Why is there a difference between current price and new launch price?

In my recent article on, Buying Penang properties? Affordability means RM600 – RM700psf., it received quite a lot of interest and it quickly became a top 3 article for the week. One particular person asked me, if this is true, then why are condos in Sungai Ara still below RM600 psf?   Actually, all new launches try to price their properties higher because they cannot complete their properties within the next 6 months. From the launching to the construction to the key handover, it may take 4 years. This meant that it is impossible for them to price it the same as the current price in the area. In fact if we see that the current price in Sungai Ara is around RM550 psf, if there’s a new launching, I think the launching price would be RM600psf, which if we take into account the four years from, then the % increase from current price is around 2% per year. I think an increment of 2% per year is still considered reasonable, don’t you think?

Then, there’s the question of what if the launching was not successful and the developer sold just 30% even after 6 months of launching? There are a few options. The developer can join a property fair and tell everyone, ‘Special deal for 50 units’. In terms of prices, they may have to stand firm or they will offend earlier buyers. Thus, they can provide renovation packages or other ‘special’ rebate deals. Alternatively, they can delay the launch and return the deposits to all the buyers. Unlike what a lot of people think, it is not an easy job to be a developer. Price it too high without the right reputation, it may fail. Price it low, the margins got squeezed too much, they cut corners and the buyers who bought will blame them for life and tell everyone they know. That’s why in every state in Malaysia, there are those ‘famous’ ones that every buyer would only buy if they sold lower than everyone else.

My personal view is this, if the property has been launched for over 6 months and the number of sold units continue to be low and the developer is always in your friendly hypermarket with one table and two chairs or every now and then you receive emails about the same project, I will skip it. Yeah, what if it is successful and I did not profit from it? Haha. Ok, I accept it. I always believe that with the right launching price per sf, sufficient marketing and promotions and a location which you can still find some advantage to write about, it should sell well. Oh yeah, the sufficient marketing means that the developer better not only be thinking about three times newspapers advertisements. If this is what their marketing manager think, then all the best. Conclusion is, no developer would launch at the same price as the current prevailing price in the area. It would always carry a slight premium.

written on 2 Aug 2014

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