Should I buy a new property from a developer or invest in a resale unit?

Many property analysts are expecting the real estate market to turnaround in the coming months. For consumers, this might be a good time to start looking around to buy a new property from a developer or invest in a resale unit. However, we should consider several factors before starting to house-hunt:

  • Which location will see the highest capital appreciation in the coming years?
  • How is the rental yield in the market, and in various districts around Singapore?
  • Will the government withdraw the cooling measures introduced years ago?
  • Should you buy from new condominium developments or from the resale market?

In this post, we’ll focus on the latter, and explore the pros and cons of buying either from a developer or the resale market.

What are the differences in either buying a property first-hand from a developer, or buying a unit from the resale market?

If you’re thinking of buying an apartment or a house after visiting a nicely decorated showflat, that’s buying a property first-hand from a developer. On the other hand, if you’ve been visiting houses for sale and meeting homeowners, you’re probably in the market for a resale unit.

The differences involved to buy from a developer or invest in a resale unit may be significant. For instance, in a resale property transaction:

  • You might need to pay your real estate salesperson a commission. In a first-hand property purchase, the developer pays the commission.
  • You can shift in soon after the purchase is completed. In a first-hand purchase, the property may still be under construction.
  • The tenure of your newly purchased property may be shorter, as the previous owner would have lived in it for some years already. This will affect the future resale potential as 99-year leasehold land depreciates in value over time.

What are the advantages of buying directly from a developer?

Just like how most consumers love buying new products from the mall, the same goes for property buyers. By buying from a developer, you’ll enjoy:

  • No agent fees payable. The agent works for the developer, so the commission is payable by them. This may work the other way, as they may work against your best interests.
  • New furnishings and appliances. In many private condominium projects today, developers will include appliances and furniture like refrigerators and wardrobes in the sale.
  • Longer tenure. When a developer buys land to build houses, it usually comes with a 99-year or freehold tenure. Deducting 2-3 years spent on construction work, you will own the property for at least 90 years or more.
  • More attractive lifestyle & perks. In the face of increasing competition between developers, many new condominium projects have facilities like gourmet BBQ pits, heated jacuzzi pools and integrated smart home technology.

First-hand property purchases are especially attractive for homeowners and long-term property investors. Because of the long tenure, you’ll want to either buy them to stay, or rent them for a recurring income.

What are the disadvantages of buying directly from a developer?

There are also several disadvantages with buying a property first-hand from a developer.

  • Higher purchase price. Even with a slump in property prices, developers have been purchasing land at an aggressive pace. With a high cost price, you can expect to pay a premium on the completed property.
  • Longer wait time before occupying the premises. Developers usually start selling properties as soon as the project is approved. This can mean a wait time of up to 4 years till the temporary occupancy permit (TOP) is issued by the authorities, so you can move in to stay.
  • Smaller apartment sizes. Singapore’s apartments are shrinking in size, as developers constantly work to maximise their profits after purchasing increasingly expensive land. In the past, a 2-bedroom apartment stretches across 100 square meters. Today, that same apartment takes up 70-80 square meters, including the balcony and ledges.

Buying a property first-hand from a developer may not be profitable for those looking to flip for a quick profit. With the high cost of land and construction work, you’ll likely see a gradual appreciation in price only as the economy grows. Before deciding to buy from a developer or invest in a resale unit, we’ll now look at the other side of the market.

private condominium interior
Apartments purchased directly from developers include built-in cupboards, ovens and other appliances.

What are the advantages of buying a resale property?

Singapore has a huge resale market with no lack of choices. While private properties accounts for around 20% of the overall residential market, a lot of transactions here are driven by them. This is due to Singapore’s reputation as a financial and business hub, and investors constantly look for opportunities on this small island.

By buying a resale unit, the purchaser enjoys several advantages over developer-sold transactions:

  • Move in immediately. Instead of waiting for a developer to complete the construction, you can move into a resale property soon after signing the sales & purchase agreement.
  • Score a great deal. Some units are sold on the resale market as distressed properties. You may find bargain prices which are otherwise impossible to get from a well-financed developer.
  • Buy at your preferred location. Resale properties are available almost everywhere across Singapore, while new developments are usually few and far between. Buying second-hand gives you more choices.

What are the disadvantages of buying a resale property?

There is a downside to resale property transactions too. To get the best deal, you’ll need to do some homework on the property before making an offer. You will also need to consider these inherent disadvantages to buying on the resale market.

  • Reduced land tenure. If you’re buying a 99-year leasehold property, your ownership duration of the land is reduced. You may also find it harder to sell in the future as the land depreciates in value further.
  • History of the property. There may be a reason for the owners to sell their property. Some might currently be in debt, and you’ll have occasional visits by unsavoury debt-collectors still looking to settle the loan.
  • Further investment on renovation. Depending on how well maintained the property is, you could spend a lot more money renovating a secondhand home before moving in.
Renovating a home after buying a resale property
A resale property might require extensive renovation before moving in.

Final thoughts on whether to buy from a developer or invest in a resale unit

There is no clear cut choice when it comes to either buying from a developer or investing in a resale unit. You will need to look at your finances and your purpose for purchasing the property. 

For short-term property investors, a new development may not be as profitable as a resale property. Long-term investors, on the other hand, might go for a property with a longer remaining tenure and a higher upside in the long-term.

Homeowners could go either way though. Those looking for a new place may want to stay in a brand new property sold by a developer. On the other side, some will want to live in a specific neighbourhood, and will need to settle on a resale unit as such.

You should view properties sold by developers and on the resale market, before making a decision on what kind of property to buy. Never rush into a decision, and don’t be pressured to buy. House-hunting should be a fun experience!

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