HOW THE NEW SSD RULE AFFECTS YOUR PROPERTY RETURNS GOING FORWARD...IF AT ALL?

Let's face it - people will not take on tax unnecessarily. Entire strategies, legal and well, influential - alike, have been all over the internet. The general consensus is clear - to avoid a tax like SSD just...wait it out. Don't do something stupid or try anything funny. Just wait. Be cool. But are there consequences for that?

In my previous article, I made a clear, mathematical case back by data as to why I thought a stock investment portfolio would outperform property. This was a successful permutation despite the fact that I used reasonably (not very, but reasonably) conservative data on the stock investment performance while outlining the better, or even best case scenarios on the property investment.

There was pretty little to say about it, although some of the common objections were in line with the fact that the property market is ultimately not as efficient as the stock market. A good real estate agent could beat an average return or get better returns, while a bad or unlucky one...well, I don't even want to think about it. But the primary reason I wrote an article like that is not to slam property. It just doesn't make sense to me as the primary driver of wealth - nothing wrong with it, like the additional perks, sense of security, good debt, etc. Just not as the primary driver of wealth. And we got to see more evidence of that today - where on the 3rd of July, Singapore rules for property were once again adjusted with basically no warning.

I can't imagine the shock that some homeowners, including my clients, experienced from this right after others were pulled in for violating the 99 to 1 rule that had been so popular and commonly accepted that even various law firms in the country are still dealing with the repercussions from the sudden change.

Property is ultimately the easiest and most efficient way to derive revenue while maintaining foreign investor attraction (e.g. no capital gains tax) and so it becomes first on the chopping block, much to the chagrin of people looking to replicate the success of their parents before them.

Let's look at the Financial Difference between people who purchased property in 2022, their expectation back then vs what they can expect now.

READ ALSO: How to Qualify to Advice on F.I: Lessons for Both Readers and FAs to Take

ANALYSIS: (Metrics)

Data for URA (Property Price Index) and a statistical overview of the SORA rates at the time place the following stats as such:

1) RETURN: The average return on Private Property was higher than the general average (refer to my previous article), with both 2022 and 2023 boasting 6.8% growth, eventually cooling to a current average of 5.7% (as of Q1 2025), still a good amount over the general average in the last 20years+. We will put the return at 5.7% for the purpose of this analysis. 2) LOAN INTEREST RATES: Since SORA is a LAGGING indicator, the high interest rates of 2022 were more pronounced in 2023 - making it a reasonable time to purchase property on average. Data indicates that the average buyer in 2022 could get rates as low as 2.5 to 3, with some promotional rates as low as 1.85%.

2024 refinancing data was surprisingly higher on average, between 2.7 and 3.3% - although there were some fixed promotions at 2 to 2.8%. We will put the rate at 2.75% for the purpose of this analysis. As I write this, I'm really starting to be reminded how powerful a lagging indicator can be in terms of strategizing your property purchase.

ANALYSIS (NUMBERS)

As I wrote in my previous article, it's not realistic to assume that you could sell your property immediately. Rules for SSD were 3 years literally last week, so my calculation before was based on selling within a 1 year. We will apply that same logic here.

Please bear in mind that there's usually all sorts of additional costs like transaction costs (agents), legal fees, renovation costs - but since most of these things can be limited or avoided in some way, I'll just use more optimistic numbers.

Using the original assumption that you sold your private property within 4 years before last week, or frankly you were looking to sell literally right before this news came out, your result would have been the following on a $2million dollar property:

Assumption of Average Profit Based on Old Rules, sell on 4th Year

Purchase Price: $2M

Mortgage 2.75%

Gross Return Rate: 5.7%

Capital Outlay = Downpayment + SSD (NA) + BSD + Mortgage Payments

Gross Return: Appreciated Condo - Remaining Mortgage

Net Return: Gross Return - Capital Outlay

Capital Outlay = $500,000 + $69,600 + $293,952 = $863,552

Gross Return: $2,496,491 - $1368,872 = $1,127,619

Net Return: Gross Return - Capital Outlay = $264,067

ROE: $264,067/$863,552 = 30.58%

ROI (annualized over 4 years): <6.9%

This ROI is actually rather impressive if you consider that purchasing a property that is not fully built yet would still appreciate at the same rate with a lower mortgage (Progressive Payment Scheme). If it's a fully built property, this scenario would be the case if you were living there, but ROI would be significantly higher if you were renting, which would ease off a good portion of the mortgage payments, or <13.3% if you were able to clear off every bit of the rent. That's very statistically unlikely, but even with some money from your own pocket and the (various) taxes involved, you could probably do at least a 10% annualized return with rent, which isn't too shabby for a 'safer' investment like property.

But what about now?

Assumption of Average Profit Based on Old Rules, sell on 5th Year

Purchase Price: $2M

Mortgage 2.75%

Gross Return Rate: 5.7%

Capital Outlay = Downpayment + SSD (NA) + BSD + Mortgage Payments

Gross Return: Appreciated Condo - Remaining Mortgage

Net Return: Gross Return - Capital Outlay

Capital Outlay = $500,000 + $69,600 + $367,440 = $937,040

Gross Return: $2,638,790 - $1327,438 = $1,311,352

Net Return: Gross Return - Capital Outlay = $374,312

ROE: $374,312/937,040 = 39.9%

ROI (annualized over 5 years): <6.95%

READ ALSO: I Discovered A GUARANTEED 15% Property Rental Return with Pros and Cons

Summary and Conclusions:

Well. Talk about anti-climatic. Despite the whole last minute blind-siding release that pretty much only screws over some people who wanted to sell their property this year, it turns out that this change could actually be for the best in some situations, especially this one. The net ROI actually IMPROVED by holding it another year. Talk about the rich getting richer, eh? Or at the very least, people who feel screwed over this year will likely not feel too bad next year when they sell.

This was on the basis that the average ROI in the last few years remained constant for just ONE more year, which is reasonably possible too, even though the average ROI appreciation of property in Singapore is much lower over the last few decades.

Frankly, I had expected that forcing investors to wait one more year would have a serious negative impact on their return. But I was sick, which led to me delaying writing this despite how excited I was last week. I noticed there wasn't much talk about this - and I thought there would be a much bigger hubbub. Why not, I wondered? I suppose that's why. Of course, some other common problems are holding the property for one more year (opportunity cost) and generally, the more time passes, the more likely you'll revert towards the average.

So it's less likely that the ROI will really be that high in the next 5 years even if you start this now, but I have to admit... It was a pretty good time to be a property investor in 2020 and 2019. Money Maverick PS: We're back! https://bloggers.feedspot.com/singapore_investment_blogs/