Detailed information will allow developers to convince buyers about fair pricing

We are trending towards a more active buying process, for those who are purchasing homes from developers. This is an exciting development, because buying a property from the developer has always been a more passive affair than resale property buying. Resale buyers can view around properties and unwaveringly negotiate for lower prices, while new home buyers can only adopt a passive approach - they can only either accept or refuse the price set by developers.

Trending towards an active developer sale buying process is from this month, where buyers will have more detailed information to do their homework on project launches and comparison pricing studies. Essentially, developers now have to submit a range of transaction data every week to the authorities and these will include the value of any benefits extended to buyers, such as cash rebates, legal or stamp fee absorption, rental guarantees or furniture vouchers. Taking these into account, this will result in a nett price lower than the face transacted price. The nett price has been made available on Urban Redevelopment Authority (URA’s) website since June 5.

For the developers, these changes amount to more benefits than costs (costs such as a hassle in terms of resources for developers). A forward-thinking developer will not fear too much information can be used by buyers for reference who will consequently reject the offered price. Conversely, developers are adopting open mindsets that more detailed price information available for buyers for references might eventually convince the buyer that the developer’s offer price is a fair or an attractive price. In such current sluggish property sales conditions, most developers will not set unnecessarily high prices, as the mandate is to clear stock instead of setting benchmark locality’s project prices.

Also a balance-and-check for buyers in upswing market

When the residential market recovers, there will always be buyers who are skeptical of the high prices that developers are asking for. Buyers in an upswing market will also have more balance and checks, and assurance that they are buying property at a price that others are also paying for, instead of mere acceding to benchmark prices set by developers.

Buyers tend to chase after properties in upswing conditions, so the detailed information can be very useful reference for them. It helps them to maintain their rationality and being realistic about prices, especially the price they paid is higher than similar recent purchases.

More buzz expected at showflats as buyers are more engaged

This new timely detailed price information is a step forward to help those who buy property from developers to be more active than before in doing their homework, although generally they still cannot negotiate on prices. But at least, they have more means for doing their homework on prices compared to before, and may lead to more lasting home buying decision.

Project’s showflats are generally quiet now, except for projects with outstanding attributes. But with more timely detailed information available, buyers are expected to get more excited in studying property prices - and may even trying their ways to get better bargains with developers. They might not succeed in negotiating for lower prices, but with more buyers expected to try haggling for lower prices, at least more buyers will be drawn towards the projects and energize the atmosphere in showflats even at cautious market conditions. Sales people can also harness their marketing skills by convincing buyers why the references might not be valid, and point out the stronger selling points of the project.

Further recommendations for an active process in developer sale scene

For those buying from developers, they can only accept or refuse the price set by developers. In cooled market conditions, developers either have to cut prices for all units, or in batches, or bear the brunt of buyers ‘walking away’. That explains why in cooled market conditions, developer sales suffer and project price cuts are inevitable.

Further ahead, we should re-think about the developers’ pricing mechanism. After all, the current practice of selling all units based on prices offered by developers has been on-going, for decades. Times have changed and so have buyers’ preference and requirements become more fluid, spontaneous. Developers launching projects in cooled market times can consider reserving about 15 per cent of total units with ‘prices open to negotiation’. These are likely the units with weakest attributes. The detailed pricing made available from June 5 will become very useful references for buyers who are negotiating prices with developers.

Perhaps, in future, the ‘estimated rents’ of projects when they were launched can be published – the rents that developers and sales people are estimating to tell buyers what they can expect upon project’s physical completion. There were too many buyers who claimed they were led into over-investing based on high projected rents during market upswing in 2011-2013. But come the completion of the project (from 2014), investors find much difficulty in achieving the targeted rents which was the basis of their property purchase price then. With the rents projected during launches documented, buyers will also have more comparisons among projects’ estimated rents and yields. They can have more self or consulted checks on whether such projected rents are realistic - or actually too bullish - upon project’s TOP, lending support to a more lasting investment decision.

This article appeared in The Edge Property Pullout of Issue 682 (June 22) of The Edge Singapore.

Ong Kah Seng is a director and Alex Sun is a senior analyst at R'ST Research, a property market research firm in Singapore.