And I hope you're coping well with Phase 2!
As we ramp up for the weekend, my team is reporting a flurry of activities from the ground as property buyers and upgraders resume their physical viewings and visit the show flats of purchases they have made through virtual viewings over the last 2 months.
Anecdotal stories I have come across point to a common revelation - that many whom have worked from home during circuit breaker, have found their homes either too small or not conducive for a prolonged work from home culture and are seeking options in case a 2nd wave returns.
Hence, realtors are experiencing a very busy weekend ahead and hopefully make up for the lost months of income.
Of the many questions I get from my readers and recently addressed on CNA93.8FM, this is one that has been repeated frequently enough that deserves a post of its own.
So let's dive in!
Are Early Bird Discounts At New Launches Genuine Or Just A Marketing Gimmick?
We have all heard the phrase "Early bird" discounts and "First mover advantage" being bandied around by marketing agents touting about the benefits of a new launch property.
Typical Sales Pitches:
"You will enjoy good capital gains as a first mover."
"Early bird prices means you buy at the lowest possible price."
"The developer's profit margins are the thinnest at launch."
Today, I would like to share with you how developers typically price their new project launches and the reasons why early bird discounts are not just a marketing gimmick but serves real estate developers in managing their risks and bottom lines too. It is important to understand both the pleasure and pain points of being a real estate developer to comprehend their pricing strategy. As much as developers like to maximise their profit margins on each project, most of them have to completely sell out their projects within 5 years of land purchase to avoid hefty Additional Buyer's Stamp Duty (ABSD) and, within 2 years of TOP to avoid Qualifying Certificate (QC) extension charges meant to prevent land hoarding on our tiny island. Hence, most developers apply this tried and tested strategy to balance between cost pressures (pain), profit margins (pleasure) and a rapidly ticking clock.
Developer's Pricing Strategy
In a new launch project life cycle, there are usually a few major phases.
Phase 1, which is the main launch, the middle phases and then TOP, when the temporary occupation permit is issued and keys handed over to buyers.
Let's Start With Phase 1 - The Main Launch
2 weeks prior to the main launch of a project, developers typically hold previews to gather interest and gauge whether a project should be launched at a higher or lower range of their pricing bandwidth.
A loss leader strategy may be applied in order to generate sufficiently good sell-through rates. (Despite its name, it is not so much a loss but lowered profit margins on initial sales)
The ideal outcome during the main launch is that the market will bite and sell-through rate is brisk enough for good media publicity (And steady shareholders' nerves), but not too brisk so that more units can be sold at a higher profit margin in later phases.
The ideal sell-through rate varies according to the developer management's threshold but is usually within 30-40% of the total number of units before phase 2 price increments creep in.
When sales move too quickly, like in the case of a 50% sell-through on day 1 of Park Place Residences in April 2017, the developer halted sales and increased their pricing by 10-15% more in phase 2 a year later as you can see below.
Phase 1 buyers were very pleased to have made size-able capital gains within the span of a year as you