Everything You Need To Know About ‘Flipping’ Property In Singapore
In the heydays of the Singapore property market, ‘flip’ was the keyword that everyone, from businessmen to teachers knew about. As property prices skyrocketed, buying a property for the sole purpose of selling it in the short-term was definitely tempting, and very possible.
Fast forward to 2017 and the picture looks very different. Property prices are no longer on the upswing and in fact, the market has slowed significantly in recent years with the government’s market-cooling measures.
Industry insiders seem to think that the market is heading towards recovery, and the government has also slackened its intervention measures. If you’ve been waiting on the sides for a good time to enter the market, here’s what you need to know about property flipping.
Flipping vs long-term investment
Flipping is a form of property investment that is shorter term in nature. In a hot market, buyers can flip a property within weeks and months. While property investors wait for years for capital appreciation, property ‘flippers’ cash in on a good market.
There are also different ways in which you can flip, either by taking on multiple smaller mortgages and properties if your finances allow, or going in for a single higher-priced property that has good investment value and having a slightly moderate term outlook.
Factors to consider before you decide to “flip”
Timing plays a very important factor in flipping. There is no sense in buying a property for flipping when the market is very stagnant or is already reaching its peak. It is unlikely that the local property market will see rapid price increases the way things were a decade ago given the less-than-stellar global economic outlook.
In addition, the government is wary of speculative property purchases and will intervene sooner than later. However, this doesn’t mean that property flipping is no longer a possibility, as long as your target property is attractive (e.g. good location, size, accessibility).
Sellers’ Stamp Duty (SSD)
The government has announced a relaxation of stamp duty charges, which was put in place to discourage the short-term buying and selling of property. The SSD has just been waived after three years instead of four, and the percentage for each time period has also been reduced. The SSD has to be accounted for when weighing how much net profit you can expect from the sale of your property.
For moderate-term flipping, you can consider purchasing a new development property with a TOP date of over three years, and sell it with no stamp duty payable. Furthermore, most home loans have a low interest rate for at least the first two years.
Total Debt Servicing Ratio (TDSR)
The current TDSR ratio is 60%, which means that your monthly debt obligations (i.e. all debt including credit card debt and personal loans) must not exceed over 60% of your income.
This makes property investment of any sort more difficult, though not impossible. Even if you do have room to take on another mortgage, it would be prudent to think about what possible financial obligations you have in the short to medium term that may require a loan.
The last thing you want is to find yourself “maxed out” on your debt with a property that you’re unable to flip as quickly as you thought.
Scarcity of property
You may think that if the target property you’re after has a great location and wonderful amenities, and that it will definitely be taken off your hands in a heartbeat.
However, if there are many residential developments in the area that are soon to be launched or that have many unsold units, your chances of flipping at a higher price may be dimmed.
If your property happens to be one that is very desirable and is able to sustain a high rental yield, then it may be better off holding on to it rather than selling it in the short-term, even though the quick gains may be very tempting.
In addition, if you are buying a property that is in a developing area, then you’re more likely to see substantial gains when the estate has matured. In other words, if you’re sitting on a gold mine, then don’t be in a hurry to let it go.
Whether or not you want to buy a property for short- or long-term, looking for a bargain never hurts. Research developments or contact a property agent to inform you of possible discounts or fire sales.
These properties are sometimes sold below the valuation rate due to factors such as excess units that need to be sold before a deadline, or the inability of the owner to pay his mortgage. Remember that as with any investment, whether short- or long-term, there are risks involved that should be undertaken only after serious consideration.
And, to make it easier for you to decide on the best home loan, head over to the iMoney Home Loan Calculator to compare and choose the ideal housing loan that suits you.