Investing in property is one of the most popular ways to grow your money in Singapore, not least because it’s one of the things you can spend your CPF savings on.
For those of you who are considering buying a second home as an investment property in Singapore, this guide is for you.
How do you make money from property in Singapore?
When Singaporeans buy property, they generally expect its value to increase over time. This rise in value or price is known as capital appreciation, and is one key way to make money out of your property.
For instance, if your home was worth $500,000 when you bought it and is now worth $900,000, that’s capital appreciation of $400,000.
When you sell your property for more than you paid for it, you are enjoying capital gains, which are the result of capital appreciation.
As such, it is important to look out for factors that can encourage greater capital appreciation somewhere down the road, such as upcoming MRT stations or infrastructure improvements.
The second key way to make money out of your property is through rental income.
To find out your rental yield, simply add up all the rental income you’d earn a year, and then convert it into a percentage of your property value.
So for instance, if you’re buying an $800,000 property and renting it out for $5,000 a month, you’d earn $60,000 of rent per year. Your rental yield would thus be 7.5per cent ($60,000 x 100 / $800,000).
Obviously, the higher the rental yield the better, as it means you’ll be getting a higher return on your investment even before you sell the property. Many buyers also channel rent received into paying their home loan.
What affects Singapore property prices?
Whether you’ve heretofore been investing in stocks, gold, ETFs or designer handbags (hey, we never said you had to be smart to be invest), your basic goal is the same as any other investor’s—to get back more money than you originally spent on the investment.
In the context of the property market, that means buying when prices are low or at least reasonable, and selling when they’re higher.
To that end, it’s useful to know six major factors that affect property prices in Singapore:
1. Location and infrastructure
Improved transport infrastructure, or the building of nearby amenities like shopping malls, prominent schools and public libraries can push up property prices. As a general rule, improved transport infrastructure especially can have a huge effect on property prices especially when it comes to new MRT stations within walking distance.
2. State and condition of the property
The state and condition of the property, especially when it is old, can affect the purchase price. For instance, landed properties require a lot of maintenance, and when they fall into disrepair can be very costly to fix up, which in turn lowers the selling price. Conversely, if you recently renovated your property in a palatable style, that can warrant a rise in your asking price.
Much of Singapore’s residential property is leasehold, with the most common lease duration being 99 years. As time barrels towards the tail end of a lease you can expect a sharp drop in the value of the property. Freehold property retains its value much better over time, but is a lot more expensive to purchase upfront.
4. Interest rates
Right now, interest rates in Singapore are very low. That means you it costs less to take out a loan when you buy a home. As a general rule, higher interest rates tend to discourage people from buying property, which has a negative impact on prices.
5. Government policies
The government can step in at any time with policies designed to have an impact on property prices. The cooling measures they put in place beginning in 2009 have suppressed prices considerably.
6. Economic climate
In a recession, you can expect demand for and prices of property to fall as people tighten their belts, while the reverse is true in times of prosperity.
Restrictions and cooling measures in Singapore
In order to discourage speculation, the government has put in place certain rules that make it less profitable for people who are selling their properties in the short term, or who wish to buy multiple properties.
When evaluating a potential property investment, be aware of the following cooling measures:
ABSD – Additional Buyer’s Stamp Duty
ABSD will need to be paid if you are already the owner of an existing property and wish to buy another, or if you are not a Singapore citizen. ABSD rates are as follows:
|Singapore Citizen buying first residential property||NA|
|Singapore Citizen buying second residential property||12 per cent|
|Singapore Citizen buying third and subsequent residential property||15 per cent|
|Singapore PR buying first residential property||5 per cent|
|Singapore PR buying second and subsequent residential property||15 per cent|
|Foreigners buying any residential property||20 per cent|
Too complicated? This Stamp Duty Calculator may help to calculate how much stamp duty you need to pay based on your unique situation.
SSD – Seller’s Stamp Duty for residential property
If you are selling property before you’ve held it for more than 3 or 4 years, you might have to pay SSD.
|Date of purchase||Holding period||SSD rate (on actual price or market value, whichever is higher)|
|Between Jan 14, 2011 and March 10, 2017||Up to one year||16 per cent|
|More than one year and up to two years||12 per cent|
|More than two years and up to three years||8 per cent|
|More than three years and up to four years||4 per cent|
|More than four years||No SSD payable|
|On and after March 11, 2017||Up to one year||12 per cent|
|More than one year and up to two years||8 per cent|
|More than two years and up to three years||4 per cent|
|More than three years||No SSD payable|
TDSR – Total Debt Servicing Ratio
The amount of money you can borrow from the bank is capped by (amongst other things) the TDSR, which dictates that your total monthly repayments of your home loan and any other loans (including credit card debt) must not make up more than 60 per cent of your income.
Thus, it is a good idea to avoid getting into credit card debt or taking out hefty loans like car loans just before you are about to apply for a home loan. Use our calculator to see how much loan you can get based on TDSR.
LTV – Loan-to-Value Ratio
The LTV ratio, like the TDSR, imposes limits on how much you can borrow from banks to finance your property purchase.
Unlike ABSD, which is tied to the number of properties under your name, LTV ratio relates to the number of outstanding mortgages you’re servicing. The more home loans you need to service, the less you can borrow from a bank.
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Conversely, no matter how many properties you own, as long as you’ve paid them off fully you can borrow the maximum amount.
Here are the latest LTV ratios, revised as of July 2018:
|Number of mortgages||LTV ratio|
|1st mortgage||75 per cent|
|2nd mortgage||45 per cent|
|3rd mortgage onwards||35 per cent|
There are slightly different rules for HDB and private property purchases. If you are purchasing an HDB flat, these LTV ratios apply for bank loan tenures up to 25 years. If you’re buying private property, it’s for tenures up to 30 years.
For HDB concessionary loans, the loan portion is up to 90 per cent.
Should your bank loan tenure be longer than that, or if your debt will eat into your retirement years (age 65 and up), the LTV ratio will be smaller so you can borrow less.
Property tax in Singapore
Property is a great asset to have in Singapore, but you will have to share some of your wealth with the state. Property is taxed differently depending on whether you are an owner-occupier (ie. you are living in the property being taxed) or not.
Note that property tax is charged on the ANNUAL value of your property. If you’re not sure what the annual value of yours is, you can check through the IRAS link provided. Or, do a quick check with MoneySmart’s property tax calculator.
For owner-occupiers, tax rates are as follows.
|Annual value ($)||Tax structure||Owner-occupier tax rate||Property tax payable|
|Up to $55,000||First $8,000||0 per cent||$0|
|Next $47,000||4 per cent||$1,880|
|$55,000 to $70,000||First $55,000||See above||$1,880|
|Next $15,000||6 per cent||$900|
|$70,000 to $85,000||First $70,000||See above||$2,780|
|Next $15,000||8 per cent||$1,200|
|$85,000 to $100,000||First $85,000||See above||$3,980|
|Next $15,000||10 per cent||$1,500|
|$100,000 to $115,000||First $100,000||See above||$5,480|
|Next $15,000||12 per cent||$1,800|
|$115,000 to $130,000||First $115,000||See above||$7,280|
|Next $15,000||14 per cent||$2,100|
|Above $130,000||First $130,000||See above||$9,380|
|Above $130,000||16 per cent||–|
Buying residential property solely as an investment with no intention of living there? You will be charged the following tax rates.
|Annual value ($)||Tax structure||Non-owner-occupier tax rate||Property tax payable|
|Up to $45,000||First $30,000||10 per cent||$3,000|
|Next $15,000||12 per cent||$1,800|
|$45,000 to $60,000||First $45,000||See above||$4,800|
|Next $15,000||14 per cent||$2,100|
|$60,000 to $75,000||First $60,000||See above||$6,900|
|Next $15,000||16 per cent||$2,400|
|$75,000 to $90,000||First $75,000||See above||$9,300|
|Next $15,000||18per cent||$2,700|
|Above $90,000||First $90,000||See above||$12,000|
|Above $90,000||20 per cent||–|
Non-residential properties like commercial (eg. offices) and industrial (eg. factory or warehouse space) are taxed at 10per cent of the annual value.
How to find property for sale
So, you’ve saved up enough cash and you’re ready to buy your first investment property. Before you dial that real estate agent’s number you found on Facebook, know that’s not the only way to find property. Here are some common ways Singapore buyers look for suitable properties.
Websites like the following contain property listings which have been posted by sellers or their agents:
- Singapore Expats’ Property section
Note that on online property portals, prices are almost always jacked up because the seller expects you to negotiate.
You can also find property listings the old-fashioned way, by looking through the classifieds section in the newspapers. However, as fewer and fewer people are advertising their properties in this way, the bulk of your research should still be done online.
If you’re looking for brand new property to purchase, you should scout out sales launches being held by developers, usually before construction on the property has even started. You’ll be able to look at models and mock-up images of the property.
The purchase process of uncompleted property is much longer than it is for completed or resale property, as you will pay in stages as the property is being built.
This also means you won’t be able to earn rental income for the property until it is fit for vacant possession, which might be years after you’ve made the downpayment.
These can a good place to pick up a good deal. All you have to do is find out where auctions are taking place, and then turn up in person to bid.
The sellers are usually either banks that have foreclosed on property, or sellers and developers who are trying to get rid of property fast.
There will be a few properties put up for auction at each event, and a reserve price will be set, indicating the lowest acceptable bid.
Make sure you do your price research before bidding on a property, as reserve prices are not always significantly lower than what you might find on the market.
The laziest way to find property is to hire a property agent to do the work for you. Agents can scout for properties according to your criteria and then ferry you around in their cars for viewings.
The main downside is that you’ll have to pay the agent commission, typically about 1per cent, if you are hiring them to act for you in your capacity as a buyer.
Note that agents are only allowed to collect commission from either the buyer or the seller. So if the agent is acting for the seller, you won’t have to pay commission, but he or she will only be able to show you properties being sold by his or her existing clients, rather than source for properties across the entire property market.
This article was first published in MoneySmart.