New properties appreciate faster than old ones: Another myth debunked

There’s a myth going around that new properties will appreciate faster than old ones. Now this is a good example of the old “broken telephone” game. See, it’s true that within the context of certain years, new properties appreciated faster. At some point, that was mistranslated into “new properties appreciate faster,” period. Here’s the truth of it:

Recent launches (since 2011) are likely to see slower appreciation

I spoke to Douglas Chow, CEO of Empower Advisory Pte. Ltd. As it turns out, the myth is so inaccurate the opposite may be true. Mr. Chow says that:

“New launches within the past few years will not be skyrocketing, especially those that got their Temporary Occupancy Permit last year and this year. This is due to the cooling measures still in place, and rising interest rates.”

In fact, let’s look at some top winners in terms of appreciation:

• A 68th floor unit in The Sail@ Marina Bay that was bought for $1,091 psf, and then sold at $2,750 psf, a 170 per cent return. The unit was purchased in 2004 and sold in 2010.

• A 29th floor unit at City Square Residences, that was bought for $714 psf, and then sold at $1,464 psf, a 105 per cent return. The unit was purchased in 2004 and sold in 2014.

(For more interesting listings for investors, check out 99.co. Browse for your next bargain for free.)

Mr. Chow points out that “Recent launches from 2011 onwards have not seen such spectacular increase.” Those launches came at a time when the property was not yet overheated, which created the possibility of fast, high appreciation.

It is a matter of timing: properties that launch now, under the burden of cooling measures like the Additional Buyers Stamp Duty (ABSD) and a growing interest rate, are not likely to see the same performance.

Slow appreciation cannot be fixed by buying a new unit

“Private residential prices (old and new launches) have generally doubled since 2005, taking Jan 2016 as a point of reference,” Mr. Chow says, “However, in those past 10 years, Singapore experienced strong average annual GDP growth in excess of 4 per cent. Coupled with an increase in population, and moderate supply of private residential units, rentals surged and underpinned the increase in property prices.

Strong foreign demand, a favourable economic climate and easy access to credit fuelled the increase in property price.”

Those were great days, but notice that almost none of those conditions persist now. The population is still set to increase, but factors such as an oversupply of property, falling rentals, and slowing growth will all get in the way of property price appreciation.

These are fundamental problems that you cannot solve by buying a newer unit.

So does the age of the property matter at all?

It does, in the sense that the remaining lease impacts the price. However, the remaining lease is not the sole – or even most important – consideration.

“New launches appreciate faster if by default every property comes with a 99-year lease, they are identical in features and layout, and they are in the same location. That way the only common factor is age,” Mr. Chow says, “Only then can we say new launches always do better than old launches, as they will have a longer lease left. But that is not the case.”

Factors that determine appreciation are still going to be location, amenities, and a good entry price. If you get these right, it won’t matter whether you’re buying a new property or an old one.

But there is one small fragment of truth in the myth; it relates to the management committee

There is one point I’d like to bring up, in which newer properties truly do have an advantage: An inept management committee has not had sufficient time to ruin it.

In older condominiums, a bad management committee is an obvious hindrance to price appreciation. Take a look at old, badly managed condos: the parking lot is a landfill, the swimming pool is an alarming shade of green, and the gym has more missing parts than a M. Night Shyamalan plot.

In new properties, if you sell early, there usually isn’t enough time for this to happen (Usually. I wouldn’t underestimate the power of incompetence.)

So don’t worry too much about how old or new a property is

If you truly aren’t sure how to look at the market factors, stick to the most tested and true method of all: check how much surrounding properties have appreciated over the past 10 years.

That’s the answer you’re looking for.

If you found this article helpful, 99.co recommends New launch versus resale: which makes a better investment property and Why you should consider buying resale condos.

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