As we know, the prices of New Launch Projects are seemingly getting higher and higher.
Today, we’re going to talk about what are the three main considerations that usually affect this type of new launch development pricing.
1. Government Policies
First off, we have the government intervention through policies and regulations, as we would like to call “cooling measures”. Most of us know that in July 2018, some new cooling measures were imposed with regards to the loan to value ratio, as well as ABSD, which is the additional buyer stamp duty for subsequent properties.
On the night of 5th July 2018, one day before the cooling measures were coming into effect, thousands of new launch units were sold. Most buyers were emotional. They felt that, with these new rules kicking in, prices might go up, so they rushed to enter the market. That was how a thousand units were sold in under 24 hours.
Another thing would be the easing measures. Easing is the opposite of cooling measures, meaning the government relaxed some of these measures, and one such example is the seller’s stamp duty period, which was reduced from four years to three years, and this happened in March of 2017. And, following that, what happened was that a lot of buyers went into the market and started buying because they felt that probably now, with this lowering of the sellers stamp duty period from four to three years, they could then buy a property today and sell it off three years, instead of waiting one more year for the fourth year to happen.
The above are some examples of how government intervention affected the new launch prices in the market.
2. Market Conditions
Moving on to the second point, which is market conditions. Earlier on, we talked about easing measures that happened in March 2017. This caused an en bloc fever to begin. Developers started to buy up older developments which could be rebuilt into higher density type of residential developments, meaning, for a hundred units development, if they bought it over, they could rebuild it into a 200 to 300 units residential development. During 2017, as developers started buying up all these en bloc sites. In 2018, an increment to the land price could be seen for sites that were still available.
3. Land/Construction/Marketing Costs
This leads us to our third point. The cost of the land that developers had paid for during the collective sales or en bloc process. Because of this incremental cost of the land over this period of one year, the prices of new launches have also moved upwards, and the market sentiments during this period also affect the pricing they paid for the land. If they bought it during a period of en bloc fever, then chances are they would’ve paid more, as compared to during, say, a bear market, where the sentiments are not exactly very positive towards land prices. That is one cost that they would have incurred.
The second thing is the construction cost. When they have bought the land, they’ve got to tear down and demolish the current building structure and rebuild if it’s an en bloc. On the other hand, if they bought a government land sale site, they will also have to construct the new development.
Moving forward to the third thing, to market a project, the developer will have to incur, put in and invest millions of dollars to build a show flat for prospective buyers could have a feel of the actual unit during the pre-construction period.
The fourth and last thing that would impact the eventual sales price of these new launches is the profit margins that developer are looking at.
That’s all for today, send us a message if you would like to know more about New Launch Developments.
Cheers
