Who is this article written for ?
Without beating around the bush, this article speaks to you if you are contemplating taking the following action to purchase your ideal new launch condo.
- Sell your current property to unlock its capital gain
- Purchase a new launch condo
- Rent for 3 years while new launch condo is under construction
- Flip the new launch upon TOP or
- Consider living in it for another 3 years before selling it
The question on your mind.
While your friendly neighbourhood property agent incepted this ideal into your mind. The greatest question you would have is whether this is financially feasible ? Will you make or lose money doing this and what are the risks involved?
Focus of this article
We will tackle these questions head on with numbers and financial models. We will first lay out all the options available and consider all associated key costs and profits. The end goal is to derive a net profit figure for each of this option.
We are Decoupling Expertise
Before committing the next 5 mins reading this article, it helps to know who is behind the pen.
We are a team of specialist realtors that specialises in helping our readers research, shortlist and purchase investment properties.
Our core expertise revolves around helping SG property owners purchase 2nd investment properties without ABSD. Decoupling is often the go-to strategy that we utilise to help our readers minimise ABSD, hence the name Decoupling Expertise.
Our articles serve as a documentation and testimony of our client engagement. If you fancy having solutions tailored to your challenges drop us a text.
Rehashing all the options you have got
Before we dive into calculations, let’s lay out all the options that are available.
Option 1 – New Launch. Rent. Sell
- Purchase a new launch condo
- Renting for 3 years
- New launch condo TOP
- Immediately flip for a profit
Option 2 – New Launch. Rent. Live. Sell
- Purchase a new launch condo
- Renting for 3 years
- New launch condo TOP
- Live in it for another 3 years
- Sell to unlock profit
Option 3 – Resale. Live. Sell
- Purchase a resale condo
- Live in it for 3 year
- Sell to unlock profit
Option 1 – New Launch. Rent. Sell
This is the first option that is top of mind. This is the option touted to bring you the most profit with the shortest holding duration.
Let’s consider its financial feasibility by accounting for the cost involved.
At a high level there are always 4 key cost categories to be accounted for. Obvious one being the cost of renting for 3 years. While buying transactional cost and interest expense is often overlooked or understated.
Gross profits numbers often looks good when property rein in 300k to 400k, but the real view or profitability will only be unveiled after netting off buyer stamp duty and interest expense.
Cost of renting for 3 years
Accounting for the cost of Renting for 3 years while your new launch condo is being constructed.
Within this step, there are several options for you to optimise towards the lowest rental cost.
At base case you can rent a 3 bedroom condo or a 3 bedroom HDB, best case consider renting a smaller 2 bedroom condo to minimise rental expenses.
For convenience we layout the cost of rental for each option below.
| Renting Condo – 3 Bedroom | OCR | RCR | CCR |
| Cost of renting a 3 bedroom condo (Monthly) ~ 1000 sqft | 3,500 | 5,000 | 6,500 |
| Total cost of rental over 3 years | 126,000 | 180,000 | 234,000 |
| Renting HDB | OCR | RCR | CCR |
| Cost of renting a 3 bedroom HDB (Monthly) ~ 1100 sqft | 3,000 | 4,000 | 5,000 |
| Total cost of rental over 3 years | 108,000 | 144,000 | 180,000 |
| Renting Condo – 2 Bedroom | OCR | RCR | CCR |
| Cost of renting a 2 bedroom condo (Monthly) ~ 700 sqft | 2,500 | 3,500 | 3,700 |
| Total cost of rental over 3 years | 90,000 | 126,000 | 133,200 |
Referencing the table above, you would realise that there is minimal saving in renting a HDB instead of a condo. The rental difference between HDB vs a 3 bedroom condo is minimal.
Transactional cost of purchasing New Launch
From countless interactions with home buyers and owners, buyer stamp duty is often a major cost component that is overlooked.
When selling a property, an owner tends to account for the buyer stamp duty that he or she has paid initially when purchasing the property and take the 300k to 400k gross profit at face value.
When buying a property the excitement of getting an ideal property at attractive quantum often overshadows the buyer stamp duty to be paid.
| Assumed purchase price for new launch | 2,500,000 | 2,600,000 | 2,800,000 |
| Buyer Stamp Duty | 94,600 | 99,600 | 109,600 |
| Legal Fee | 3,000 | 3,000 | 3,000 |
| Total Transactional cost of Purchasing New Launch | 97,600 | 102,600 | 112,600 |
Interest expense Incurred over 3 years
The next cost is to account for the interest expense to be accounted for over 3 years. It is true that a new launch saves you significant interest expense in the first 3 years when loan is progressively disbursed according to the stages of completion.
The calculations are made based on a 4% floating rate assumption. As we approach a potential rate cut cycle, these estimates are prudent and interest expense should come down in the near to mid term.
| Assumed purchase price for new launch | 2,500,000 | 2,600,000 | 2,800,000 |
| Loan Quantum – 75% of property value | 1,875,000 | 1,950,000 | 2,100,000 |
| Assumed floating interest rate | 4% | 4% | 4% |
| Interest expense Incurred over 3 years | 54,416 | 56,593 | 60,946 |
Transactional cost of selling New Launch
This section accounts for the cost involved in selling a condo. Key cost element to note is agent commission.
To get to an estimated resale value to calculate agent commission, we will first make a reasonable assumption on price markup to be made to the initial purchase price.
| Initial Purchase Price for New Launch | 2,500,000 | 2,600,000 | 2,800,000 |
| Average Profit Markup from purchase price for 3 bedroom new launch | 400,000 | 450,000 | 500,000 |
| Estimated Selling Price for New Launch | 2,900,000 | 3,050,000 | 3,300,000 |
Historical data justifying profit markup for new launch
In case you are looking for a basis of making a 400k, 450k plus profit markup, we referred to our previous research done on 3 bedroom new launch profitability for reference.
Reference – Historical profits made from selling 3 bedroom new launch condo
| Development | 1 Bedroom Profit ($) | 2 Bedroom Profit ($) | 3 Bedroom Profit ($) |
| Florence Residences | 122,252 | 209,422 | 317,327 |
| Jadescape | 168,708 | 292,551 | 423,558 |
| Park Colonial | 149,476 | 187,294 | 357,739 |
| Stirling Residences | 203,868 | 274,294 | 520,444 |
| Treasure at Tampines | 120,215 | 162,480 | 309,915 |
| Average | 152,904 | 225,208 | 385,797 |
Nett Profit from executing this Option
Finally, we will net all costs from the gross profit to derive our net profit. This is the actual gain that you take home after all costs.
| Total Cost of Execution | |||
| Initial Purchase Price for New Launch | 2,500,000 | 2,600,000 | 2,800,000 |
| Total Cost of Execution – Renting a 3 Bedroom Condo | 339,016 | 403,193 | 476,546 |
| Total Cost of Execution – Renting a 3 Bedroom HDB | 321,016 | 367,193 | 422,546 |
| Total Cost of Execution – Renting a 2 Bedroom Condo | 303,016 | 349,193 | 375,746 |
| Initial Purchase Price for New Launch | 2,500,000 | 2,600,000 | 2,800,000 |
| Estmated Profit to be made | 400,000 | 450,000 | 500,000 |
| Less Total Cost of Execution – Renting 3 Bedroom Condo | 339,016 | 403,193 | 476,546 |
| Nett Profit | 60,984 | 46,807 | 23,454 |
Referencing the table above you will be able to have a view of the actual net profit that you will take home after netting all costs.
You will realise that using an example of a 2.5mil new launch, you will only be making a net profit of $60,984.
The picture may not be as rosy as it seems when looking to make a quick flip.
Let’s dive deeper to explore the option of holding on to the new launch for another 3 years and living in it before selling.
Option 2 – New launch. Rent. Live. Sell
In this option we consider a slightly different variation to the approach. Instead of selling the new launch immediately, we will take a more moderate approach. We will prolong our holding duration by living in the new launch for another 3 years after it TOP, before flipping it.
The assumption is that with longer duration, we will reap a bigger quantum profit from sales. This assumption is made on the basis that as time passes, both inflationary growth and new price catalysts such as the launch of other new launches will push prices up for our new launch.
Total Profit for holding new launch condo for 3 additional years
Accounting for the additional profits, we added another additional $200k to $300k to the original line of profit, to account for the additional price appreciation accrued during the prolonged 3 year holding duration.
This lands us with a total estimated profit of $600k for a total holding period of 6 years, for a $2.5 mil property.
| Assumed purchase price for new launch | 2,500,000 | 2,600,000 | 2,800,000 |
| Profit – 3 year holding – selling at TOP | 400,000 | 450,000 | 500,000 |
| Incremental Profit – additional 3 year live in before selling | 200,000 | 250,000 | 300,000 |
| Total Profit – selling after living in new launch for 3 additonal year | 600,000 | 700,000 | 800,000 |
Additional interest expense and selling expense to be accounted for
In line with holding on and living in the new launch for another 3 years after it TOP, we will have to account for additional interest expense and agent commission, when selling the property at a higher price.
Additional Interest Expense Incurred for living in new launch for 3 years
As the new launch TOP, interest rate assumption changes as we transit from a higher floating rate to a longer fixed rate.
| Assumed purchase price for new launch | 2,500,000 | 2,600,000 | 2,800,000 |
| Loan Quantum – 75% of property value | 1,875,000 | 1,950,000 | 2,100,000 |
| Assumed fixed interest rate | 2.8% | 2.8% | 2.8% |
| Interest expense Incurred over 3 years | 164,726 | 171,315 | 184,494 |
Selling Cost for selling new launch condo after 6 years
This section accounts for the minor increment in agent commission as we resell the unit at a higher price.
| Assumed purchase price for new launch | 2,500,000 | 2,600,000 | 2,800,000 |
| Estimated Profit, Markup to sell new launch unit after 6 years | 600,000 | 700,000 | 800,000 |
| Estimated Selling price after 6 years | 3,100,000 | 3,300,000 | 3,600,000 |
| Selling Agent Commission ~ 2% | 62,000 | 66,000 | 72,000 |
| Selling legal fee | 3,000 | 3,000 | 3,000 |
| Total Selling Cost | 65,000 | 69,000 | 75,000 |
Profit and Loss Summary for holding on to new launch for 3 additional year
| Assumed purchase price for new launch | 2,500,000 | 2,600,000 | 2,800,000 |
| Total initial purchase cost of new launch – BSD, Legal Fee | 97,600 | 102,600 | 112,600 |
| Interest expense – first 3 year pre TOP | 54,416 | 56,593 | 60,946 |
| Rental expense – 3 years pre TOP | 126,000 | 180,000 | 234,000 |
| Incremental cost of living in unit for additional 3 years – Interest | 164,726 | 171,315 | 184,494 |
| Selling expense – after 6 years of holding on to unit | 65,000 | 69,000 | 75,000 |
| Total Cost Incurred | 507,743 | 579,508 | 667,040 |
Nett Profit – Holding New Launch for 6 Years
Referencing the table below, you would see a better net profit outcome as compared to option 1 which entails flipping the new launch immediately at launch.
The general logic is as follows, buyer stamp duty forms a significant proportion of cost incurred and it makes sense to maximise or stretch this fixed cost out by holding for longer duration to maximise gross capital gain.
So quick flipping may not always be the best option, you will always have to ensure you make substantial gain before exiting a property investment.
As compared to option 1 in which a $60k net profit is being made, option 2 generates a $92k net profit with the additional benefit of providing your family with a new condo to live in for 3 years.
| Assumed purchase price for new launch | 2,500,000 | 2,600,000 | 2,800,000 |
| Total Gross Profit | 600,000 | 700,000 | 800,000 |
| Total Cost Incurred | 507,743 | 579,508 | 667,040 |
| Nett Profit – Holding New Launch for 6 Years | 92,257 | 120,492 | 132,960 |
Option 3 – Resale. Live. Sell
Option 3 is where we work out the profit and cost of the less enticing approach of simply upgrading to a resale condo instead of buying a new launch.
This option eliminates the need to rent for 3 years, removing the incurring of $100k plus rental expense.
The crux to this strategy is to exercise due diligence in the research and selection of your resale unit to ensure optimal capital gain.
For more insights on investment property selection criteria refer to the following articles.
- Which condo is good for investment in Singapore ?
- Best condo size for investment
- Is resale condo worth buying ?
Cost of Purchasing Resale Condo
A hidden benefit of going for the least sexier option of purchasing a resale condo is that the property then to be priced at a more affordable quantum.
Along with a smaller purchase quantum, less buyer stamp duty and interest expense is incurred.
Transactional Cost of Purchasing Resale Condo
| Assumed purchase price for resale condo | 1,600,000 | 2,200,000 | 2,500,000 |
| Buyer Stamp Duty | 49,600 | 79,600 | 94,600 |
| Legal Fee | 3,000 | 3,000 | 3,000 |
| Total Transactional cost of Purchasing resale condo | 52,600 | 82,600 | 97,600 |
Interest expense Incurred over 3 years
| Assumed purchase price for new launch | 1,600,000 | 2,200,000 | 2,500,000 |
| Loan Quantum – 75% of property value | 1,200,000 | 1,650,000 | 1,875,000 |
| Assumed floating interest rate | 2.8% | 2.8% | 2.8% |
| Interest expense Incurred over 3 years | 105,425 | 144,959 | 164,726 |
Cost of Selling Resale Condo
Similarly, we will account for the cost for reselling the resale condo in 3 years time, the cost element remains the same with the selling agent commission and legal fee.
| Initial Purchase Price for Resale Condo | 1,600,000 | 2,200,000 | 2,500,000 |
| Average Profit Markup from purchase price for 3 bedroom Resale Condo | 300,000 | 350,000 | 400,000 |
| Estimated Selling Price for Resale Condo | 1,900,000 | 2,550,000 | 2,900,000 |
| Selling Agent Commission ~ 2% | 38,000 | 51,000 | 58,000 |
| Legal Fee – Selling | 3,000 | 3,000 | 3,000 |
| Total cost of Selling Resale Condo | 41,000 | 54,000 | 61,000 |
Nett Profit from executing option 3
In summary, you could be surprised that the option of purchasing a resale condo instead of a new launch could bring in a healthier net profit outcome than both options listed above.
The key difference lies in the doing away with the 3 year rental expense to be incurred in the first two options.
| Initial Purchase Price for Resale Condo | 1,600,000 | 2,200,000 | 2,500,000 |
| Gross Profit | 300,000 | 350,000 | 400,000 |
| Less – Total Cost | 199,025 | 281,559 | 323,326 |
| Nett Profit from selling resale condo | 100,975 | 68,441 | 76,674 |
Renovation cost not accounted for
From an objective standpoint, renovation cost is a cost element not accounted for in options comparison above. New launch property tends to demand a lower renovation cost, while resale property tends to incur a higher renovation cost.
In line with that, one of the strategies of improving net profit for all property types, especially resale property is to purchase a unit that demands the least renovation cost and from a interior design standpoint optimise towards using movable furnitures to create the interior outlook that you desire vs the incurrence of hefty renovation cost on carpentry work.
Longer holding duration to be expected for resale property
For the purpose of apple to apple comparison, we restricted our holding duration for resale property to 3 years. But in actual fact, gains can be optimised by prolonging the holding period for resale properties.
Reference the table below for a view of holding period and gains from some of the better performing resale developments.
| Project Name | Location | Tenure | Completion | No of units | Sales Vol | Average Profit | Average holding period (years) |
| THE SEA VIEW | East Coast | Freehold | 2008 | 546 | 6 | 1,199,409 | 11 |
| THE ESTA | East Coast | Freehold | 2008 | 400 | 6 | 1,024,284 | 10 |
| THE CALROSE | Lentor | Freehold | 2007 | 421 | 8 | 446,367 | 6 |
| THE RAINTREE | Bukit Panjang | 99 yrs FROM 2003 | 2008 | 315 | 9 | 375,393 | 5 |
| CASPIAN | Jurong West | 99 yrs FROM 2008 | 2012 | 712 | 15 | 465,305 | 10 |
| KOVAN MELODY | Kovan | 99 yrs FROM 2004 | 2006 | 778 | 16 | 594,642 | 12 |
| THE QUARTZ | Seng Kang | 99 yrs FROM 2005 | 2009 | 625 | 20 | 434,222 | 10 |
Gross Profit vs Cost Composition
From this exercise, you would have noticed that while gross profit, the overall gains derived from flipping a property is alluring. To maximise the actual money that you take home, calls for active management of cost incurred as well.
Putting things into perspective, it could be compelling to purchase a new launch condo that can bring you a $400k gross profit in 3 years. But if you haven’t got a place to live in and would need to incur a 3 year rental of over $126k, coupled with buyer stamp duty then the net profit outcome could fall behind the option of simply purchasing the “right” resale condo and holding it for a longer duration.
Referencing the cost composition table below. You would notice that the cost of rental elements takes up over 32% to 21% of the Gross profit generated, leaving a net profit margin of only 15%. While the resale condo option which negated the need to rent, has a net profit margin of 34%.
| Gross Profit vs Cost Composition % | Option 1 – New launch. Rent. Sell | Option 2 – New launch. Rent. Live. Sell | Option 3 – Resale. Live. Sell |
| Gross Profit | 100% | 100% | 100% |
| Cost Rental – 3 years | 32% | 21% | 0% |
| Transactional Cost – Purchasing | 24% | 16% | 18% |
| Interest Expense | 14% | 37% | 35% |
| Transactional Cost – Selling | 15% | 11% | 14% |
| Nett Profit | 15% | 15% | 34% |
Bonus Option 4 – Decouple. Buy New Launch. Sell
Throwing in a bonus option that could provide the optimal method to maximise capital gain. Disclaimer that this option may not be suitable for everyone, eligibility criteria set out below.
- Private property owner and is willing to continue living in current property
- Purchasing 2nd property as part of investment road map
- Dual Income family, with ability to support 2 sets of mortgages.
This method would entail the purchase of the new launch as a second property. This allows you to continue living in the current property while awaiting the construction of the new launch.
As a side note, we have written a dedicated article on how to determine if it is the right time to sell your current property, check out the article via link inline if this is something that you like to dive deeper into.
After the new launch unit TOP in 3 years, you have the option of flipping the new launch or selling your current property and moving into the new launch property.
Unfortunately, this strategy is not applicable for HDB owners as HDB has tighten its regulation to restrict decoupling for HDB. Refer to article – HDB Decoupling is no longer Permissible – What are your alternatives ?
Steps
- Decoupling Property – one spouse to sell share of current property to another spouse
- One Spouse to purchase a new launch condo solely under his or her name.
- New launch TOP
- Sell or live in new launch
Accounting for the cost of decoupling
Here are some numbers to account for the cost of decoupling
| Assumed current property valuation | 1,600,000 |
| Valuation of shares to be transferred | 800,000 |
| Cost incurred during decoupling | |
| Buyer stamp duty on market valuation of shares to be transferred | 18,600 |
| Decoupling legal fee | 6,000 |
| Valuation fee | 600 |
| Total cost of decoupling | 25,200 |
Total cost of purchasing and selling new launch condo, without rental
| Assumed purchase price for new launch | 2,500,000 | 2,600,000 | 2,800,000 |
| Total Transactional cost of Purchasing New Launch | 97,600 | 102,600 | 112,600 |
| Interest expense Incurred over 3 years | 54,416 | 56,593 | 60,946 |
| Total cost of Selling New Launch Condo | 61,000 | 64,000 | 69,000 |
| Total cost of purchasing and selling new launch condo, without rental | 213,016 | 223,193 | 242,546 |
To calculate Nett profit for decoupling and flipping an 2nd new launch condo – 3 Year Holding Duration
| Assumed purchase price for new launch | 2,500,000 | 2,600,000 | 2,800,000 |
| Estimated Profit to be made | 400,000 | 450,000 | 500,000 |
| Less – Cost of decoupling | 25,200 | 25,200 | 25,200 |
| Less – Total cost of purchasing and selling new launch condo, without rental | 213,016 | 223,193 | 242,546 |
| Nett Profit – 3 year holding duration | 161,784 | 201,607 | 232,254 |
To calculate Nett profit for decoupling and flipping an 2nd new launch condo – 6 Year Holding Duration
| Assumed purchase price for new launch | 2,500,000 | 2,600,000 | 2,800,000 |
| Estimated Gross Profit for holding property over 6 years | 600,000 | 700,000 | 800,000 |
| Less – Cost of decoupling | 25,200 | 25,200 | 25,200 |
| Less – Total cost of purchasing and selling new launch condo, without rental | 213,016 | 223,193 | 242,546 |
| Nett Profit – 3 year holding duration | 361,784 | 451,607 | 532,254 |
*Assuming a new launch is being rented out and rental income covers interest expense and condo management fee.
Find out more about decoupling ?
This could be the first time you are reading an article on Decoupling Expertise, allow us to quickly introduce ourselves.
We are a team of specialist realtors that specialise in decoupling property in Singapore.
Having experienced the pain of finding the optimal way to avoid paying ABSD when purchasing our second properties. We decided to build an entire service suite targeted at helping savvy homeowners devise the best approach towards purchasing their 2nd property.
Drop us a message if you like, get a second opinion to reaffirm your plans for decoupling property.
