Most buyers who bought a luxury new development condo two to three years ago and who want to sell it are faced with falling prices and a glut of new units on the market with even more on the way. In order to make a profit you need at least a 10% price acceleration to break even. This has pushed sellers into a challenging position where in some cases they are forced to list their apartments for less than they paid for them. They are openly advertising that they are willing to take a loss!
In the event you want to sell or have to sell then you most likely will need to make an adjustment and take less than what you paid. In a market that is declining you may need to sell for a lower price in order to compete with sponsor units that are still on the market. The only way you may not have to compete with the sponsor is if you have a premium unit and there are none left to compete with yours.
Here are the reasons why those who are selling recently purchased new development condos are challenged. Sponsors in the current market are more inclined to pay the sales tax. When the market was hot several years ago they made the buyer pay the transfer taxes. The taxes amount to around 2.5%. If a buyer is buying a $10M condo the tax would be around $250,000. Additionally, when the market is hot developers will try to get buyers to pay the sponsor’s attorney fees. When the new developer buyer goes to sell he or she takes on the taxes and closing costs themselves as well as paying the broker commission. So, a seller who has a big unit up for the same or lower price than what they paid is going to bear an even bigger loss than the price reflects. A buyer can’t always assume that he or she is going to make money on flipping. Prices can fluctuate just like in the stock market.
Not long ago a seller could sell for 25% more if they bought a unit before the building was built. A lot of new construction didn’t turn out as good as it was advertised to be. The secret to making a profit is to buy early on in a very good building.
So, is there any way to compete against the sponsor if you decide to sell your new development unit? You can promote to potential buyers that while the unit isn’t brand new there are advantages of buying your unit over the sponsor’s unit. If you fitted out the closets and hung beautiful drapes that could be considered an advantage. Also, it is only challenging if you are competing with the same exact type of sponsor unit. Also, if you let buyers know that you will be handling the taxes that could be considered a major marketing advantage. The best way to compete with a sponsor and make a profit is if you have a unique unit. Even if the sponsor cuts the prices of their units yours will deemed to be more valuable and sell for more.