In the real estate market, especially during new launches, prices tend to fluctuate due to strategic pricing decisions made by developers. It is crucial for prospective buyers to comprehend the three stages of new launch pricing in order to make well-informed and low risk choices. These stages provide insights into the potential for developers to adjust prices upward or downward in response to different market conditions. Let us explore these stages and the key factors that influence developers' pricing strategies.
Before we analyse with you the formula we always use to calculate the risk of entry, let us go through what exactly are the 3 Phases, its characteristics and how the prices usually behave in response to the market demand!
Phase 1: Day 1 Launch Pricing
The Early Bird Advantage and Risks
For better clarity, we will be analyzing real data of a past new launch. Data example below is charted based off Treasure at Tampines results. Let us see how did price move through the phases for this development!
From the data, we can see that the prices on average were ranging around the same price, at the $1300psf range. This period lasted for about 1 and a half years. At this stage, buyers have the advantage of a wide range of choices, enabling them to select the best units in the development.
Being amongst the first buyers also means potentially being the guinea pigs for the developers. If the volume of sales in Phase 1 does not meet the developers' expectations, they might adjust their pricing strategy in Phase 2, often leading to price slashes to stimulate demand. Therefore, while early buyers can secure prime units, they also face the risk of prices being reduced in subsequent phases.
So, how did Treasure at Tampines perform? As we can see, over the course of this 1.5years, developers can see a healthy monthly take up rate, with around 2 to 5% sold per month. At the end of phase 1 in Sep 2020, a total of 1490 out of 2203 units has been sold. At this stage, with such a healthy percentage of units sold and a decent run time until TOP, can developer start to look for price adjustments? Well, let us move on to phase 2!
Phase 2: Strategic Planning and Safer Entry
Gauging Market Response
At this stage, we can see that the developer started to increase the prices based on the take up rate from Phase 1. A key factor they should be looking out for is whether the market is able to accept the new price tag. As we can see from the chart, the monthly volume is still very healthy and while the prices did fluctuate a little(could be due to factors like larger units / less desirable units sold more that month), we can see that it is still around the high $1300s to low $1400s, which is overall higher in average than the units sold in Phase 1.
From this we can tell that Phase 2 represents a more calculated and potentially safer entry point for buyers. By this stage, developers and prospective buyers can gauge the take-up rate from Phase 1. If the initial sales were strong, developers might maintain or increase prices. Conversely, weak sales in Phase 1 can lead to price reductions to boost sales volume in Phase 2.
Buyers entering at this stage benefit from observing market trends and sales data from Phase 1, allowing for a more informed decision. This phase is often seen as the most strategic time to purchase, balancing between avoiding the highest initial prices and missing out on the best units.
Phase 3: Final Adjustments and Clearance
The Endgame Strategy
In the final phase, developers would have to make critical pricing adjustments based on the remaining inventory and the timeline until the project's completion, or the Temporary Occupation Permit (TOP). From the data above, the developers of Treasure at Tampines gradually kept increasing its prices to the high $1400psf range, and could still see that the market was accepting this price and units were still moving. Towards the last few units, this is when developers can go for all out profits, as you can see the last 7 units were sold close to $1600psf
Of course when we are looking at past data, it is easy to talk in hindsight, the most important strategy we would like to share is how you can safely analyse and predict if a new launch will correct its prices upwards or downwards and minimize as much risk as possible?
3 STEP FORMULA
There are three key factors determine the safety of entry and the likelihood of price changes:
Months Remaining Until TOP / ABSD deadline: The closer the development is to this date, the more urgent it becomes for developers to sell the remaining units.
Total Balance Units: A higher number of unsold units puts pressure on developers to offer discounts or incentives.
Monthly Sales Volume: This is the average number of units sold per month.
Next, how do we implement the data we have researched above?
By dividing the total balance units by the remaining months to TOP / ABSD deadline, the figure will tell you on average how many units does the developer need to sell per month to safely fufill the ABSD deadline. If the development does not sell well before its TOP, developer's stress level might be higher to clear out their unsold stock.
Next, by using the monthly sales volume that the project currently has, we can compare if the figure matches or is close to the figure determined above. For example, developer has to sell 50 units per month to be safe, but their monthly sales volume has only been 10 on average, indicating poor sales performance for their development.
With this, buyers can gauge the developer's stress level. A lower sales volume relative to the remaining time indicates higher stress, likely leading to price reductions. Conversely, a higher sales volume suggests less pressure and potential price stability or increases.
Of course, we understand that all these data might not be easily accessible for everyone, hence if you have any projects that you are keen to find out these information for, feel free to reach out to us and we would gladly provide the relevant data for your consideration!
Extra case study
Now that we are all aware of the 3 step process, let us study another case to test it out! Let's take a look at Ki Residences, a 660 unit development located at Brookevale Dr.
Just analysing the numbers, we can see that from launch in Dec 2020 till Jul 2021, a span of 7 months, they have already sold 450 units and slightly increased pricing. This equates to a 68% total units sold, with only 210 units left unsold. Referring back to our process, Ki Residences expected TOP is ~2024, a healthy 3 years left to sell off the 210 remaining units. Take 210 divided by 36mths and you will realize that developers just need to sell on average 6 units a month to fully sell before their TOP. With such a healthy figure, i'm sure we can all guess what happens next.
Over the next few months, you can see that prices were slowly being pushed up, and while the sales volume did drop as compared to phase 1, the developers still have no reason to be stressed based off the figures calculated above.
In Mar 2022, slightly above another 2 years to TOP, there were only left with 115 units available. Using our formula, it would seem that developers only need to hit a sales target of average 4 units per month. As they gradually increased prices to the $2000psf range, the market was still accepting this price and on Aug 2022, developers were only left with 19 units to sell in close to 2 years time. At this stage, developers can quite safely go for all out profits, and it is reflected off the data where you see units being sold at $2100 to $2300psf.
Of course, when it comes to the new launch prices in Singapore, we understand that it is easy to talk in hindsight, and when the data points are already charted out for us it would seem like its easy to predict. While no one can guaruntee what the future price movement will be, it is always better to really analyse real data to determine if going into such a high quantum purchase is safe and minimal risk. Once again if you require any analysis of certain projects you might be interested in, do reach out to us for a chat!
Are you exploring options for New Launch properties? We understand that choosing the right property can be complex, and there's no one-size-fits-all solution. Our team specializes in providing personalized recommendations, backed by comprehensive data and real-world analysis, just like the above! Whether you're seeking the perfect location, upgrading your portfolio with the lowest possible additional cash outlay, or an opportunistic investment opportunity, we offer tailored insights to help you make informed decisions. NO OBLIGATIONS, FREE ADVICE & ANALYSIS Chat with us directly for a genuine customized evaluation of available projects to determine which ones align with your unique needs and circumstances. Let us guide you toward the property that suits your lifestyle and financial goals! |