The recent news of the Pasir Ris 8 launch has gotten quite a bit of attention. In addition to fetching over a price of $2000 psf for some units, there were a total of 6 price revisions in a single day. With this record-setting price in the Outside Central Region (OCR), other developers have started raising their prices as well. So, the question is this, why do real estate prices increase so much within a short period of time, and why do people continue to purchase them?
Basic Concept Of How Prices Are Affected In The Marketplace
First, like any other assets trading in the marketplace, there are always 2 parties involved. On the one hand, you have the seller who is currently holding on to the asset. The seller is the party that initiates the transaction by setting an asking price. The other party would be the purchaser or the buyer who decides how much they want to pay for the property. We call this the bid price, where buyers have an invisible price in mind on how much they are willing to pay the property for.
In most instances, buyers do not want to pay what the seller is offering and have a maximum price in mind. When the bid and ask prices are far apart and both parties are firm in their positions, transactions will not happen. Transactions can only happen when one or both parties compromise. If buyers are willing to pay more and match what the seller is asking, prices tend to go up. And because of this new deal, we now have a new market price. Of course, the reverse is also true.
So Why Did Pasir Ris 8 Made 6 Price Revisions In A Single Day?
Well, Pasir Ris 8 isn’t the only development that has done aggressive price revisions within such a short time frame. Other projects like Marina One Residences, etc., have done the same thing in the past. The main reason behind it is that there are a lot more buyers than sellers in the marketplace.
When the first purchaser acquires a unit, that automatically becomes the market price. At this point, the developer or seller can do two things. They can either maintain or raise prices. Whether they do either of these largely depends on the number of units they have on hand, as well as the number of interested buyers with every single price revision.
Once we have the next transaction, we have a new market price. In the case of Pasir Ris 8, where demand is overwhelming, the seller can continue to adjust their asking. Until they figure out the sweet spot, which the consumers are not willing to pay. That’s when you will be able to get the maximum profit as a developer. If the buyers do not want to go ahead, the price revision will automatically stop. Ultimately, market forces are the sole determining factor for prices.
Price Revisions Can Go Down
There are also instances where developers do very poorly on the first day of launch. In cases like these, there are insufficient buyers to acquire all the available units on hand. The developer may sell only a few units on the first day. After that, they have problems selling the remainder because buyers are not keen to pay at such price points. In this case, the developer will have to compromise their asking prices and start giving discounts. Once units are moving, that will be the new market price.
Hence, developers giving discounts may not actually be “cheap”. At the same time, those that have raised prices might end up even higher.
Is The Current Market Price of Pasir Ris 8 is worth it?
Well, it largely depends on what your objective is at the end of the day. Is it for your own use? Or investment? When do you intend to let go of the property, etc.? There is no right or wrong answer. I always recommend that you go through the why, how, and thought process of looking for a property. That way, you will never regret your purchase.
If you are looking at a perspective from an investment angle, you must put yourself into the shoes of your future buyers. Will my future buyer pay more for the property at the time frame you choose to exit? What type of profile will these buyers be? Did you do a market analysis of the nearby developments and future competition when selling your unit? What about returns on investments or rental yield? Is there something unique about Pasir Ris 8 that nearby projects do not offer? Once you can answer these questions, you will then determine if that purchase is worth it right now.
Article contributed by Jerry Wong.
Jerry Wong is a realtor with Propnex Realty. He loves coffee, cookies and condos and has been in real estate for ten years. Most importantly, he loves connecting people to properties and gets enormous satisfaction when they acquire their dream home. Or making well-informed decisions that see their assets grow. Book a video call appointment, and Jerry will share with you the following.
- How certain factors affect real estate prices. Why some condos can make a million dollars while others can lose that same million.
- Why timing is not the most important thing. Because some people can buy the same condo at the same time, but one end up making $100k to $200k while the other suffers losses of the same amount!
- Understanding your requirements and craft a solution for your real estate needs. Be it in asset progression, tax planning, financial calculations, rentals, sales, etc.
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