There are many reasons why Singapore is ideal for investors looking for properties to invest in. The stable government, favourable tax, location, and the people in the country are just a few of these reasons. Buying your first property in Singapore or elsewhere is a massive undertaking that requires that you be prepared financially and mentally. Regardless, we discuss a few considerations you need to keep in mind to ensure success in your investment endeavour in Singapore.
Other Mortgages You Have
You should not buy a second property if you have not paid off your mortgage on the first property. There are exceptions to this rule, but none of them improves your prospects much. The reason is the Loan to Value (LTV) ratio.
The LTV ratio is the amount a lender will give you if you decide to borrow to buy property. For HDB loans, it can be as high as 90% while for bank loans it is about 80%. If you have an unfinished mortgage repayment, the LTV can fall to about 60% since the lender will not want to take a huge risk on you.
Unless you have the 40% to put down as the deposit, you will not be able to invest in that property. Even if you do, you will end up owing two lenders instead of one or taking a lot of money out of pocket that you would have used to diversify your investments. This is terrible from both an investment and financial planning perspective.
How You Will finance the Investment
If you have the financial muscle, nothing is stopping you from buying property in cash in Singapore, especially if you are buying a resale HDB flat. This is because buying these properties is straightforward as the process involves you and the seller.
However, most people choose to finance their investments using a bank or HDB loan. A bank loan applies for different types of properties including HDB flats and private properties. This makes them great for investors who want a diversified portfolio.
An HDB loan is a great option for those looking to invest in HDB flats. They finance up to 90% of the purchase meaning that you only have to put down a 10% deposit. Before you can apply for these loans though, you need an HDB loan eligibility (HLE) letter.
The HDB HLE sets certain criteria that have to be met before you can invest in these types of properties. Some of these criteria include citizenship provisions, income ceilings, precious HDB loans, property ownership, remaining lease period, and more.
To better understand how the HDB HLE works and the criteria it spells out, PropertyGuru has a detailed write-up on the subject. Once you get your HDB HLE, you can check out the different types of properties available for purchase on the platform. You can also talk to one of the real estate agents on PropertyGuru to help you find the perfect property.
You Should Be Ready to Handle Taxes
In Singapore, you need to think about the Additional Buyer’s Stamp Duty (ABSD) and the Buyer’s Stamp Duty. The Buyer’s stamp duty is a tax paid for documents used to lease, buy, or sell properties to be approved by the government. The ABSD is an additional tax on top of that.
The ABSD is calculated using the selling price of a property. This tax applies to citizens, permanent residents, foreigners, companies, and associations. You are likely to fall in the last three categories if you invest in Singapore from outside the country.
For foreign investors and companies, the tax can be as high as 35% for each property. Because the ABSD is paid on the sale of a property, it is not something to worry about in the long term. What you need to be concerned about is the BSD that is paid on each contractual renewal.
If you buy properties that are in development to see when they are complete, you also have to deal with Seller’s Stamp Duty (SSD) in addition to the tax you need to pay if you sell a property within three years of buying it.
You Need to Know How to Assess Property
As an investor, you want to buy property that will be easy to sell or rent without incurring too much additional cost. You need to be able to assess property and see its potential and pitfalls before buying. For example, some resale HDB flats require some renovation. Will you notice this and are you willing to pay for it? Will proximity to a train station help if most of your residents will own cars? These are just some of the few things you need to think about and assess before you make an offer.
Investing in property in Singapore is a great option, but you need to understand how to do it right so you can get a good return. You also need to have your finances in order to make the process easier.