Last Updated: Mar 19, 2020
Gone are the days when flipping of a new launch property overnight brought you tens of thousands of profits. Investors who took full advantage of quick returns were either lucky or extremely savvy who saw the golden opportunity. Those were the golden days when the Singapore condo arena was without Total Debt Servicing Ratio (TDSR), Seller’s Stamp Duty (SSD), Additional Buyer’s Stamp Duty (ABSD) and when bank mortgage was 80% regardless of the numbers of condo a person already owned. Those were truly the times where middle income salaried people became millionaires through “trading” of new condo launches!
However, today’s climate in the Singapore condo sales environment is “plagued” with tight restrictions and infamous “cooling measures” that put a complete halt to the free-wheeling new condo flipping for overnight profits. Granted, the series of government interventions have been for the better and larger good; but property investors and speculators are not the least impressed nor happy!
So the question is – how long should I hold a new condo unit before selling it to realise some decent profit? 3 years? 5 years?
Not everyone has the same profit target. Obviously the “greed” element somehow creeps in; that is, the human nature of ever-wanting to benefit as much as possible. Investment experts would tell you to set a target depending on your risk appetite. This is something you would need to address, and decide what is the Return On Investment (ROI) of your new condo before taking the exit position.
Let’s say you, a Singaporean bought a new condo launch at $1,200,000 recently, your second property. The 7% ABSD on the purchase price amounted to $84,000. And assume you managed to obtain 80% loan because you had no existing mortgage when you purchased this new condo. Let’s say you sell this unit at $1,500,000 5 years on. No SSD will be imposed because you would have crossed the 4-year period. What is your gross ROI in this case? Many would have concluded that it will be 25% ($300,000 divided by $1,200,000) The answer is yes and no.
Scenario 1: 80% Loan
Your estimated total outlay over the last 5 years amounted to around $$600,000 (20% down-payment plus progressive monthly instalments paid out). Therefore, your gross ROI is effectively 50% ($300,000 divided by $600,000).
Scenario 2: 50% Loan
Now let’s say you managed to secure only 50% instead of 80% loan because of an existing mortgage on your first property.
Your estimated total outlay over the last 5 years would now be around $900,000 (20% down-payment plus next 30% plus progressive monthly instalments paid out). Therefore, your gross ROI is now 33% ($300,000 divided by $900,000) instead of 50%.
Scenario 3: 0% Loan
Finally, if you had not taken a loan at all, chances are you would have fully paid out the $1,200,000. In this case, your gross ROI would be 25% ($300,000 divided by $1,200,000).
As you can see, the $300,000 capital appreciation on the same new condo can have 3 different ROIs, depending on which scenario you belong to. Therefore, you make your exit decision accordingly, based on your investment target. Of course the eventual decision will need to incorporate the total 10% stamp duty (normal 3% plus 7% ABSD), as well as other sales miscellaneous expenses to reflect the net ROI.