Gap Between New And Resale Homes At A High

Source : The Business Times, October 5, 2007

But the difference is expected to narrow down the road, say analysts

The gap between prices fetched by new and resale homes in the prime districts is now at a record high, an analysis of official data shows.

A preliminary analysis of caveats lodged in the third quarter of 2007 by Jones Lang LaSalle (JLL) shows that for new homes there was a record premium of over 60 per cent from July to September this year.

Since 2000, the average premium has been between 20 and 42 per cent, JLL said.

But strong demand for new luxury projects in the third quarter - such as for Scotts Square, Cliveden at Grange, Helios Residences and The Lumos - means that the price gap between new apartments and homes in the resale market has widened rapidly over the past year, said Chua Yang Liang, JLL's head of research for South-east Asia.

In addition, prices of new homes could be climbing faster as buyers can use the deferred payment scheme for new projects, but not for resale units, said Knight Frank's director of research and consultancy Nicholas Mak.

Resale transactions take into account sales of homes in completed developments, while sales of new units are in projects that have been launched, but are yet to be built.

However, JLL added that gap is likely to narrow as prices of resale homes will look more attractive.

'Buyers will find it increasingly less attractive to purchase new developments when perfectly habitable resale dwellings at much more affordable price range are readily available,' Dr Chua said.

The preliminary average selling price for new sales - based on caveats lodged in the prime districts - is estimated to be around $2,500 per square foot (psf) in the third quarter, JLL said.

In comparison, amidst the continuous strong interest in new sales, prices in the resale market rose to close at an average of $1,220 psf for the same three months, albeit during a traditionally seasonal weaker period.

This puts the price gap at around 105 per cent, but JLL's Dr Chua says that once more caveats are lodged for third quarter transactions, the gap will come to 'more than 60 per cent'.

In the short term, the high premium gap seen in the third quarter is unlikely to be sustained, experts said.

JLL, for one, estimates that the price gap will stabilise to between 32 per cent and 38 per cent over the next three to five years.

But with the gap narrowing, the collective sales market can be expected to slow down, JLL said.

'The attractiveness and success of en bloc transactions depends largely on this premium gap. The wider the gap, the more attractive is the market for collective sales,' the property firm said.

Dr Chua reckons that the collective sales market is likely to slow down in the medium term, given that growth in new sales prices are likely to decline over the same period.

As the premium gap narrows, en bloc activities should slow down as developers find it increasingly less attractive to undertake such redevelopments, especially in light of diminishing returns and impending changes to the Strata Titles Act.