How a Couple Started With a BTO And Ended Up With A Landed Property in Singapore
After attending the 99.co x Seedly: How to Be a Property Millionaire event, I was reminded of the lucrative proposition to gain wealth: property flipping.
Heck, one of the speakers, Eric Chiew, told us that he now lives in a $16 million landed property through house flipping. Simply incredible!
Of course, this isn’t anything new. You’ve probably heard of your friends selling their HDB properties for a tidy profit right after the Minimum Occupancy Period (MOP), or have done so yourself.
The next step would be to become a HDB upgrader, move up to private property, and flip that. A very straightforward strategy with our rising property prices.
But, with government regulations and a land-scarce society, is property flipping still the definitive way to get rich in Singapore? Is it really all that those property gurus make it out to be?
Let’s find out!
What is Property Flipping?
In essence, property flipping is buying a property and selling it for profit at a later date when prices have gone up.
It is a type of investment and one of the many ways you can build wealth.
How Did The Older Generation Strike It Rich With Property?
For our parent’s generation (the boomer generation born in the 1950s and 1960s), this was a rather easy thing to do as the price-to-income ratios (PIR), which were significantly lower in the 1980s when they first bought a property. In other words, housing was cheap.
Soon, demand for housing started to skyrocket thanks to the growing population which caused prices to surge.
PropertyGuru has given us a perfect 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.
While this scenario is oversimplified and assumes the right timing, you can see how possible it is for our parents to become property millionaires.
In reality, I’m sure you too have seen couples from the boomer generation go from an HDB to a landed property or private home through property flipping.
Eric Chiew’s Property Story
But wait! What about this Eric Chiew guy? He’s an older millennial (39 years old) and made such a handsome profit over the years! I want to be like him too.
Well, you could. But let’s take a look at his story with property with a more critical lens.
For the uninitiated, Eric Chiew is somewhat of a YouTube-property celebrity with videos all about property investing.
During his talk at the event, he talked about how he went from buying his first property and investing in all sorts of properties to growing his portfolio to an impressive $30.5 million.
He also shared his philosophy of “Sell one, buy two” and how he avoided Additional Buyer’s Stamp Duty by using the names of his family members.
Many were inspired by his success story and I too wondered if it was really possible for the average couple to replicate this success. However, as I delved deeper and learned from other property experts, it’s really not as rosy as it seems.
In one of Eric’s videos, he even admitted that when he first got into property, he simply bought by faith.
Of course, over the years, he learnt about property investment and with some luck, built his portfolio to where it is today.
You’ll realise that not all who made it rich in property relied on concrete investment research or hard work alone. Rather a lot of it was just pure luck!
Property Flipping In Today’s Age?
That said, this doesn’t mean that property investment is just a gamble. It is still a legitimate investment strategy. However, trying to flip properties is no longer as lucrative as it once was.
Moreover, many of these property agents, gurus or whatever you want to call them, usually try to show you the success cases, but not the ones that failed.
Not every property makes a profit.
Courtesy of PropertyLim Brothers, they have given us some statistics that show both sides of property investment:
While these are just a few examples, it’s clear that not every property will see an appreciation over the years.
But what about all those HDBs that keep seeing million-dollar sales? That number just keeps going higher!
While that is true as seen in the news, we also have to consider that the median prices of homes will always go up in the long term thanks to inflation.
What we should be looking at to see if housing is becoming more expensive is the price-to-income ratio.
In a previous article that we’ve done, we found out that the PIR hasn’t changed much since 2013.
| Year/Quarter | Median Multiple |
|---|---|
| 2013/Q3 | 5.1 |
| 2014/Q3 | 5.0 |
| 2015/Q3 | 5.0 |
| 2016/Q3 | 4.8 |
| 2017/Q3 | 4.8 |
| 2018/Q3 | 4.6 |
| 2019/Q3 | 4.6 |
| 2020/Q3 | 4.7 |
| 2021/Q3 | 5.8 |
For younger millennials and Gen Z, property investment is still viable. However, it is important to manage your expectations. Even the highest profits from our examples above only generated a Compound Annual Growth Rate (CAGR) of 8.4%.
For context, the CAGR for the S&P 500 from 2016 to 2022 is about 9.43%.
And remember that property is rather illiquid as it takes time for you to sell a property compared to a stock.
That said, property is a great hedge against inflation as seen in this table:
Oftentimes, many people just believe in investing in a singular asset class such as property. And while it is always nice to see big numbers turn into bigger numbers, over time, the returns may be worse off than the market.
Regardless of the type of investor you are, it is important to consider the opportunity costs.
Property As An Investment
All in all, property is just another asset and requires research and knowledge just like any other investment you make. There are plenty of things to consider in property investment such as interest rates, mortgage payments, stamp duties, agent fees so on and so forth.
If you’d ask me, I’d say property flipping is still viable, but no longer as viable as it once was.
And like we’ve always advocated here at Seedly, diversification is important to reduce your risks. So instead of choosing one over another…
