Gap in prices between new and resale homes grows

Source : Channel NewsAsia – 24 Aug 2009

Homes in the primary market, or new ones sold by developers to owners, traditionally cost five to eight per cent more than those in the secondary or resale market. But this gap is growing to between 10 and 20 per cent as the Singapore property market heats up.

Developers have sold more than 10,000 new private homes to date in 2009, more than double the total in 2008.

And while sales in the secondary market have kept pace, analysts said prices have risen slower, which is characteristic of the segment.

Eugene Lim, associate director, ERA Asia Pacific, said: “The current market is on an upswing so we are looking at the price difference between old properties and new properties in a range of 10 to 20 per cent, versus a low market scenario where you see a difference of five to eight per cent.”

Locations where few new developments have been launched are likely to see the largest gaps between new and resale homes.

These include neighbourhoods like Ang Mo Kio, where no projects were launched for at least a decade until Centro Residences in July. Units there were sold for record prices for suburban Singapore, at more than S$1,100 per square foot.

And while the secondary market typically offers cheaper options, analysts said this may not always mean the best deals. They said it depends on what the buyer is looking for.

Mr Lim said: “Those who are looking for investment are buying the property with intention to rent out later on, so they will be looking at newer ones, because traditionally, tenants prefer new projects to old projects, whereas people buying for their own stay… may be looking for certain unique features.

“For example, (if they) want a big three-bedroom apartment, then they’ll probably be looking at older projects. Because today’s design trend is that most developers will be building more compact three-bedroom apartments to make prices more manageable. So if you want a 1,900 square foot three-bedroom, there is no such product in the new project market today.”

Karamjit Singh, managing director, Credo Real Estate, said: “Some buyers still prefer purchasing a unit in the primary market, directly from developers. The whole experience and convenience of purchasing a unit in the primary market helps, as well as payment terms, especially under the interest absorption scheme. There is also a premium accorded by some buyers to be the first occupant and buyer of the unit.”

Investors who wish to rent out their units also prefer new homes, as these tend to be more attractive to tenants.

Overall, observers said the gap is unlikely to increase to the highs seen during the property boom in 2007, where a first-hand unit could command a premium of more than 30 per cent over a resale home.

That is because properties in the primary market today are seeing a more moderate price increase.

Analysts also noted that new launches can boost the prices of surrounding properties as it attracts attention to the location.