CUT AND KEEP
INSIGHTS
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july 26, 2013
New
vs
pre-owned homes
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>Whether buying a brandnew
property or a pre-ownedone, it is a
personal choice especially ifmoney
is not anoption.
T
he
perennial debate on themerits of
purchasing a newversus pre-owned
home has been tackled by property
experts for years. Is one actually better
than the other? If the long list of pros and cons
are any indication, the answer is no. Property
experts concur that it all boils down to
affordability, necessity and preference. Put
simply, it is a personal debate.
Certainly an insight of the propertymarket is
vital, but more so is an honest look at one’s
personal finances. Jonathan KS Lee, founder of
GMACRealtors opines: “Firstly, it is important
to be able to hold the property. At least the
owners can retain the house, whatever the
circumstances.” After that, other factors such
as convenience, amenities and such, come in.
“Personally, I opted for a home close tomy
office, so I couldwalk towork. Time is of
essence tome. I wanted to increase time spent
with the family. So, whether you choose a
brand newhome or a pre-owned one, it is
subjective to your needs andwants. Both give
reason for choice.”
Onemay debate what is subjective and
practical. The reality is that property prices
and earning power usually drive the call.
With salaries increasingly becoming
disproportionate to rising property prices,
ultimately affordability trumps choice. “I feel
that what is lacking is that people are not clear
of their objectives and goals. That is why they
make wrong decisions. It is sometimes painful
to explore, but one has to be disciplined to
project …what I need in 3 ...5...10 years, how
muchmoney do I have now and potentially
may have….and the risks
I can afford to take. So, having
that financial understanding is
essential.”
Location, location,
location
The demand for pre-owned
(secondary) properties is
mostly focused in primemarket
areas. There are newer houses in prime
locations but they are limited in number. Thus,
newhomes on the outer tiers of Klang Valley
are in demand. In thriving areas likeMont
Kiara, even a 20-year-old condominium is
quickly sold. Exclusive or matured
neighbourhoods are appealing to the
secondary (pre-owned) homemarket. This
was themain reason for Karina Koh and her
husband, to purchase their house inUSJ,
Subang Jaya.
“It’s easy to spot high demand property areas.
Just look out for heavy traffic,” shares Lee.
Bangsar andMont Kiara are
hotspots because of the exclusive
lifestyle. Petaling Jaya and Subang
are also in favour, and so
are Shah Alam, Puchong
and Kepong. “We’re seeing
a trend, where as you get
nearer to the city centre,
houses get smaller and
more expensive. That’s
because land is getting
scarce and demand is high.”
Connectivity is themain issue on the
outlying areas of Klang Valley. Most
property developers boast accessibility
viamajor expressways as strengths. In
truth, traffic congestion and lack of or
poor public transport, hampers the
quality of life. Owners or future home
owners on the outskirts of the Klang
Valleymay need towait another decade
before connectivity throughout Greater
KL is realised under the Economic
Transformation Programme.
Property Type
Most homeowner aspirants feel that
buying a newhome is better. “These
days, the new lifestyle elements are a big
attraction to the primarymarket. It used to
be about price and size. Nowadays, people
don’t mind paying RM 1 million for a one-
bedroomapartment, for the lifestyle element.”
The younger generation are not the only ones
driving the demand. Themiddle-aged are
buying into themodern lifestyle too. As
exhibited by Krishnan Ramanwho is in his 50s,
fromKlang. Hemoved from the central area to
the outskirts because it offeredmodern living
comforts. There was a certain quality, in terms
of lifestyle and ambiance that was impossible
to emulate in the previous dwelling place.
Renovation did not make a difference. “It is
true. When lifestyle elements don’t come with
a property, it tends to become less popular.”
With pre-owned homes, one can’t expect
toomuch of a lifestyle element. Older homes
are generally conservative in style or located
in such areas. Although some owners of
pre-owned homes, with help fromarchitects,
have performed incredible renovations and
restructuring, it doesn’t accord the holistic
environment that newdevelopments possess.
Nevertheless, there still is a demand for
pre-owned homes says Lee. “In 2004, there
weren’t enough homes. I think statistically,
we need about 110,000 homes per year to
support the needs of those in the Klang Valley.
I believe last year, we produced about 73,000
homes. So, the demand is
clearly there. ”
Price factor
Property prices in the primary
market are slightlymore
expensive. However,
considering the renovation that
comes with buying a secondary
market property, it levels out.
Location is still the determining
factor. It is more expensive
because, when there is demand,
people are willing to pay. “Some
say, it is too expensive but
people are still buying.”
Still, with the household debt of
Malaysians at 83%, the primary
concern is whether people can
hold their homes. “That is a
questionwe’ll have towait and see in five
years.”
Fine Print
Buying a pre-owned home allows you to
see it as it is. It is suitable for those looking to
move in fairly quickly, even though renovation
may be needed. “In other countries, home
buyers expect the home tenable
upon purchase. Whereas in
Malaysia, it is not the case,”
shares Lee.
Nevertheless, it is important to
knowwhat to look out for when
buying pre-owned property. Unlike
newpropertywhich comes with an
18-month or 36-monthwarranty
period, the buyer is at riskwhen it
comes to pre-owned homes. “We definitely
need better legislation in this country to
protect the buyer and seller.”When it comes to
the primarymarket, especially properties
without showunits, onemay have to settle on
purchasing based on floor plans.
Investment Considerations
If one is considering purchasing property as an
investment, Lee recommends the secondary
market. “You get tomakemoney almost
instantly, from rental income. One of the points
I stress on, is tomakemoneywhen you buy the
property, not when you sell it.” With the
primarymarket, the investment benefits are
obvious when you sell. The benefits of primary
market property as an investment is obvious.
“Firstly, you have easy entries. Property
developers give you rebates or discounts
upfront. You only have to pay a small down
payment and you get back your returns at the
end of the day, seeing that traditionally,
property prices appreciate over four years. ”
Ultimately, the important financial aspect is
rental. Rental markets could support and
alleviate risks. “That is whymy personal
dealings are focused on primemarkets. If I
have 20million or 100million, I’d be able to
take risks on potential areas. I judge a prime
location by studying the population there. I
find out what is the disposable income, what
are the residents’ job scopes, etc? Affluent
neighbourhoods get you higher returns.” So,
pre-owned or new, it is a personal choice.
Benefits of Buying
Primary Property
1.
Choice of good units for the early bird or
repeat buyer.
2.
Your capital outlay is low if you qualify for a
90% loan. Common for developers to give 5%
to 10% discounts.
3.
The biggest price appreciation within the
shortest time happens during the
construction phase. It is normal for prices to
appreciate by 20%-30% within 2 to 3 years of
construction. When buying completed
property, the appreciation is 5%-10% per
annum for normal years. (The last 3 to 4 years
were not normal years but a super bull run in
the property market).
4.
It is possible to make RM50,000 per year –
something which most people cannot save
from working hard from Jan-Dec.
5.
During the construction phase, the purchaser
just needs to be aware of progress.
Meanwhile, the developer is working hard to
complete the project and inflation (eg. 5% per
annum) works for the buyer.
6.
Some people don’t like to live in properties
that others have lived in before.
7.
You enjoy a Defect Liability Period of around
18 months.
8.
Lots of freebies thrown in by developers to
entice people to buy eg. DIBS (Developer
Interest-Bearing Scheme), Discounts, GRR
(Guaranteed Rental Returns) etc.
9.
If you are buying a high-rise development,
there is no need to pay Stamp Duty. It is only
payable when the Strata Title comes out many
years later. As the first buyer, you can get
away with it if you sell before the Strata
Title is issued.
10. As long as you buy from a reputable
developer, the right product type, in the
right location, and at the right time and price,
the risks are actually minimal.
Information provided by Milan Doshi, Property Guru
Why Buy Secondary Property?
1.
If there is an immediate need to use or rent
out the property, then the secondary market is
more suited.
2.
Since rental is almost instant and can service your
bank loan, your borrowing limit will not be
affected. You are able to borrow more.
3.
If you are the sort of person who prefers to buy
property “as it is”, then a second hand property
is the best.
4.
The ‘as it is’ concept reduces risks and surprises.
5.
Over the last 2-3 years, the secondary market has
lagged behind the developer’s market. Prices are
10% to 20% cheaper compared to newer
developments in the same location.
Information providedbyMilanDoshi, PropertyGuru
SOME Secondary
Property Hotspots
1. Bangsar
2. Mont Kiara
3. Petaling Jaya
4. Shah Alam
5. Puchong
“Whether you choose a brand
new home or a pre-owned one,
it is subjective to your needs
and wants. Both give reason for
choice”
- Jonathan KS Lee
