No doubt now it’s a good time to sell your investment property while prices are at an all-time high with prices at an all-time high and rental rates already declining from their peak. If you're considering investing in private property, is now the right time? Perhaps we can draw a comparison to the previous peak cycle a decade ago.
The previous peak in the property market was in 2013, followed by over eight rounds of cooling measures by the government to stabilize prices. Let's examine whether it's still possible to make a profit if you bought at the peak.
To paint a more accurate picture, let's exclude central areas and focus solely on resale condos.
In 2013, the average price per square foot (psf) was $1,074. Prices remained relatively stable for seven years until the COVID-19 pandemic in 2020. As of last year, the average psf was $1,446, representing an increase of around 35% over the past decade. This translates to an average yearly growth rate of 3.5%, matching Singapore's economic growth during the same period.
For instance, if you purchased a one-bedroom unit for $600k in 2013, it would now be worth approximately $810k. However, it's important to consider rental income and associated costs.
Cost:
Stamping & legal fee: Estimate $18k ($600k property, including buy & sell legal fee)
Property tax: Estimate $12k (10 years with let-out rate)
Condo MCST: Estimate $30k (10 years with $250 per mth)
Agency fee: $17k (2%+GST of $810k)
Interest: Estimated $83k (base on 2% of $480k loan) Total estimation cost: $160k
Rental:
Average rental yield 3.5% = $210k
Agency fee = Estimated $10k (10 years)
Maintenance cost = $10k (10 years)
Total estimation rental revenue = $190k (10 years)
Therefore, the total net income would be $810k - $600k - $160k + $190k = $240k.
This scenario, while not ideal, is still reasonable for a property purchased at the market peak and held for ten years. It results in around $24k in passive income yearly($2k monthly), requiring an initial cash outlay of $30k (5%) and around $100k from CPF (15% + stamping fee and legal fee). This suggests that if you didn't buy at the peak, your potential earnings could be significantly higher. While it's uncertain if the current private property prices have peaked, it's clear that every moment you wait results in lost rental income and potential capital gains.