Buying a Second Property
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Are you planning to purchase a second property in Singapore? Learn more about Singapore’s housing rules, finance options, eligibility, and ABSD rates here.
Singapore is one of the leading countries in the world with a substantial international population. The numbers speak volumes, making investment opportunities like owning a second property in Singapore lucrative and overwhelmingly tempting.
However, buying your second property involves tough decisions, and you will have to consider various factors before taking the big step. Thankfully, you won’t have to worry anymore as this article will answer all your questions and help you understand Singapore’s housing rules to make the right decision.
Things you need to know before buying a second property
Purchasing a separate property increases financial freedom and creates a steady income stream. However, you have to evaluate and understand residential market dynamics before picking a property for investment.
Here are the things you need to know before buying a second property.
Before buying a second property, you must meet the Singapore Permanent Resident’s eligibility requirements. For instance, if your current property is a Housing Development Board or HDB flat, you cannot sell or rent the house until you surpass the minimum occupation period.
Likewise, permanent Singapore citizens cannot own two Housing Development Board flats. However, they can buy a second property from private housing developers after fulfilling the terms that they will sell your current HDB flat within 6 months.
Thankfully, this condition does not apply to Singapore permanent residents who own a private house as their first property.
2. Finance options
Private housing prices can be daunting and may break your bank. Thankfully, banks offer loans based on your gross monthly income. Banks calculate repayment installments on two criteria – Total debt servicing ratio (TDSR) and Loan-to-value (LTV).
Under TDSR, a burrower’s monthly installment should be under 60% of his gross monthly salary. This condition narrows down further to 30% if you purchase HDB flats.
On the other hand, LTV is the ratio you can secure loans for your second property. For instance, the LTV rate for the second property in Singapore is 50%, which further plummets to 30% if you stretch your repayment period beyond 30 years.
3. Minimum cash for downpayment
The down payment for your second property is very different compared to your first property. For instance, you may have to pay up to 25% of the down payment according to your second property’s valuation limit.
Although you can use bank loans to make the payment, you will have to evaluate the property price, value, and time of purchase before investing.
4. CPF savings
Property purchase can take a toll on your bank balance, and many people may discard the idea of buying a second property. Thankfully, you can use your CPF funds to pay your down payment. However, you will have to maintain the Basic Retirement Sum in your Central Provident Fund account before using this method for housing loans.
5. ABSD or Additional Buyer’s Stamp Duty
The applicable ABSD rates differ for different clients in Singapore. For instance, Singapore permanent residents will have to pay 5% ABSD for their first property, which increases to 15% for their second property. Likewise, foreigners will have to pay 20% ABSD to purchase units of housing accommodation properties.
The aggregate ABSD rate for corporations and companies is over 25% when purchasing property in Singapore.
How to choose a second property?
Since Singaporean citizens cannot own two HDB flats, they have to look for a condominium unit as their second property. They also have to ensure that they complete the minimum occupancy period before purchasing a property from the private housing market and sell their current HBD flat within 6 months in order to get a absd remission.
In short, you will have to evaluate your investment plan and the buyer Singapore permanent residents housing rules to get the best results. Here are the things you need to consider before choosing your second property.
Many people purchase a second property to fulfill their personal needs. For instance, a terrace house can become the ideal abode for people who have spent most of their lives in close HBD flats. Likewise, others purchase a second property because it allows convenient access to their offices or schools.
In short, it would be best to evaluate personal requirements before choosing your second property.
The soaring rental rate environment makes residential units perfect for investment as you can turn them into a profitable income source. For instance, a semi-detached house will make an ideal income source as they are cheaper than other units.
Likewise, you can also purchase properties in high-traffic areas for long-term income or mortgage rates.
How much do you need to buy a second property in Singapore?
If you assume the price for 1 bedroom to be SGD 750,000, your total cash requirement after 10% stamp duty rates and 25% down payment will be around SGD 257,100.
Likewise, loans sanctioned to Singapore permanent residents will be for 30 years with a 1.7% interest rate. Although permanent residents can get up to a 50% Loan-to-value rate, it can decrease to 30% if you stretch your repayment period.
However, these calculations are just estimates, and the actual cost can differ in the final draft. In short, it would be best to use cash proceeds calculators to evaluate and determine to get accurate estimates.
How much minimum cash down payment needs for the 2nd-time buyer in Singapore?
The subject property rates can differ while purchasing a second or third property. Likewise, down payments can alter based on property value and price and depend primarily on the valuation rate for entities.
For instance, you may have to pay up to 25% down payment in cash based on the purchase price and property value.
Considerations before buying a second property
Besides evaluating property dynamics like applicable ABSD rates, financial requirements, or even direct cash discount principles, buyers must identify their intentions before buying a second property.
For instance, purchasing a second property can increase your financial responsibility if you don’t plan your investment. On the other hand, well-researched planning can increase returns and help you get the most out of your investment.
In short, miscalculations can lead to financial consequences, and it would be best to consult a professional before investing.
Here are some additional factors you need to consider before buying a second property in Singapore.
- Consult with a financial advisor about ABSD and LTV rates.
- Ensure that you have the resources to repay the loan within the stipulated repayment time to avoid additional non-remittable ABSD rate figures.
- Complete the minimum occupation period if you have an HDB flat. Remember, the MOP period starts after you get the keys officially and not from the day you chose your flat.
- Repay your HDB loan first before purchasing a second property. Although it is not compulsory, it is undoubtedly worth considering.
- Use your CPF account to pay the loan to avoid financial consequences.
3 questions to ask before buying your second residential property
If you purchase a second property for residential purposes, you will have to identify your requirements before investing. For instance, the business of housing development in Singapore abides by property legislation, which can hinder your investment dreams.
In short, you may be looking at a situation where you won’t even have the money to purchase your second property. So it would be best to understand your property requirements to make a well-informed decision.
Here are the 3 questions you need to ask before buying your second residential property.
1. Which property type will fit your requirement?
Since Singapore’s housing sector has various categories, you will have to understand each category’s course of action and requirements before investing.
For instance, public housing divides HDB flats into several sub-categories, including executive condominiums, DBSS flats, and HUDC flats. Since Singapore’s housing board does not allow an individual to own 2 HDB flats, you will have to adhere to Singapore’s public housing rules for HDB flats.
Likewise, cluster houses, shop houses, and bungalows fall under the private housing category and require different requirements for the purchase and sale of housing units.
Here are the requirements you need to fulfill for public and private housing properties.
- Ensure that you have completed the MOP period for your first property
- Check whether your flat adheres to the Ethnic Integration Policy
- Sell your first HDB flat within 6 months
- Ensure that you adhere to Housing Development Board’s eligibility schemes
- Your application must contain 1 Singaporean citizen
- Your age should be 21 or above
- Ensure that you have enough money to avoid financial consequences
2. Why are you buying a second property?
Purchasing a second property can relate to two things – You are buying the property for residential purposes or as an investment opportunity. While these purchasing decisions are fruitful, you will have to understand some basic rules to get the best results.
As an investment
- Understanding the location and type of tenants your property will attract is one of the most significant aspects of choosing a second property as an investment. It will help you plan well and gain you profit in the long run.
- Ensure that your rental rate is more than your loan installments to get more out of your investment.
- Amenities like transport, shopping centers, and other developments surrounding your second property can fetch you more rent.
- Check for upcoming developments around your targeted property before investing.
As a residence
- Planning your second property around your office or child’s school can help you a lot as it can save money in the long run.
- Although not mandatory, buying a second property near transport networks or other amenities will make your property future-proof. In short, it would be best to consider amenities or upcoming developments before purchasing your second property.
3. Can you afford it?
Although you may think that your second property is well within your financial reach, you have to evaluate and understand various underlying costs before investing.
Factors like ABSD, Loan-to-value ratio, minimum down payment, TDSR, and property tax can escalate your investment, hindering your dream of purchasing your second property. In short, it would be best to understand these factors and consult a property expert before making a purchase.
Strategies for buying a second property in Singapore
Since Singapore is a leading market for property investment, many people consider it a lucrative option for steady income. However, property investment is not an easy feat, and you will have to follow various strategies to get the best results.
Here are the three best strategies for buying a second property in Singapore.
Flipping properties or buying and selling houses is one of the best strategies to boost your profits. The primary goal behind this technique is to keep an eye on market trends and invest in properties that can offer substantial earnings in the long run.
For instance, buying a flawed house and restoring it can increase the value, making substantial profits for the seller. Likewise, waiting for capital appreciation and selling a home when the value increases is an excellent sub-strategy under flipping properties.
You can also use the Option to Purchase technique to secure a bid and transfer the property to a higher bidder to make more profits. However, flipping properties also have some caveats as you have to rely on market trends and sell your property quickly to avoid additional charges.
Renting out properties
As mentioned earlier, renting out properties ensures a steady monthly income, alluring many people to buy multiple properties. Although property investment for rental purposes is lucrative, you will have to consider some factors before investing.
Here are the steps you can follow to get the most out of your rental property.
- Consult a property expert to evaluate property requirements.
- Calculate your rental rates and ensure that they are more than your loan repayment installments.
- Ensure that your property is at an ideal location to generate more revenue in the long run.
- Advertise your property to find quality tenants
- Ensure that you keep extra money for maintenance and repair works.
Invest in Real Estate Investment Trusts (REITs)
Property investment often concludes with paying substantial amounts as down payments, which can be daunting for many buyers. However, investing in REITs can help you manage costs and earn regular rental yields in the long run.
Additionally, you can enjoy passive returns over a sustained period or sell your REIT whenever you want. Furthermore, Singapore does not charge tax on REIT dividends, making it a lucrative option for investors.
However, you cannot control REIT performance or returns and will have to pay additional charges if you want a professionally-managed REIT investment.
Is it worth buying a second property?
Although buying a second property as an investment can generate profits in the long run, a recent study by the Singapore bank revealed otherwise. The research indicates that the growth rate plummeted over the past decade against other investment options.
The research further added that people consider other investment options to attain their financial goals instead of buying second properties. However, the study concluded that property investment remains a stable asset, and with upcoming developments slated in the future, property investment will gradually rise.
In short, buying a second property is still a worthy consideration if you have the resources.
Is it possible to use your CPF to buy a second property?
Yes, you can use CPF to buy a second property. However, you have to understand some principles about your CPF account before using it for property investment.
- Your CPF account will limit access if you have used it for your primary property.
- Your CPF account will check the valuation limit before deciding the amount used for financing private residential properties.
- There is a withdrawal limit on your CPF account.
How to avoid ABSD when buying a second property in Singapore?
Questions regarding Additional Buyer’s Stamp Duty like ABSD rate increase why and how you can avoid ABSD is standard on the internet. While ABSD is eminent for property owners, there are ways you can prevent it using some strategies.
Decoupling is the process of selling shares between co-owners. For instance, you can buy a property as a co-owner and sell your stake to the other owner, making him the sole owner of your property.
This process will allow you to buy a second property without paying ABSD, as it will become your first property. However, you will have to evaluate factors like decoupling cost and ownership transfer to avoid ABSD.
You can also buy properties under your child’s name or as an industrial investment to avoid ABSD. However, you will have to pay the levies in cash as you won’t get loans for property trusts.
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