Under Construction Vs. Sub-sale Property: What To Consider?
Buying a property can be a daunting experience, for first-timers, second-timers or even for property investors. Whether you are buying to live in or for investment purposes, buying properties requires a lot of homework and research as one single mistake can cripple your finances.
One of the first questions most property buyers ask is: Should I buy an under construction property or a sub-sale one? How do you decide?
Here are some considerations you should think of when you are buying under construction or sub-sale properties.
Under construction property
The Malaysian property market has favoured the “sell and build” concept, where the developer starts selling before construction work begins. For property buyers, they would usually cross their fingers and hope for the best when they buy property off the plan from developers. If they are lucky, they will get a reasonably decent if not perfect unit plus they may see a significant appreciation in value once the project is complete.
Under construction properties, or some would call it properties off the primary market, are popular among house buyers because of the discounts and freebies offered by developers. Here are some pros and cons you need to weigh before you decide to buy a property off the plan.
Buying it first-hand means you would be buying it cheaper. When the unit is completed, it will naturally cost more. How much more will depend on the phases launched by the developer and also the quality of the finished product. Inflation will also be on your side, as value will typically go up due to inflation.
|Taking on more risks
With cheaper purchase price comes higher risk. As you are buying the property based on plans and models, the quality is not guaranteed.
There are cases of developers abandoning the project due to lack of financing, too. This is why it’s important to choose reputable developers when buying off the plan.
|Easy to look for information|
It is very easy to spot a new development in the location of your choice. For all developer projects, you can just walk into their office or showroom or easily identify them at a fair or launch.
|Financially locked until completed
When you buy an under construction property, you will have to wait for three to four years until it is completed. During this time, your credit with the bank is locked away for the total loan sum and it will be difficult to buy another property.
|Getting a blank canvas|
You are going to be the first owner of the property. Everything from fittings to stoves are going to be in the best condition. Knowing there are no previous occupants serves as a psychological peace of mind for owners.
|Uncertainties on final product
As the project is yet to be completed, you don't know exactly what it would be like. You will have to choose your unit and predict the market demand. This includes the possibility of developments such as highways and public amenities like bus stops being built at their doorstep.
There are heaps of discounts for brand new property, as it is in the interest of the developer to sell off all the units as quickly as possible. From early bird discount, Valentine’s Day discount, National day discount to VVIP discounts, you will definitely get some sort of discount.
|You need to be patient
While having a warranty is good, developers may take a while to actually act on the defects and repairing one may cause another to crop up later on.
|The choice is yours|
The earlier you decide on your purchase the more options you have when it comes to choosing the best unit. So if you have set your mind on buying a particular development, being an early bird is advisable.
|It comes with warranty|
Brand new properties from the developer typically come with a standard 18-month defect liability period. It entitles the owner to get the developer to rectify any defects in the unit, like bathroom leakage, cracks in the wall, or door hinges that are not properly installed.
What you see may not be what you get – Keep in mind that not all the fittings, furniture and electronics come with your purchase. Do ask the sales personnel about it and they would clarify what items are included and what are not.
Weigh out the costs involved – If you are purchasing a property directly from the developer, you will need to consider the following cost:
- Initial Deposit: minimum 10% of property value
- Loan application processing fee
- Mortgage Reducing Term Assurance (MRTA) and fire insurance (if you take up a housing loan)
- Stamp Duties
- Legal fees and costs
- Utilities deposit (Electricity and water)
Sub-sale properties are purchased in the open market, from the previous owner, most probably an individual.
When purchasing a sub-sale property, it is important to ensure that the owner is the legal owner of the property. You can obtain all relevant information on the property by conducting a search on the property at the relevant land office and get confirmation of the registered owner and as to whether the said property has any encumbrances. By investing in a sub-sale property, investors know what they are actually getting for the money they paid.
Here are some pros and cons you need to look out for before you decide to buy a sub-sale property.
|What you see is what you get|
Get a real feel of what you are buying. When buying a property via a new launch, you can only imagine how the view would be like. But for a completed property, you can take a real look at the view. You also do not have to second guess how it will be. You can see the unit, the view, the finishing and also your neighbours. On top of that, the real figures such as rental and transaction price will be available.
|Difficult to look for potential properties
Looking for a good sub-sale deal means you need to view a range of individual units, in various conditions. You will have to check the condition of the units, market valuations and rentals of properties repeatedly till you find the suitable one. You will also need to negotiate with different owners, agents and lawyers.
|Immediate cash flow available|
When you buy sub-sale, you will be able to rent it out immediately and collect rental to pay for the mortgage. If you are lucky, you will also have an existing tenant paying rental at market price for the next 18 months. Not having to spend money on agent fees to get a tenant will already save you money.
There are some seller hazards that you could face while you are almost settling the deal. The seller may not want to sell the property or may increase the price. If the price is above the bank’s valuation, you will have to fork out your own money for the shortfall in the price.
|No risk of construction delays|
Completed properties are as is and ready for you to play the role of landlord. Whereas, there is always a risk of new launches not meeting their deadlines or developers can go missing abandoning the project altogether.
Cheap really doesn’t mean good. If the seller is too keen to get rid of the property that he is willing to slash prices to get rid of it, then you should approach with caution. You wouldn’t want to end up having to deal with properties with previous cases of crimes or murder taken place in it or if the previous owner got a loan from the illegal money lenders with that address.
Once you lock down on a suitable property for you, it usually only takes about two months for the legal paperwork to be executed and you will be able to move into the property.
High cash outlay in the initial stage: If you purchase a sub-sale property, you will probably need to spend more cash upfront as you will have more things to cover at the initial stage:
- Loan application processing fee
- MRTA and fire insurance (if you take up a housing loan)
- Valuation fees and costs
- Stamp duties
- Legal fees and costs
- Utilities deposit (Electric & Water)
- 10% initial deposit
- Repair or renovation costs
Whichever property for whatever reason of investment, you must do sufficient background research to ensure you do not buy an overpriced property or a property that you will have difficulty re-selling or putting it up for rent.
Do you have any thoughts on buying either of these? Let us know in the comments!