Buying a condo is not a small decision that should be taken lightly. Kay and I experienced it personally after we sold our HDB flat and were deciding what should be our next step. It was a stressful time especially if you have no prior knowledge about private property market – especially figuring out resale vs new launch condo. Having said that, we are comfortable with our final decision knowing that is the best with the situation that we are in.
It does not matter how good or bad your situation is, what matter is what you do in that situation.Pak Melepak
So in this MELEPAK session, I will be sharing the different options that are available when buying a condominium and why we decided to get a new launch instead of a resale condo. This is just our thought process and might not be the best for everyone. Alright! So let’s start MELEPAK…
After Agreeing To Sell And Issuing OTP
In September 2019, Kay and I agreed to sell our flat at a huge loss and move on (You can read about it here). So after issuing the Option To Purchase (OTP), we sat down and discussed our next step. Obviously, we wanted to get private property but there are so many options to consider and we are not sure. Our current agent did not do a good job teaching and guiding us. (Basically, they are just agent who will do what you tell them and not able to properly advise the different options and what to do in the long term plan)
The Different Options Between Resale vs New Launch Condo
The different options that we considered were:
- 1 Resale Condo
- 2 Resale Condo
- 1 New Condo
- 2 New Condo
- 1 Resale and 1 New Condo
As you can see, we have 5 options to choose from (this is even before talking about which projects and units). As we made a huge loss in our first property, we know we need to make up for it and ‘work’ harder. We are blessed (Alhamdulillah) that we have the option to stay with our parents and so we’ve decided to stay with my in-laws (after getting their permission and blessings).
With that, our next purchase will solely be investment driven. That makes it slightly easier for us to decide but even then, it is not an easy one. Allow me to explain each option and how it affects us.
Big Decisions That We Need To Make
There are 2 things that we need to decide for our next purchase.
- Resale vs New Launch Condo
- Buying 1 Big Unit vs 2 Small Units
Decision 1: Resale Or New Launch
The first thing Kay and I need to decide was to choose a resale or new launch. There are pros and cons to both so let me share our thought process.
Buying Resale Condo
As this is an investment purchase for us, buying a resale is essentially a rental play. If we were to get a resale condo, we can rent it out immediately and have a good cash flow. This is a simple calculation that we did based on a $1,000,000 resale condo.
- 5% Cash: $50,000
- 20% CPF: $200,000
- 75% Loan: $750,000
- Monthly Mortgage: $2500 (1.3% Interest Rate)
- Monthly Rental: $2700
Based on the above calculation, the cashflow is only $200. BUT if we take into account that 100% of the monthly mortgage can be covered by both our monthly CPF contribution, then it will be $2500 cashflow after condo maintenance. (Alright guys, that is the cue to bash me about acrued interest and actually just taking our CPF money and not earned money =p) But cashflow is still cashflow.
The only issue that I see is that there might not be a lot of upside and capital appreciation (not all the time but probably not as much as new launch) Unless you know how to spot undervalue resale properties.
So is buying a resale condo a good choice for investment?
Buying New Launch Condo
Buying a new launch condo is of course capital appreciation play. Most of the time, agents will tell you that buying a new launch will sure make money as you have the first mover advantage. But is that really true?
Well, it is true if you know which project to choose from and what unit to get. If you got it wrong, then you might be stuck with it once it is TOP.
Progressive Payment Scheme
Another advantage about New Launch Condo vs Resale Condo is the fact that you will be in the progressive payment scheme (PPS). So over the next 3 years while waiting for MOP, you are actually paying lesser mortgage which equates to lesser interest (and accrued interest) as compared to if you were to buy a resale condo.
Decision 2: Buying 1 Big or 2 Small
The next thing that we have to decide is whether to buy a 3 bedder condo or 2 1 bedder condo. Of course ideally would be to buy 2 3 bedder condo but that is out of our budget at the moment since we incurred a huge loss on our resale flat. It is definitely possible if we had bought a BTO and gain $150k-$250k profit.
But as it is, we only have a budget of either $1.2 million (2 names) or $700k & $600k (individual names). Thus the big decision that we had to make.
Both have its pros and cons. It all depend what is our risk level and what we want to achieve.
So In The End, What Did We Decide?
After multiple discussions and multiple change of decisions, we have decided to buy a 3 bedder New Launch condo. Here’s our reasoning why.
Why We Decide On New Launch Condo?
We decided to go for new launch as it is less of a hassle and has a bigger upside for capital appreciation and wanted the first mover advantage. Also, in a way, our bad experience of buying a resale property (yes, i know buying resale HDB is not the same as buying resale Condo) swayed us in getting a new launch.
Why We Decide On 3 Bedder Condo?
Our decision to buy 1 bigger unit instead of 2 is due to 2 reasons. First, with the budget of $700k and $600k, we are not going to buy into a good project but have to settle on a less popular project which might not be advisable. With a budget of $1.2m, we have more flexibility in choosing a good unit in a good project.
Secondly, buying a bigger unit will require us to use lesser of our savings (about $35k less) which helps in our financial. Plus buying a bigger new launch will increase our capital appreciation when we sell it. ($200 increase psf will see us profiting additional $50k for a unit that is 250sqft larger)
Is This The Right Decision?
Till now (9 months after our decision), I am still wondering if that is the best decision for us. With any investment including stocks, nothing is certain. So I try not to think too much all the time. We can only know in 3 years later so check back with me in 3 years time k. =p
In another post, I will be sharing which project we bought and why we’ve decided on that particular project and unit. With that, this is the end of our MELEPAK session. Thank you for getting this far reading my post. Appreciate it a lot. Would make my day if you could comment your thoughts below. Stay safe everyone!