer sales.

Now this isn’t always clear cut. We see instances when developers may not raise the price if they feel sales are too sluggish, or they may not raise the price in response to black swan events such as new property cooling measures.

Alternatively, there are times when developers may not release the most premium units for sale at launch, or only release units of a certain size or floor level in order to sell them first.

Nonetheless, most of a project’s earliest buyers will end up seeing a higher capital return when the units are subsequently sold on the resale market. We’ve previously analysed over 20,000 buy-sell transactions involving new launches since 2011, and the results broadly support this.

Recently, I see more buyers who understand this approach towards purchasing new condo units, or it is introduced to them by agents. As a result, some of these buyers decide that since the average price in a new development is expected to increase by the time it attains its TOP, they can realise a healthy capital return without being locked into the unit for too long.

They just need to secure a good unit at the start of the sales phase – that is also at a competitive price – and then wait till the development completes its TOP, or right after the SSD period, to sell the unit and walk away. Some might realise this resale gain sooner through a sub-sale, which is selling the unit before the entire project is completed.

However, in reality, your listing has been up on various property portals for months, and no one is responding. I would point out that even before the Covid-19 pandemic, we had already identified cases of projects where prices fell instead of rising, during or just after the launch process.

About two years ago, a buyer purchased a three-bedroom unit in a high profile Bukit Timah condo. I can’t give out the details, but let’s just say it’s a project connected to an MRT station, and showed significant promise when it first launched for sale.

This buyer bought the unit with the intention of holding it for only a few years, and in fact the property did see its prices rise. However, it wasn’t a big price jump (around 15% over a roughly five-year period), and it took far longer for this to materialise than initially expected.

The subject unit by this seller remained on the market for close to a year before a buyer was eventually found.
For comparison, listings are usually the hottest within the first two weeks. Buyers already scouting out an area are quick to notice when units crop up for sale, and even those close to buying another project will typically want to view the unit just to make sure they’re making the right choice.

But in this particular case, the unit went without a successful enquiry for close to six months before seeing any real buying interest, and it took about a year for a deal to cross the line.

While the original buyer did make some profits in the end; firstly, it took far longer than originally planned to find a buyer, and the owners were fortunate that they had somewhere else to stay and could still rent out the unit to cover ongoing costs.

The rationale was familiar. The buyer entered early during the sales phase and heard the usual spiel about how prices in the development would rise. They were further encouraged by the explanation of the Progressive Payment Scheme (PPS).

Under the PPS, buyers only pay for their property in stages as construction progresses. In effect, they don’t pay the full monthly repayment from the start, as is the case with resale projects. Instead, the monthly repayments increase as the bank disburses more of the loan in stages.

This can contribute even further to potential resale gains, since the buyer is paying lower interest costs during construction, as the interest is applied to only a portion of the loan rather than the full full amount.

The buyer was also reassured that Novena is a mature, proven location with strong tenant demand. So, even if they couldn’t sell right after the development attained its TOP, it was “simple” to just rent out the unit until they eventually found a buyer.

This all sounds sensible on paper. But when the development was completed, the intended resale didn’t happen. Online listings were put up and the brand new unit was staged to attract buyers, but there were no inquiries for months. As a result, the buyer found herself becoming a landlord by necessity rather than by choice.

When a tenant was eventually found, managing the tenancy ended up being a major focus. Requests, complaints, maintenance issues, and even quarrels with the management ended up becoming problems for this buyer to manage

This highlights a problem with one of the most common reassurances given to short-term investors: “If you can’t sell, just rent it out.”

The reality is that renting out a property doesn’t always solve the problem, it might just replace one problem with another. Rental income can help offset holding costs and mortgage repayments. But once a tenant moves in, selling the property can become more complicated.

Now buyers market. Especially condos.