Home    Widening Gap of New vs Older Condominium Price

In recent times, the prices of new condominiums have surged to levels significantly higher than similarly sized resale units in the same area. This situation has left potential buyers facing a challenging dilemma – should they enter the market swiftly before prices rise even further, or should they exercise caution and wait?

One example that highlights this widening price gap is the highly anticipated 816-unit freehold condominium, The Continuum. During its May launch, units were sold at a median price per square foot (psf) of $2,720. Market observers were surprised by the substantial premium buyers were willing to pay for this development located in Thiam Siew Avenue, District 15. In comparison, a freehold resale unit in the same district had a median price of $1,595 psf, reflecting a significant 70.5% difference. Consequently, a new 1,000 square foot unit would cost over $2.7 million, while a similarly sized older unit in the same area could be purchased for about $1.6 million.

The property market has undergone a significant transformation since before the Covid-19 pandemic. Previously, new launches were typically priced around 20% to 30% higher than nearby resale units. However, since 2021, prices of new units have risen as much as 90% above resale unit prices, according to property consultancy.

For instance, Lentor Modern, a 99-year leasehold integrated private residential project in Lentor Hills, saw 84% of its 605 units sold during its weekend launch in 2022. As of May 2023, the median psf price stood at $2,105, a whopping 90% higher than the resale units in the same postal district.

Precincts that have experienced a longer absence of new launches tend to exhibit wider premium gaps, as resale units in those areas tend to be much older, according to property analysts.

Several factors contribute to this widening price gap, including high construction costs and land expenses. Market watchers note that the fear of missing out and the anticipation of potential future gains are significant driving forces behind buyers’ willingness to pay a premium for new homes. Additionally, some buyers are enticed by the prospect of higher rental yields offered by new units, given the recent increase in private residential property rents.

However, experts caution against relying solely on rental income to finance property investments. They warn that the leasing market may experience a downturn as the effects of the pandemic subside and more new private housing units enter the market. Property investors who rely on rental income to cover mortgage repayments could face challenges if rental rates decline or the property remains vacant for a period.

Despite these considerations, there are still compelling reasons for buyers to consider purchasing new homes. New launches are perceived to have better potential for capital appreciation compared to older resale properties, which may see slower or stagnant value growth over time. New projects also offer locational or physical attributes that may not be readily available in the resale market.

When deciding whether to invest in a new home, potential buyers need to assess the chances of future buyers being willing to pay even higher prices for their units years down the line. Property consultancy compared the median new sale prices of 128 projects during the last property peak in 2013 against their respective median resale prices in 2022. The analysis revealed that approximately 70% of the projects experienced appreciation in values, while the remaining 30% saw price declines.

Experts emphasize the importance of thoroughly evaluating properties, understanding investment objectives, having an exit strategy, and purchasing within affordable limits. Real estate should not be approached as a short-term speculative endeavor, and buyers should ensure they have the financial capacity to hold their investment over time. It is crucial to consider the risks associated with owning real estate and not overlook potential challenges or downplay the accompanying risks for the allure of potential gains.