Do I buy a new property, or do I search for a secondary property in a specific location? This is the most common question one would ask when wanting to make their first property purchase.
Generally, people buy properties as an investment before buying them to live in. So, as someone who is looking to buy a residential home to live in, what are your options?
Homebuyers would have heard of terms like the primary, secondary and even auction markets. Buying a home from these market segments carry different risks and rewards; thus, prudent individuals would buy according to their needs and expectations.
"I Like It Brand New"
For starters, primary market properties are brand new, and therefore less money is required to renovate; some, if not all, units come with basic furnishings such as kitchen cabinets and built-in 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 investors 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 lower price and later selling it at an appreciated value in the secondary market drives them to make such purchases.
Second Is Better Than None
Buying a sub-sale or secondary property has its good points and pitfalls too. Generally, secondary properties have lower risk; you can touch, feel and see exactly what you're getting into. The advantages of buying sub-sale are that purchasers know the exact location and surroundings and can inspect the unit as well as the maintenance level and facilities.
Before you can get your financing approved, banks would 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. Do take note that the home loan's margin of finance is based on the market value, not the asking price.
With that said, there are striking differences between purchasing a property from the primary and secondary market. Here is a list to illustrate their pros and cons to help you (re)consider and/or (re)evaluate your residential property purchase.
- Modern design
- Lower entry level
- Higher margin of finance
- Better choice of lots/units
- Enticing developer promos, e.g. free legal fees and stamp duty
- Capital appreciation
- "Virgin mentality"
- 2-3 years (minimum) for completion
- Lower initial rent
- Possibility of abandonment
- Initial furbishing cost
- Immediate rental return
- Established location
- Old design
- Cost for repair/maintenance
- What you see is what you get
- Price increase
To summarise, both primary and secondary properties have their pros and cons. Choosing the best one that suits 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 mentality”, and are disappointed when most new projects are above what they can afford. They tend to overlook the fact that there are many more affordable homes made available in the secondary market – barring the old design and musty smell in some houses.
At the end of the day, it all boils down to what you need and buying at your own pace within your own means.
The views and opinions expressed in this article are those of the authors and not intended to malign any company, individual or necessarily reflect the official policy or position of any agency or organization. Focal Times is a subsidiary of Maxworld Consulting Sdn Bhd, a regional organization founded by a mixture of agile and experienced corporate finance, venture capital and industrial experts. This establishment focuses on sharing current banking affairs, latest property developments and updates and more.