Chicken and egg story in real estate development

Gone are the days when developer can expect to sell most of their houses right after launches and before actual construction commence on site. This is as oppose to previous peaks in economy when properties are snapped up even before construction even begin. Many developers especially those new developers who are just starting out would sure hope to sell their units before construction so that the project is effectively financed by the purchasers which will then very much lessen their financial burden and this especially apply to those new developers without track record who were not able to secure bridging loan to finance their construction.

Most developers especially new developer purchase their development land using bank finance and there are interest payment to meet every month. While some may say that they prefer to commence construction after they sell certain number of units but the situation today may not be favourable especially for those new developer without track record as potential purchasers may prefer to wait until the construction begin and until at least the sample house is ready or at least wait until construction is way over 50% or 60% completed so as to lower their risk before actually commit their hard earn cash to purchase the house. So if the developer wait for sale before begin on construction and while potential purchase wait for construction before committing to buy, then there will would be very little sale materialise while the cost of developer rise every month with the interest served on the land purchase loan. Hence it is like there ought to be an egg before there would be a chicken and without chicken, there would not be an egg.

Therefore, it is imperative that new developers focus on speeding up on construction and forget about sale for the time being and when construction reach a certain threshold, sale will materialise.