Primary vs Secondary Property: Which Is Worth Buying?
When it comes to purchasing a residential property, the common question that comes to mind is, do I buy a new property or search for secondary property in a specific location?
Generally, people buy a residential home for property investments before buying it to live in. So, as someone who is looking to buy a residential home to live in, what are the options out there?
The property market is usually divided into two categories: primary market and secondary market. The primary market consists of new properties, which include new launches and ongoing projects from the developer.
The secondary market is made up of secondary or sub-sale properties, previously owned houses in matured locations and established residential areas. To further elaborate, secondary properties are properties that have been introduced into the market for rental or sub-scale which will either be rented or owner-occupied by subsequent owners.
It is normal for industry outsiders to think that the primary market, or new properties, contribute to the most number of sales, due to the alluring advertising and marketing of new developments. However, contrary to popular belief, the secondary property market takes up the bulk of the volume of residential property transactions, as opposed to the primary property market. This is mainly because the secondary property market offers more choices in already established locations.
Oh, so shiny!
For starters, primary market properties are brand new, and therefore less money is required to be spent on renovation and refurbishment; some, if not all, units even come with basic furnishings such as kitchen cabinets and builtin wardrobes.
Primary property prices are usually set cheaper or at market value by developers, and in a soft property market, purchasers buying primary properties are most likely to enjoy good capital appreciation on the property, sometimes even before its completion.
Capital appreciation is what most real estate speculators look for, thus it comes as no surprise that they too are among those who prefer primary market properties. Buying primary market properties straight from the developers at a low price and later selling it at an appreciated value in the secondary market drives them to make purchases.
Like What You See
As with primary properties, buying a sub sale or secondary property has its good points and pitfalls too. Generally, secondary properties have lower risk, you can touch and feel and see exactly what you're getting into. It is right there for you to view, not just the property but the area, the infrastructure, the neighbours, the amenities.
There are also higher acquisition costs such as the Sale and Purchase Agreement (SPA), loan documentations, and stamp duty among others. It also can be very challenging as you must find a seller who agrees to sell at the agreed price, which will need three parties to agree mutually, the buyer, the seller, and the bank. Once all these are settled you can move in, which can take up to a year.
Before you can get your financing approved, banks require the property to be valued by professional valuers, and if the value is lower than the asking price, the buyer may need to come up with a higher down payment to make up for the shortfall. The home loan's margin of finance is based on the market value, not the asking price.
Here is a list to illustrate the pros and cons of both primary and secondary properties to help you (re)consider and/or (re)evaluate your residential property purchase.
â€¢ Latest design
â€¢ Lower entry level
â€¢ High margin of finance
â€¢ Fixed price
â€¢ Better choice of lots/units
â€¢ Developer promos e.g. Absorbed legal fees
â€¢ Capital appreciation
â€¢ "Virgin mentality"
â€¢ 2-3 years for completion
â€¢ Lower initial rent
â€¢ Possibility of abandonment
â€¢ Initial furbishing cost
â€¢ Immediate rental return
â€¢ Established location
â€¢ Old design
â€¢ Repair / Maintenance
â€¢ What you see is what you get
â€¢ Price increase
To summarise, both primary and secondary properties have their pros and cons. To choose the best one that suit your needs will depend on your risk appetite, financial readiness, needs and opportunities.
Many young aspiring home buyers are drawn into only checking out primary market properties, thus the term "virgin mentalityâ€, and are disappointed when most new projects are above what they can afford. They overlook the fact that there are many more affordable homes are available in the secondary market.
At the end of the day, it is all about what you need and buying within your own means.