Land Cost PSF is commonly used to determine to purchase a new launch or a resale property.
There are various perspectives and schools of thought when one decides to buy a brand new development. On a note of subjective preferences, some people do not like the feeling that someone lived in the home before. There is seemingly an increasing trend of the belief that perhaps a new launch development has a little bit more potential for capital gain in future.
Let’s say you are struggling between the choice of a new launch versus a resale property in a similar district, what are some considerations to note? For example, a 3-bedrooms unit in a new launch development will probably be smaller compared to resale property in the same vicinity. By using this method called the Land Cost PSF, it serves to provide another perspective.
Of course, other than the Land Cost PSF method, there are still other things to consider, such as the layout, size, newness, and the facilities provided.
To let you understand more about the Land Cost PSF method. We will be showcasing two case scenarios.
Case Scenario 01 – Two Similar Priced Projects In The Same District
For illustration purposes, let’s say a three-bedroom resale project, asking price is $1.35 million. Size is fantastic, 1,324 per square feet. The tenure lease start date is 1997. The TOP date is in the year 2001. Compared to a three-bedroom new launch development, pricing at $1.35 million as well. Size is 1001 square feet, tenured from 2019.
The resale property has a balance lease of 76 years. While the new launch has a balance lease of 98 years. By the time this is completed, probably in another 2 to 3 years, you would have a balance lease of about 96 or 95 years left depending on how long the construction phase takes.
Based on the calculation, if I were to take the balance lease, 76 and 98, and then I were to take the purchase price of $1.35 million, divide by the balance lease and multiply it back to the full 99 years lease, what would I see in terms of the full price based on 99 years? I would see that the resale property is at $1.735 million, while the new launch is at $1.363 million. And if I were to take that full price, divided by the square feet size, to get the per square foot pricing, the resale property will then give me a per square foot price of $1310 PSF and the new launch will be at $1362 PSF.
Based on this calculation method, then I would have to decide, does it make sense for me to buy the resale or the new development? Because the PSF pricing, based on the full 99-year pricing, is only a mere $50 difference. Will it make sense for me to buy something with a balance lease of 77 years, or does it make sense to probably go for a new launch, with a balance lease of 90 over years? I’m getting a brand new product when I get the keys. I’m the first person to stay inside, it’s brand new. I can choose to sell it when it reaches TOP or I could choose to sell it after I stay for a few years. Facilities and everything else is new. Or, does it then make sense for me to buy the resale property, with a bigger interior size and floor plan, at 1324 square feet for my family? If you have a close per square foot gap, then sometimes you have to decide for yourself whether does it then makes sense to weigh a little bit more towards the new launch.
Case Scenario 02 – Two Differently Priced Projects In A Similar District
On the other hand, if the PSF based on full 99-year pricing, has a huge difference. For example, if the resale property is at $1 million, 1324 square feet and then the new launch is at $1.35 million, 1001 square feet. Then perhaps it might then make sense to go for the resale property if you have a certain budget requirement of your investment amount. Let’s say you just want to restrict your budget to $1 million , go for a lower per square foot pricing and after multiplying back to the full 99-year amount, actually there’s a huge difference in terms of per square foot pricing.
If this is a $1 million, 1324 square feet, a balance of 77 years lease, based on full 99 years pricing, the actual PSF is $971 compared to the other which is at $1350PSF. If there’s a significant difference, and you are comfortable with a resale older property, then, by all means, go for it. Because there’s a huge difference, and since it’s at the same area, same district, same vicinity, there could be potential for it to slowly creep up as years goes by, as the economy goes by, and for this to have a bit of appreciation growth as well – having what we call a ‘substitutional effect’ compared to the surrounding developments.
We hope that this Land Cost PSF method will aid you in making your decision. Keep in mind that this is just another perspective amongst the different schools of thought.
See you soon.
