Buy Brand New Or Resale?
Let's say you already have plans to buy a residential property for investment purpose. You are wondering if you want to buy a new launch property or a resale property. You do your market research and view various units available for sale and attend a few new launches. You are overloaded with information and wondering which is the better choice.
The main advantage of buying a new launch is that you don't pay a lot in the beginning. If your cash flow is strong and you can afford to pay the installments in the first few years while not collecting any rental, this is worth considering. However, do note that when the project obtains the Temporary Occupation Permit, that's when every landlord will start renting out their apartment and supply will be plentiful. Unless there's a big operator absorbing all the available units, it might be a tough time finding tenants. Also, you are predicting future demand which carries some risk. It is also very rare to be able to buy at 20% below the asking price. In a rising tide, all boats float alike, so new launch should only be considered in a new bull market. It is common to hear stories of property valuation going up $300,000 to $500,000 over a short period of time.
The main advantage of buying resale is that you can get rental yield from day 1. No need to wait for it to be built and renovated before you can have your first viewing. If you bought with tenancy, all you need to do after buying is collect rental until the tenancy is up. Hopefully, the tenant renews and you get to be a rent collector for another term. Also, you can calculate your valuation numbers based on existing market figures and know whether this is a good buy or not. Price is always negotiable so buying at the right price is very important. Buying at 20% below the valuation price is the usual bargain price. Typically I buy around 15-20% below valuation price. If the property is old enough and in a high demand zone, another consideration is en bloc potential although I would not pay a premium for something uncertain.
I know I am skewed towards buying resale but that is because my focus is on cashflow from rental yield. This is slow money compared to capital gain, which is awesome in a bull market. If there is a recession, I believe I will be able to weather it well. I cannot say the same for those buying low or negative yield properties.