If You Don’t Look at The Price Gap, Be Prepared to See a Profit Gap

One of the important homevestor criteria when choosing between different properties is price gap. This factor is critical as picking the wrong property could result in a huge profit difference.


As we have already compared Condominium (non-landed) and Landed Housing, let us now compare between New Launch and Resale Condominiums.

New Launch v.s. Resale

When we look at Condominiums v.s. Landed, we focus on the small price gap between the two, but for New Launch v.s. Resale, the difference in price gap will mean different things. In a nutshell, 

Small price gap → Go for New Launch as you are getting a brand new property for the a similar price as a resale 

Big price gap → Go for Resale as it has higher potential to close the price gap and match the higher price of the new launch in the near future

Let us take a look at the example of Sims Urban Oasis (Resale) v.s. Penrose (New Launch) to illustrate the effect of a big price gap.

 

Source: URA

Both of these projects are located in Sims Drive, with the nearest MRT being Aljunied MRT. Furthermore, these two projects are located right next to each other. 

If we look at the price of 1 bedroom units for these two projects back in 2020 when Penrose was first launched:

 

Source: Squarefoot

There is a significant price gap of around $200,000 between the new launch and resale project. When we look at the current price of 1 bedroom units in Sims Urban Oasis, we can see that the price gap has closed to around $800,000. 

In fact, with Penrose being launched in 2020, Sims Urban Oasis units have had a much higher capital appreciation since then compared to the 5 years before Penrose was launched.

 

Source: Squarefoot

When we look at the price of Penrose, there is also significant capital appreciation from 2020 until now.

 

Source: Squarefoot

However, when buying Sims Urban Oasis, there are the added benefits. For investors, they are able to rent out the unit immediately to gain monthly cash flow considering Sims Urban Oasis has an average rental yield of 3.5%.

For homevestors, there is the benefit of being able to move in immediately instead of renting while waiting for the Penrose to get completed.

Thus, from this example we can see that by looking at the price gap of New Launch v.s. Resale and picking the right property, we can have a more predictable and higher capital appreciation.

This also emphasises the point that we must invest in period-correct assets as seen from the example of entering into Sims Urban Oasis at the time period of a price gap.

New Launch v.s. New Launch

There must be some questions on your mind right now.

Which New Launch do we compare to?

Does that mean we should always pick resale because it will ALWAYS have a lower price than a new launch?

Don’t worry, calm down, let me answer your questions.

the different New Launches to find the best New Launch in the market right now.

Shown below are the recently transacted Outside the Central Region (OCR) projects in the past 6 months.

 

Source: Squarefoot

A notable project among all these projects is actually Sky Eden @ Bedok. Why? This is because it is the only project that is closest to MRT and situated in a mature estate with tons of amenities surrounding it. (Not because I am trying to sell you Sky Eden @ Bedok). 

 

Source: URA

Now that we have established a good New Launch, we can then compare it to the only resale project nearby: Bedok Residences.

 

Source: Squarefoot, PropertyGuru

We will look at the 3-bedroom units as Bedok is an area that is more suitable for families with kids with its surrounding amenities and schools. 

The recent transaction and asking prices of a 3-bedroom unit in Bedok Residences is hovering around $2,000,000. Now let us take a look at Sky Eden @ Bedok transaction prices.

 

Source: Squarefoot

The 3-bedroom units in Sky Eden @ Bedok start from around $2,200,000. By assuming that Bedok Residences is also completed in 2027, we can compare the prices with Sky Eden @ Bedok to find the better deal among the two.

The reason why we add 12% to the price is due to the age gap of 12 years between the projects. As Bedok Residences is a 99-year leasehold project, 12 divided by 99 is roughly 12%.

When we compare apples to apples, it can be seen that Sky Eden @ Bedok seemed to be a better deal in this case and could potentially be an undervalued property in this case. This proves that Resale might not necessarily be the correct choice every time.

Conclusion

Analysing the price gap is an extremely important step before deciding whether we should buy or invest in a property. The three steps are:

     

      1. Find and compare between 2 asset classes

      1. For example, if it’s New Launch v.s. Resale, compare between the New Launches first to find the cream of the crop

      1. Do a price gap comparison between the best New Launch and its surrounding Resale.

    Keep this in mind and you might just spot your next opportunity in the real estate market!

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