Buying investment property that you can rent out to earn rental income is a common
Singaporean dream. Many see this as a gateway to achieving early financial freedom or
creating a sustainable income stream in retirement.
Singaporean dream. Many see this as a gateway to achieving early financial freedom or
creating a sustainable income stream in retirement.
But there is another side to buying investment property and it can be a risky move that
can wreck your finances if you’re not prepared. Which is why, you need to first understand
the dynamics of the residential market, its various rules and regulations, and your
responsibility as a property owner before embarking to snap up property number two.
can wreck your finances if you’re not prepared. Which is why, you need to first understand
the dynamics of the residential market, its various rules and regulations, and your
responsibility as a property owner before embarking to snap up property number two.
For a start, here are 5 things you need to cover before you buy your second property in
Singapore:
Singapore:
1) Your eligibility to buy private property
Singaporeans who already own a HDB flat, DBSS flat or Executive Condominium must first
fulfil theMinimum Occupation Period (MOP) to be eligible to buy private property.
The MOP is five years and you will be required to stay in the flat throughout the duration
before you are allowed to purchase a private property.
fulfil theMinimum Occupation Period (MOP) to be eligible to buy private property.
The MOP is five years and you will be required to stay in the flat throughout the duration
before you are allowed to purchase a private property.
Meanwhile, permanent residents (PRs) will be required to sell their flat within six months of
acquiring private property.
acquiring private property.
However, those who currently own private property or a Housing and Urban Development
Company (HUDC) flat are not subject to such restrictions.
Company (HUDC) flat are not subject to such restrictions.
2) How much you can borrow for your second property
Banks assess your loan eligibility based mainly on the following criteria. They are:
i) Total debt servicing ratio (TDSR)
The TDSR dictates that the total loans you need to service in a month should not exceed
60% of your total gross monthly salary. This includes all types of loans, including property,
car loans, personal loans and even student loans.
60% of your total gross monthly salary. This includes all types of loans, including property,
car loans, personal loans and even student loans.
Specifically for loans taken from HDB or banks to purchase HDB flats, the monthly mortgage
repayment instalment cannot exceed 30% of a borrower’s gross monthly income.
repayment instalment cannot exceed 30% of a borrower’s gross monthly income.
i) Loan-to-value (LTV) ratio
When you’re buying your first home, you are eligible to borrow up to 80% to 90% of the
property value, depending on whether you are taking a HDB or bank loan.
property value, depending on whether you are taking a HDB or bank loan.
But when you buy your second property, your loan-to-value (LTV) ratio drops to 50%, for
loan tenures up to 30 years. If the loan tenure stretches beyond 30 years or
your 65th birthday, your LTV drops to 30%.
loan tenures up to 30 years. If the loan tenure stretches beyond 30 years or
your 65th birthday, your LTV drops to 30%.
The fact of the matter is, even if you are eligible for a bigger loan, don’t take it up unless
you are certain that you have sufficient holding power to weather any fluctuations in property
prices and rental demandbefore making a purchase.
you are certain that you have sufficient holding power to weather any fluctuations in property
prices and rental demandbefore making a purchase.
Holding power is, after all, one of the most crucial aspects in property investing. In a previous
study, we found that the average holding period for profitable sales transactions with
annualised returns of 6% and above was 10.7 years.
study, we found that the average holding period for profitable sales transactions with
annualised returns of 6% and above was 10.7 years.
3) The minimum cash down payment
When you buy your first home, you are required to pay up to 5% down payment in cash if you
use a bank loan. For your second property, you will need to pay up to 25% of your property’s
down payment in cash.
use a bank loan. For your second property, you will need to pay up to 25% of your property’s
down payment in cash.
This will be measured against the property’s valuation limit, which is determined by the
property value or purchase price, whichever is lower.
property value or purchase price, whichever is lower.
4) The Additional Buyer’s Stamp Duty (ABSD) you need to pay
In addition to higher cash down payment and a lower LTV, Singaporeans will now have to
pay a 7% ABSD on either the property value or purchase price of a second residential
property (whichever is higher). PRs pay 10% ABSD for a second residential property,
while foreigners cap off at 15%.
pay a 7% ABSD on either the property value or purchase price of a second residential
property (whichever is higher). PRs pay 10% ABSD for a second residential property,
while foreigners cap off at 15%.
Below are the various ABSD rates for buyers of different profiles and depending on the
number of properties they own:
number of properties they own:
i) Singapore Citizens
1st residential property: Nil
2nd residential property: 7%
3rd and subsequent residential property: 10%
ii) Singapore Permanent Residents
1st residential property: 5%
2nd and subsequent residential property: 10%
iii) Foreigners
1st residential property onwards: 15%
5) Using your CPF to buy a second property
It is possible to use your CPF to buy a second property. However, if you have already used
your CPF for you first property, you can only use the excess CPF Ordinary Account savings
for your second property after setting aside the current Basic Retirement Scheme (BRS).
your CPF for you first property, you can only use the excess CPF Ordinary Account savings
for your second property after setting aside the current Basic Retirement Scheme (BRS).
As mentioned, your loan-to-value (LTV) drops to 50% when you purchase your second
property. This means you will need to fork out 50% in down payment, of which 25% must
be in cash. Here, you have the option of paying the next 25% of your down payment in
either cash or using your CPF monies.
property. This means you will need to fork out 50% in down payment, of which 25% must
be in cash. Here, you have the option of paying the next 25% of your down payment in
either cash or using your CPF monies.
However, there is a limit on the amount of CPF savings you can use to buy private residential
properties. This limit is determined by a couple of things:
properties. This limit is determined by a couple of things:
i) Valuation Limit (VL), which is the purchase price or the value of the private property at the
time of purchase, whichever is lower. And;
time of purchase, whichever is lower. And;
ii) Withdrawal Limit (WL), which is at 120% of the VL. This is the maximum amount of CPF you
can use for the private property. Once you have reached the Withdrawal Limit, you will not be
allowed to use further CPF savings, and you will need to pay the remaining home loan in cash.
can use for the private property. Once you have reached the Withdrawal Limit, you will not be
allowed to use further CPF savings, and you will need to pay the remaining home loan in cash.
Find out more about how you can you use CPF for your property purchase with our
guide to using CPF for private residential properties.
guide to using CPF for private residential properties.
Source: EdgeProp