In Malaysia, there are basically 2 ways to purchase a property. You can either book a brand new unit that is still under construction (or even the building have yet start the construction) from developer or purchase the property from secondary or sub-sale market. It is depends on how a decision of property purchase is made, for example, from an advertisement, from property fair or from the auction market?
If you plan to purchase a property from developer directly, here is the pros and cons that you should aware of;
1.️ You can get some freebies
Some of the developers are often use this marketing strategy to attract the prospect property buyer. They may given out the freebies such as air-conditioner, fully furnished kitchen or toilets, bed room wardrobes and etc. Tell you a little secret, developers are able to give away such freebies to the property buyer is because they can get the discount from the supplier in buying those things in bulk. So, their costs are minimal.
2️. You may have the opportunity to buy cheap
Normally, the developer offer the price is “the floor” at which the price of property is rarely ever go lower. In most cases, you are purchase the property at the bottom, and its price that offered by developer is quite reasonable and its location is excellent. Thus, you should compare the developer’s sales price to the other developers within the same area. It is advisable to compare the property price based on per square foot basis. i.e. Developer A: RM 350 per square foot; Developer B: RM 300 per square foot.
3.️ You can choose the units
If you’re early bird of property booking, the developer will allow you to choose the property unit that you prefer the most. For example, a unit that facing a park, facing the morning sun, corner unit (as it far from lifts), or purchase a connecting unit. Let say, you plan to settle down your family, so you purchase 2 apartments side by side. You can make a request with the developer to tear down the side wall that between the 2 units in order to combine 2 apartments into 1 with 6 bedrooms and 4 bathrooms. So you will no need to worry about different houses in different floor level.
4.️ You can get a brand new property
You are able to purchase a brand new property with the latest designs and layouts. Compare to purchase a second-hand property which needs a lot of repairing and renovation work and its cost are often slightly higher than a brand new property, unless you buy in that property at very low price.
5.️ You can save on Stamp Duty for high rise property
You only need to pay for Stamp Duty once the Strata Titles are issued. But Strata Titles of high-rise property such as apartments or condominiums are usually to be issued after 7 or even 20 years. At the same time, the first buyer no need to pay for Stamp Duty except the stamping fee of RM 10 on each set of S&P Agreements. But, if the first buyer sell his/her property before the Strata Titles are issued, he/she can then totally avoid to paying any Stamp Duty for his/her first purchase from developer. This is a loophole that many wise property investors are exploiting to save lot of money.
1.️ You may need to take some risks of abandoned projects
If you plan to purchase a property from developer, you may need to think about how if the project is abandoned. Be aware that once you purchased the property that still under construction, and unfortunately its project is abandoned as its developer went bankruptcy, you will still need to pay for your housing loans although you have yet to stay in your new house. Think again before you buy!
2️. Difficult to sell out if still under construction
During the construction period, there is no way to sell the property to the others buyers. But, you can seek help with the developer to find the buyers, and of course you will need to pay them for sales commission and other miscellaneous costs. But, do note that the developers may refuse to grant their consent while in the construction period as it complicates the legal paperwork.
3.️ You would lost your money
As an investor, for example, let say you booked an apartment at about RM 200K and paid a 10% for down payment. Assuming that you’re cash tight, and you’re unable to get benefits from another investment opportunity if it comes along. And that is opportunity and lost of money. If there is a crisis investing opportunity in the stock market, you could have make up to 20% within a few months. And that is RM 4,000 in opportunity costs!
4.️ Negative cash flow
During the construction period, you have to pay bank for the interest costs. Then that is negative cash flow or money out of your pockets as that property have not generate cash flow to you. On the other hand, if you buy in a ready-build property, you can then rent it out to the tenants directly and you will receive the rental income every month which may be more than your monthly loan repayments.
5.️ Competing against other sellers
At the moment that your property is completed and you have get the keys, there are hundreds of other property coming into the market at the same time. If you plan to sell off your property, you are then competing against other sellers. While, if you plan to rent it out, you are also be competing with other landlords. But if you purchase this property for your own stay, the this factor does not apply on you.
In conclusion, nothing is perfect and you will have to put all the above points into your consideration before deciding to purchase property from developer. If you’re purchase for your own stay, there is only 1 thing that you have to concerns about which is abandoned project. Do look for the developer that have good reputation in the market and the most importantly is you trust on them. Besides, if you’re purchase with the purpose of investment, then you should search for the solutions for the above disadvantages of purchase property from developer. Good luck!