They say the land is scarce. So scarce that properties are expected to appreciate over time, up to double the amount of the initial purchase.
Now, as a player in property deals, you are quite sure you have a perfect investment at hand – from amenities, connectivity, and infrastructure to location, your property is highly desirable.
But do you know when is the best time to exit the property market after buying a property?
Generally, players may think the longer they hold on to the properties, the better and higher the returns. There is nothing wrong with holding on to your property. But let us pin down crucial points to give you a perspective of why timing your exit can make or break your wealth-building plans.
It effectively grows your investment plans
Just as you timed the perfect location, time and entry point to invest in a property, there is such a thing as timing the market for a perfect exit. Timing the market correctly earns you a golden ticket to tripling if not quadrupling your profit against that of other players.
Just like stocks, there is a good period and a bad period in exiting property deals. Take for example, from the previous SARS to the current Covid-19 pandemic. Market dips are the best time to enter, despite all the bad news it comes with – recession, stock market crash, underperforming economy and retrenchment. The market always works its way through. You can expect a gaining economy afterwards, where things would be thriving and everyone is earning, where that would be your best exit.
It optimises and maximises your profit gains
Now alongside timing the market, how long you hold on to your properties matter too. Take for example a case analysis on two owners who bought a 904 sq ft unit off NV Residences in Pasir Ris Grove.
Say both owners got their units in 2010, but one held onto their unit longer than the other. Owner A got his unit in 2010, and sold his unit off in three years while Owner B got his unit the same year, selling it off after nine years.
In this case, would the property appreciate more over a longer period?
Now, Owner A profited $213,600 with a three-year holding period while Owner B profited with $29,600 with a nine-year holding period. That is a $184,000 difference in profit, simply by timing their exit.
In many cases, players tend to hold on to their property for a long period of time. From this case, it is important to note that timing the exit makes a huge difference in money-making opportunities.
Even though both properties were purchased right about the same year, the difference it made in the holding period is evident. Sometimes your property may have appreciated to double the amount of what you got it at. And it is time to let it go.
It increases a significant portion of your profit
If you are aware of the applicable taxes in the property market, you’d understand that timing your exit would save you a huge sum of money.
Just like how holding on to a property doesn’t necessarily help maximise your profit, selling it way ahead won’t help either.
In this case study, consider the Seller’s Stamp Duty (SSD), which is payable to the Inland Revenue Authority of Singapore (IRAS). Basically, this is a tax you pay if you sell your property within the first three years of buying.
Seller’s Stamp Duty Rates (Residental)
Based on the Date of Purchase of the Property:
14 Jan, 2011 – 10 Mar, 2017
After 11 Mar, 2017
If you are selling your property within a year, the SSD comes to a 12% and those holding up to two years can be charged an 8% followed by a 4% for those selling within three years. For those who are selling after three years, SSD is no longer payable so time your exit right and you can avoid these charges.
Now this was first introduced as a cooling measure to curb ‘property flipping’ where investors play with the market and sell of properties within a short period of purchasing it. But let’s be clear, if you know how to time your exit right, you can still go around maximising your profit while avoiding all those taxes.
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