For most of the people 2 good ways to earn a fortune is either to be the winner of a lottery or purchase Singapore property with the hope of having the value of the property skyrockets. Property investment in Singapore is one of the best ways to increase one’s wealth in this country, not least as residential property is one of the items that its citizens and its Permanent Residents can use their monies in their Central Provident Fund (CPF) accounts on.
For those who are thinking to acquire a second residence as a property investment in Singapore, the below will be a guide.
How is Money Made from Property Investment in Singapore?
When buying a property in Singapore, one will in general expect the appreciation of its value over time. This increase in the price or value will be recognized as a capital appreciation, and it is one main method to make monies from the property investment.
For example, if a residential was $500,000 in value when it was purchased and is currently at $700,000, this means there is a $200,000 in capital appreciation. When the property is sold for more than It was initially purchased for, the seller of this property will get to enjoy the capital gains which is the results in capital appreciation.
As per se, it will be critical to keep a look out in terms of the elements that will encourage higher capital appreciation that is somewhere along the way, like improvements on the infrastructures or future MRT stations.
Some of the Investment Properties to Consider
Another key method to generate money from the property investment in Singapore will be the income from renting. To calculate the rental yield, one just need to total up all the income from the rental that is generate in a year and then divided it as a percentage of the value of the property. For instance, if the property is bought at $1,000,000 and it was rented out at $3000 per month, then the rental income per year will be $36,000. The rental yield will then be at 3.6% ($36,000 x 100/$1,000,000).
With the above, an obvious thing will be a better rental yield will be the one that is higher. This also means that there is a better return on investment (ROI) even before the property is sold. Of course, the above is calculating only based on the gross rental yield.
To calculate the net rental yield, some will consider minus off the other costs such as the monthly maintenance fees, the agent fees and other fees such as the utilities, internet fees, etc. if the rental amount includes those.
The rental income will also be a source of funds for those owners who use it to pay their monthly mortgage repayments.
Factors that Affect the Prices in the Market
For those who have heretofore been in investment of ETFs, gold, stocks or luxury products, the ultimate intention will be the same which is to get more money back than the amount that was originally paid for acquiring the investment.
In the property market context, this translates to acquiring a property investment in Singapore with its price is low or for the minimal of reasonable level and have it sell off at a higher price. With that, it will help to take note of the major factors that will affect the prices of property in Singapore.
1. Infrastructure and Location
The improvement in the infrastructure of the transport network or addition of amenities nearby such as public libraries, prominent schools and shopping malls and impact positively on the prices of the property. As a rule of the thumb, an improvement on the transportation infrastructure particularly will have a huge impact on the property values especially when there are upcoming MRT stations that are within walking distances. An example of this kind of condominium will be Sky Everton.
2. The Property’s Condition and State
The property’s condition and state can impact on the its value, especially when the property is old. For example, much maintenance is required for landed properties and when these properties go into disrepair, it can be extremely expensive to have them fix up. On the other hand, if the property is renovated recently in a pleasant style, it can permit the rise in asking price.
Majority of the residential properties in Singapore are leasehold with the lease tenure that is commonly at 99 years. As the lease moves toward the end of its tenure, these properties will experience a drop in their values sharply. As such freehold properties will be able to have their values retains better over the time, however, a freehold property is often more costly for buyer to acquire.
4. Interest Rates
At the moment, the mortgage rates are still quite low in Singapore as compared to other countries. The also translate to lower financial costs to acquire a home loan. The general rule is that if there is a rise in the interest rates, there will be lesser buyers in the market which will impact negatively on the property prices.
5. Government Policies
The government’s ability to intervene by implementing housing policies any time will also impact on the prices of property. Since 2009, with the property cooling measures implemented, the prices of property have been suppressed considerably.
6. Economic Condition
The prices and demand of property are expected to drop during a recession as more buyers will have their belts tighten, while the opposite is also true when it is prosperous time.
The Property Cooling Measures and Restrictions
To prevent heavy speculation and having to keep the property price stable, the government has implemented some regulations to make it less lucrative for those who like to buy and sell their property investment with a short frame of time. This also discourages those buying multiple properties.
When assessing a property investment that is of potential, do take note of the following property cooling measures:
Additional Buyer’s Stamp Duties (ABSD)
If a Singapore citizen wanting to buy a residential property and currently owns another residential property. Then he or she will be subjected to the ABSD. For those non Singaporean buying that are with or within any residential property, they will also be subjected to ABSD as well. The rates of the ABSD as follow:
|Singapore Citizen purchasing 1st residential housing||0%|
|Singapore Citizen purchasing 2nd residential housing||12%|
|Singapore Citizen purchasing 3rd and subsequent residential housing||15%|
|Singapore Permanent Resident purchasing 1st residential housing||5%|
|Singapore Permanent Resident purchasing 2nd and subsequent residential housing||15%|
|Foreigners purchasing any residential housing||20%|
If it sounds complicated, this Calculator for Stamp Duty will help derive the amount of stamp duty payable based on different unique situation.
Residential Property’s Seller Stamp Duty (SSD)
For those selling off their private residential properties without holding over 3 to 4 years, they might be subjected to SSD payable. The rates for the SSD as follow:
|Purchase Date||Holding Period||Rate of SSD (based on market value or actual price whichever higher)|
|From 14 January 2011 to 10 March 2017||Within 1 year||16%|
|Above 1 year and within 2 years||12%|
|Above 2 years and within 3 years||8%|
|Above 3 years and within 4 years||4%|
|Above 4 years||Not Applicable|
|11 March 2017 onwards||Within 1 year||12%|
|Above 1 year and within 2 years||8%|
|Above 2 years and within 3 years||4%|
|Above 3 years||Not Applicable|
Total Debt Servicing Ratio (TDSR)
The loan amount that a buyer can get from banks will be limited (amid other things) by the TDSR. The TDSR caps that the monthly total repayments of the housing loan and other any loans which include the debt of the credit card that must not be more than 60% of the total monthly income.
Thus, it is advisable to shun from getting into substantial loans such as car loans or debt in credit card before applying for a housing loan.
Loan to Value Limit (LTV)
Same as the TDSR, the LTV limit capped on the amount that the purchaser can loan from the banks to service the property purchase.
Contrasting to the ABSD which is dependent on the number of residential properties that is under the purchaser’s name, the LTV limit is tied to the how many outstanding housing loans that a purchaser is currently servicing. The higher number of housing loans that is in service, the lesser that the purchaser can borrow. On the contrary, it does not matter the purchaser currently has how many residential properties, so long as he or she has fully paid off all the housing loan he or she will be eligible to the maximum loan amount.
Below are the most current LTV limits which were last revised in July 2018:
|No. of Housing Loan||LTV Ratio|
|1st housing loan||75%|
|2nd housing loan||45%|
|3rd and subsequent housing loan||35%|
The rules are slightly different for buying a HDB flat and a private residential property. For those buying a HDB flat, the LTV limits are applicable for bank loan with maximum loan tenure of 25 years. For purchasing of private residential property, the loan tenures will be a maximum of 30 years.
For those who want longer tenure or debt servicing period that is beyond the age of 65 years old, the LTV ratio is lower and therefore less borrowing.
Singapore Property Tax
Property Investment is a good asset to own in Singapore but owners also have to pay a tax to the government for owning one. The property taxes are structured differently which will depend on whether the property is owner-occupied (i.e. whether the owner is living in the property) or not.
The property tax payable will be based on the Annual Value of the property. For those who are unsure of what their annual value is, they can check via the link provided by IRAS.
For properties that are owner-occupied, the rates of the taxes are as the following:
|Annual Value||Tax Structure||Tax Rate for Owner-Occupied||Property Tax ($)|
|$55,000 and below||First $8,000||0%||$0|
|Between $55,000 and $70,000||First $55,000||See Above||$1880|
|Between $70,000 and $85,000||First $70,000||See Above||$2780|
|Between $85,000 and $100,000||First $85,000||See Above||$3980|
|Between $100,000 and $115,000||First $100,000||See Above||$5480|
|Between $115,000 and $130,000||First $115,000||See Above||$7280|
|Above $130,000||First $130,000||See Above||$9380|
For those residential properties without the owners staying there or/and are rented out, the property tax rates are follow:
|Annual Value||Tax Structure||Tax Rate for Non Owner-Occupied||Property Tax ($)|
|$45,000 and below||First $30,000||10%||$3000|
|Between $45,000 and $60,000||First $45,000||See Above||$4800|
|Between $60,000 and $75,000||First $70,000||See Above||$6900|
|Between $75,000 and $90,000||First $75,000||See Above||$9300|
|Above $90,000||First $90,000||See Above||$9380|
Non-residential property tax
Industrial properties (such as warehouses or factories) and commercial properties like offices need to pay tax based on 10% of their annual values.
How to Look for Property for Sale
Below are some of the common methods to look for properties.
Property portals such as the below comprises of listing of properties that are posted by property owners or their real estate agents:
Note that on these property portals there might be duplicate property listings as there are open listings and/or owners might engage a few real estate agents to market their properties.
The advertisements in the property classified section of the newspapers also provide property listings. However there are fewer advertisements as compared to online portals, this will be more likely a supplement to the online researches.
New Property Launches
For those looking for new developments and those from developer, they can refer to the listing of the projects listed in this portal. Sending in the enquiry form, a sales member of newlaunchesreview.com will contact the interested parties to the showflat.
As majority of these launches are still in the construction stages, potential buyers can take a look at the mock up show suites at the showflat.
For uncompleted developments, the payment schedule will be in accordance to the stages that the project has been completed. This will be less taxing as initial loan repayment will be low and it will be progressively built up.
Some of the auctions also provide good deals. Those who wish to taking part in these auctions, they could fill the enquiry forms on this website and the information will be provided on the location of the auctions.
The sellers of these properties at the auction are either the banks which foreclosed the properties or developers and sellers wanting to sell their properties fast.
The properties that are auction will be listed and with the reserve price which is the lowest bid that is acceptable indicated.
Finding News Regarding Property Market
Before selecting a property investment and committing to it, it will be good to follow the news of Singapore property market closely.
Below are the some of the useful sources and websites for getting the up to date property news
- Property section of The Straits Times
- Property section of the Business Times
- Money Smart Blog on Property
Have more questions regarding buying a investment property in Singapore? Contact us now for the best recommendation that suit your needs.