How to Build a Property Empire in Singapore: Scaling Your Investments
Real estate investing is a popular way to build wealth and generate passive income. However, like any investment, it comes...
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TLDR
In this blog post, the writer delves into the Singapore property market, particularly focusing on the effectiveness of quick buy-and-sell strategies. Analyzing data from 2017, it was found that selling within three to four years can lead to an average profit of 15.8%. The post highlights key differences between new-to-resale and resale-to-resale deals, emphasizing the impact of early bird offers and Seller’s Stamp Duty exemptions. It also advises on potential pitfalls such as fluctuating developer prices, prepayment penalties, transactional costs, and the importance of timing in property investments. The writer concludes by offering strategic real estate advice and emphasizing the need for a data-driven approach tailored to individual circumstances.
Remember back in the day when you could buy a place in Singapore and sell it off for a neat profit only after a few months, or even days?
Take a peek at what happened in 2007 at Pandan Valley. The quickest deal there lasted a mere 96 days. Can you believe the seller pocketed a whopping $420,000 profit over three short months? It’s mind-blowing! However, this was a huge factor behind the property bubble we experienced then.
Fast forward to now, Singapore’s property market is much more regulated. Sure, you still have the option to buy and sell homes quickly, but there’s a catch. The current Sellers Stamp Duty (SSD) of 3 years discourages such hasty transactions. This often means trying to get rid of a property within three to four years from buying it, sometimes even before it’s fully built (a sub sale transaction). So, how effective is this quick buy-and-sell strategy in today’s Singapore? Let’s dive in and find out:
The General Answer To The Question
Alright, let’s dive right into this interesting study. We took a close look at folks who decided to sell their properties within a span of three to four years, starting from March 2017.
This time frame gave us a pretty solid batch of “flip” deals, adding up to 1,984 to be exact. Now, here’s the interesting part – we observed an average profit of about 15.8%, which translates to a cool $205,899 on the dollar scale.
Oh, and just to clarify, this considers all types of sales: from those selling newly acquired units to those reselling previously owned ones.
So in a nutshell, can you make a profit by selling within three to four years? Well, the data says yes. On average, sellers did see some nice gains. But remember, 2017 was a buyer’s market with lower prices that later soared, particularly after the Covid situation hit.
Now, let’s dig a little deeper into this …
The Difference Between New-To-Resale, And Resale-To-Resale
Here’s the scoop – the way new property launches are sold has a unique significance. Early bird offers make these units cheaper during the initial launch phase, acting as a kind of ‘loss-leader’ strategy. You can read up more on the developer’s sales tactics right here.
This could be a nudge for some to try their hand at flipping properties. Imagine buying a $1.5 million unit and selling it in year four (when there’s no more Seller’s Stamp Duty), you’re looking at a sweet profit of $150,000.
But when it comes to resale-to-resale deals, flips usually occur when a buyer stumbles upon a fantastic bargain (like when the seller urgently needs to offload the property under its valuation).
Here’s what we’ve noticed about the differences:
It appears that investing in a new launch tends to yield better returns for those who sell from year four onward. Selling just after the SSD is waived, however, seems to fetch lower average profits.
When talking about new launches, we must acknowledge the uneven distribution in volume. Most transactions take place from year four onwards. But remember, this might mean that the statistics include more initially profitable condos, which boosts the average gain.
Moreover, a majority of buyers lean towards purchasing in the fourth year when it comes to new launches. Why? Well, in the first three years, the new condo is still a work in progress. Between the third and fourth year, the development may face some growing pains. By snapping up the unit close to or upon completion, a buyer can move in or begin renting it out faster. This might be why sellers in year four often see higher profits.
Another reason might be that the actual condo exceeds or matches the show flat’s promise, leading buyers to willingly pay more..
In contrast, with resale-to-resale transactions, it doesn’t really matter whether the deal goes down in the third or fourth year. From the buyer’s perspective, there’s less of a distinction compared to a new launch since all resale units are move-in ready. Likely, the profits will be smaller as there are no ‘early bird’ incentives like those offered by developers. Bear in mind, this doesn’t take into account the higher interest cost associated with resale developments.
Lastly, here are a few things to remember:
1. Developers Might Drop Prices Later – There’s No Guarantee They Won’t
Just because there’s a hefty early bird discount, don’t jump to the conclusion that you’re guaranteed a profit down the line. There’ve been instances where developers barely increase the prices in subsequent sales stages, or sometimes, they even offer bigger discounts to those who buy later.
We’ve seen condo prices drop during later launch phases and even blowout sales due to ABSD deadlines. Changes in developer pricing or relaunches can impact your profit margins and also affect the pool of potential buyers for your sub sale unit.
2. Keep An Eye Out For Prepayment Penalties In Your Home Loan Package
Selling your home? Remember, you’ll have to pay off that remaining mortgage. Now, with many loans, there might be a catch – a penalty that’s about 1.5 times the amount you haven’t paid back yet. So, if you’ve only owned your house for a few years, that ‘unpaid amount’ could be pretty hefty.
Here’s a tip: try to get a home loan that lets you off the hook for the penalty if you sell, or at least reduces the penalty a bit. But make sure to check this before you sign the dotted line on your loan agreement. Once it’s signed, it’s too late to change anything.
3. Switching Properties Will Incur Additional Transactional Costs
Before you jump the gun and sign off on a sub sale, take a moment to consider the expenses of hunting for a new home. Say you’ve been renting while your condo’s getting built—selling could mean shelling out for rent for another couple of years.
It’s a good idea to chat with your real estate agent first. See if they can help you shortlist some other potential properties before you part ways with your current one. Imagine this—you sell in a hurry, then discover there’s not a single property within your budget in the same neighborhood, even after adding in your sale profits. It happens! Especially post-Covid, we’ve seen how property prices can skyrocket in just three to four years.
4. Paying A Higher Premium For Units after TOP
Purchasing a nearly finished or recently completed property can be pretty tempting, right? But remember, if you decide to buy in the third year, there’s a good chance the seller will include their SSD tax in the asking price. And if you wait until after completion, you’re likely to shell out more.
For all you landlords out there, this is where you’ll need to put on your math hats. You’ve got to figure out whether the ability to start renting immediately offsets that extra cost you’re paying. As for owner-investors, you might have to come to terms with potentially smaller profits down the road, just to enjoy the perk of moving in immediately.
Flipping your unit might seem like a no-brainer way to make quick cash. But trust me, it’s not always as simple as it seems and could end up being a real headache. After all, in a hot market where flipping property is easy, house prices are also skyrocketing. So, you might find yourself right back where you started if the price of your next property has shot up too.
Should You Buy, Sell or Wait?
If you’re reading this, you must be trying to figure out the best course of action right now: is it the right time to buy or sell?
It’s difficult to give an exact answer since everyone’s situation is unique and what works for one person may not necessarily work for you.
I can bring you a wealth of on-the-ground experience and a data-driven approach to provide clarity and direction. From beginners to experienced investors, our top-down, objective approach will help you on your real estate journey.
I can help you by:
- Offering Strategic Real Estate Advice – I can help create a comprehensive plan to guide you through your property journey.
- Connecting Your Home with the Perfect Buyers – Through stunning visuals, an effective communication strategy, and an in-depth knowledge of the market, we’ll ensure your home is presented in the best possible way to fulfill your goals.
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