If you watch a lot of American reality TV, you might already be familiar with the concept of property flipping.
In shows like Flip or Flop and Fixer Upper, flippers buy houses in bad shape, renovate and make them pretty, and then sell them for a profit — all in a matter of months.
Is it possible to replicate this success in Singapore? Especially given how high HDB resale flat prices are have been? Let’s dive into the article to find out.
HDB Property Flipping in Singapore
In Singapore, property flipping a la Fixer Upper isn’t that common. But we do know of many Singaporeans (ahem, our parents) who have made a killing in real estate by buying and selling properties within just a few years, typically making a tidy profit each time.
For us millennials who had to scrape our bank accounts clean for the downpayment for one HDB flat, managing a portfolio of multiple properties seems almost unbelievable.
So how did our parents do it? And can we do the same?
How Did Boomers Flip Property in the Past?
If you were born in the ‘80s or ‘90s, your parents most likely fall into the ‘boomer’ category. Baby boomers – defined as the generation born in the ‘50s and early ‘60s – were born during simpler times. Singapore was not as prosperous as it is now, and lots of our parents came from humble beginnings.
In the ‘80s, when boomers came of age, many got married and bought HDB flats. They weren’t fancy back then, but they were definitely cheap. A 4-room flat from HDB cost just $80,000 in the ‘80s – very affordable even with lower salaries of, say, $1,500 a month.
Here’s the kicker though: From the ‘80s to the ‘90s, there was a surge in demand as HDB started allowing permanent residents and singles to buy HDB flats. And by the ‘90s, resale 4-room flats commanded $270,000 on the open market.
So let’s reconstruct a hypothetical boomers-strike-it-rich scenario:
- Let’s say your parents got married and bought a 4-room flat from HDB for $100,000 in 1985
- Five years later, in 1990, they sold the same HDB flat for $200,000 on the resale market. They made a 100% profit and were $100,000 richer – and probably hadn’t even celebrated their 30th birthday
- With all that money plus their savings, they could afford the downpayment for a $1 million private home. Meanwhile, the economy was still booming in the background, with private housing prices doubling in the first half of the 1990s
- Five years later, in 1995, your parents sold the house for $2 million
- Again, it was a 100% profit, but this time the profit was a whopping $1 million, or 10x that of what they made from the HDB flat
The example is extremely simplified, of course, but you can see how it was possible for your parents to turn $80,000 into $2 million over a decade with two well-timed flips.
You’ll also realise that their riches did not boil down to hard work and shrewd investing alone.
In fact, it should be obvious that a lot of it was luck! Baby boomers just happened to come of age in a time of low public housing prices, spectacular economic growth and not much regulation. All these factors made for a perfect storm of capital appreciation.
Is It Possible for Millennials to Flip Property Today?
Today’s home buyers will find it a lot harder to replicate the house flipping success that boomers enjoyed in the ‘80s and ‘90s.
And that’s not (entirely) because we’ve frittered our savings away on avocado toast, but because a lot of the external economic factors have changed.
Firstly, starter home prices have gone up faster than our paychecks.
In the ‘80s, an $80,000 HDB flat was affordable even with a starting pay of $1,500. 4-room flats have quadrupled in price and now start from $300,000. With a starting pay of, say $3,500, we now take longer to save for our first homes. (OK, the avocado toast may have something to do with that too.)
Millennials lag behind our parents in buying our first home, and we miss out on those precious years of capital appreciation. For a better idea of what kind of homes you can afford, use the PropertyGuru housing affordability calculator.
Secondly, the economy just isn’t as heated as it was in the ‘90s.
Last we checked, we were heading for a recession. But even before COVID-19, the heyday of exponential growth was well over. That impacts property prices too. Relative to the heady upward trajectory of the ‘90s, the private housing market seems to have almost plateaued since 2011.
So, while millennials can still profitably buy and sell property, we wouldn’t expect the kind of triple-digit returns our parents got in the past.
Finally, property regulations have also changed.
These include increased downpayment requirements, mortgage restrictions, Sellers’ Stamp Duty (SSD) and Additional Buyer’s Stamp Duty (ABSD), which were introduced progressively since the 2010s as part of the Government’s cooling measures for the property market.
Although these rules are meant to control housing prices to keep them affordable for the public, they also make it more difficult and more expensive to flip property.
You Can Still Flip Property, but Manage Your Expectations
If you want to try flipping property like your parents, here’s how millennials can try to copy the boomers’ technique:
- Buy your first home while you’re still young and not earning much. Your low income will entitle you to higher HDB housing grants
- Start with an HDB BTO flat in a non-mature estate, but within walking distance to an MRT station. Let’s say it’s a $300,000 4-room flat near Canberra MRT station
- Live out your Minimum Occupation Period (MOP). Life might suck for the time being, but that’s the price you pay for capital appreciation
- Sell off your flat after 5 years, while it’s still ‘fresh’. Let’s assume you sell it at $400,000, or a 25% profit.
- Take the proceeds from your first sale and use it as the downpayment for your next home. Bear in mind Loan-to-Value (LTV) ratios, Total Debt Servicing Ratio (TDSRs) and Mortgage Serving Ratios (MSRs), which may determine your budget
- You don’t need to pay SSD (because you sold your home after five years) or ABSD (because you only have one property). But if you’re planning to buy another HDB flat, you need to pay a resale levy ($40,000 for a 4-room flat)
- Choose your investment carefully. You’ll want to go for something with significant upside potential. You may wish to research and shortlist homes on PropertyGuru
- If it’s private property, wait at least three years before you flip it to avoid paying SSD. If it’s an HDB flat, you’ll need to fulfil the MOP of five years before selling
If you have inherited a love for real estate from your parents, make sure to research the reality of the current situation.
While buying and selling property still remains one of Singapore’s favourite forms of investment, property flipping is not quite the cash cow it used to be, thanks to all these regulations and taxes eating into your profit margins.
And, unlike baby boomers who seem to have stumbled upon their wealth almost by accident, millennial property flippers need to be more shrewd and calculating about their investments in order to succeed in today’s market.
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