Buying your Second Property in Singapore
After you bought your first property and followed all the procedure for buying a private property in Singapore, you might feel really confident with real estate investments, since when you bought your first condo you researched the market very well. However, even if you did an extensive research on the market and determined that it is the time to buy there might be a few things you are leaving behind.
Buying your second property is actually very different from buying your first one, as there are substantial differences on the laws, down payments and taxes, so you have to be careful and make sure you meet every requisite before diving into this new area.
Buying private condos for sale in Singapore to use as investments is a tempting business but you have to know how to move through that sea full of sharks. Knowing which private properties for sale in Singapore might be seen as bad investments and have delays is going to be a useful tool to get the most out of your second property in Singapore.
Here I will give you a step to step process to help you navigate the ferocious sea of the real estate market in Singapore, specifically regarding the topic about the rules for buying a private property in Singapore as a second house as many people have had a hard time finding information about this process and this often times lead to trouble and delay during the purchase.
The first thing you should do before even thinking about buying a second property in Singapore is
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Figure the purpose intended for your second property
There’s nothing more wasteful than buying something just for the sake of buying, without having any purpose intended for that. Just as you might buy a pair of shoes just for the sake of having it, some people waste money buying a house in Singapore just for the sake of having one, which is a waste of time and should never be your aim as a smart investor.
Buying every house for sale in Singapore just because as we said before “It is the time to buy” isn’t a viable option either if you consider yourself a careful investor, this is because by just buying everything you might be able to get some good properties, but you will for sure get a lot of bad properties that nobody else wants. In time this will of course turn into a terrible investment and you will lose your hard earned money.
Depending on your income, quality of life, debts and a wide array of reasons you should ask yourself what’s your intention for your second property. Do you want it to rent it? Do you want it as a vacation home? Or maybe you want it to renovate and resell? Asking yourself these questions is a key point when determining which type of property you can get that better suits your needs for the intended purpose.
To help you understand better what we are talking about, we will break down the questions above, for example, If your intention is to buy a Singapore property for the sole reason investing, you are going to have to be much more careful when selecting a property for sale in Singapore, as you will need to take more into consideration your choice of location and property size to accommodate to the needs of potential tenants in that particular area.
An example for this is that if there are more singles renting properties in District 9 area than big families, your chances of renting out your property in the area will be greatly increased if you were to buy a smaller unit that suits all their needs rather than buying a property in Singapore with more than 3 bedrooms.
If you plan to buy a foreign property as a vacation home you should also ask yourself some questions to determine the best course of action, for example, do you intend to rent it out while you are not in it? This means renting for almost the whole year while you are not on vacation, thinking about that, how would you manage the property remotely?
As you can see there are a lot of subjects to take into consideration depending on what your intentions are for the property, having the right tools will certainly increase your chances on being successful with the buy regardless of the intention you have for the property.
After you have meditated long enough, and took notes about the purpose of your new unit it is time to move forward to the next step, which might seem very familiar.
Figure out if you can afford it
Having several properties can be a great investment, but as you can clearly see it’s not a cheap one and can represent a financial burden if it’s not done carefully.
Because of the current banking regulation in Singapore, you can only take a second home loan for up to 50% of the purchase price or market valuation of the second property, which is the max loan for second .z if you still have outstanding loan from your first property.
To ensure your second home loan eligibility, you have make sure that the loan tenure does not exceed 30 years and that the sum of the loan tenure and age of borrower at the time of applying does not extend beyond retirement age of 65 years if you want to get the second property loan. This will also be subjected to the Total Debt Servicing Ratio (TDSR) framework.
Besides all above, you need to pay the first 25% strictly by cash, while you can choose to pay either by cash or CPF for the next 25%. In fewer words, you will have to pay a set upfront cash payment of $250,000 for any property priced at $1 million.
Furthermore, you can only use your CPF to make the payment after you have set aside $77,500, which is half of the prevailing CPF minimum sum in your CPF Ordinary Account and Special Account (the other half can be in the form of a pledge from a property purchased with CPF savings).
This means that, unless you have plenty of spare cash at hand, the buying a condominium in Singapore as a second property when you still have outstanding housing loan from your first house, will definitely take a large amount of money from your savings.
But wait, there’s more…
The majority of the investors choose to rent out their second property to offset the mortgage and get some money on the side which would be their return on investment, this means that you as an investor will need to charge at least as much as your monthly housing loan payment.
But there’s a catch to this, you have to make sure that the current rate for rental homes in your area are lower than your monthly payment, if you don’t check this, you might end up having to pay part of the mortgage from your own money.
This of course would be another expense for you, and if you didn’t take it into consideration it will certainly mean financial problems.
You have to ask yourself if you are going to be able to pay the mortgage yourself for at least 2 years in the scenario that what we described above happened to you. If you can’t, it is better for you to wait before purchasing a second property in Singapore.
Consulting a banker to do a loan assessment before qualifying for a second home loan and making sure to verify if there are any new rules for buying a property in Singapore before you make any purchase is a great idea that will most likely save you a lot of trouble. It will also help you determine the amount of money your rental needs to produce in order to offset your monthly payment, which gives you a clear direction to take when looking for a property
If you plan accordingly and seek financial advice you can own 2 properties or even more without it being a financial burden, which means you will enjoy the benefits of a great investment.
A few more steps have to be followed now that you have figured your intent for the second property, done your thorough research and found out if you can afford buying a second property in Singapore.
Next up, you will have to…
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Gather information on the housing rules
Finding out about the pertinent laws and regulations that allow you to buy a private condo in Singapore is of utmost important as if you don’t, and you go through the whole process of buying, you might find out at the end that you might not meet the requisites and your requests will be rejected. Knowing the laws and housing rules for buying a property in Singapore give you an advantage when investing as you will be able to plan ahead and will be less prone to having to delay or change your plans because of an unexpected event.
Diving a bit more into the subject, what you should do before even starting to look for properties to research is to check the latest Monetary Authority of Singapore (MAS) Housing Rules.
You should take into consideration that buying a second property in Singapore is bounded by qualifications especially for those who already own HDB flats or Executive Condominiums. Knowing and understanding the MAS housing rules, will allow you to determine whether or not you are qualified for purchasing a private property in Singapore as your second property. You don’t want to go through the whole process only to find out you are not eligible.
By doing your research on the MAS housing rules, you will find out useful data that will help you along the way of the purchase of your second property, such as your eligibility, your down payment, your Loan-to-Value (LTV) ratio, your Additional Buyer’s Stamp Duty (ADSD), and your Central Provident Fund (CPF) withdrawal limit.
Now that we have mentioned the most important information that you should obtain before trying to buy a second property in Singapore, we will dive a bit into each one of them in order to provide you with the best information in order facilitate your journey through this process.
As we mentioned before you should
Find out about your eligibility status
First, you should know that depending on the type of property you own, different rules apply to you, so for example, if you currently own a HDB flat or an Executive Condo, different rules apply to you than to those that live in a private apartment.
Explaining a little bit further, if you live in a HDB flat or an Executive Condominium you should meet the Minimum Occupancy Period (MOP) of 5 years before you are allowed to purchase another property.
If you are a Permanent Resident (you moved to Singapore and reside there) who owns an HDB apartment, and you are planning to buy a second property, you must first dispose of the existing HDB flat within 6 months of purchase of the new property, this means you should be able to get rid of that flat in that period of time by selling it if you want your requests to be accepted for the new purchase.
On the other hand, if you are a Singapore Citizen planning to buy a private residential property, you don’t need to get rid of your EC or HDB flat, instead you just need to meet the Minimum Occupancy Period.
For those who own a private property and have plans to get another Executive Condo or HDB flat, the rules are a bit different, as you need to dispose of your private property within 6 months of purchase of the new property.
Now that you already know the housing rules and you made sure you are eligible to purchase a second property, you are ready to buy, right? No, you should research a few more subjects first to be 100% sure you are able to complete the purchase.
You should know that
Information about the second property down payment in Singapore is a must
Why is this must? Simply because the rules for the down payment for buying a condo in Singapore for the first and the second time purchases are incredibly different, and this might confuse you if you go right into the purchase without doing your due research.
Let’s talk a bit about the differences between the first and the second property down payment in Singapore
When you compare the required down payment for private properties in Singapore the first and the second time, there is a huge difference between them at the time of the second property purchase. On your first purchase you are required to deliver at least a 5% cash down payment, while on your second purchase things change a lot.
Purchasing a second property in Singapore obliges you to pay at least a 25% down payment of the property’s valuation limit in full cash up front. A 20% difference is definitely significant and you have to think several times before you decide to fulfill this payment.
As you can see the down payment for buying a private property in Singapore varies by taking into consideration how many properties you own, because of this, there are a lot of numbers to take into consideration before buying a second private residential property in Singapore in order to keep our finances safe.
Another thing you have to learn before deciding to look for a Singapore private condominium for sale and invest in them is that
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Loan to value ratio is something you should definitely know about
Loan to Value or LTV is a term used to describe the amount of money a bank or any financial institution is willing to offer as a loan for any potential home buyers, specifically your second house loan. In simpler words, the LTV is an assessment the institution does before approving your mortgage.
Something that you should know about the LTV is that it can range from 80-90% on your first property purchase, but for buying your second private property in Singapore,
New LTV kick in on 6th July 2018.
Please view the table below for changes
For second property The loan To Valuation changed from 50% to 45%
Therefore, you will have to fork out additional 5% in cash or CPF.
The minimum cash downpayment remains the same at 25% After the first 25% cash downpayment, previously you will only add another 25% in cash or CPF before the loans kicks in.
Now you will have to pay another 30% in cash / CPF and only take a loan of up to 45% for your second property purchase.
Additional buyer’s stamp duty, something to take into account
When you are buying a property, as we told you on the “Buying a Condominium in Singapore in 2018” article, you should always take into consideration the stamp duty costs, as it is a determining factor when deciding from which company you are buying your residential property in Singapore and it can mean the difference between getting your purchase delayed or not.
On 6th July 2018 ABSD has increased.
Please view the table below for the updates.
If you plan to acquire a second residential property for sale in Singapore; the amount you need to pay for Additional Buyer Stamp Duty as a Singapore Citizen is 12% of the property price, as a Permanent Resident the price of the ABSD raises to 15%.
Furthermore, foreign investors have to pay a huge 20% ABSD regardless of subsequent property purchases.
You should remember that the ABSD is paid on top of the Buyer’s Stamp Duty, as the A stands for Additional.
Now getting into the next step, you should always
Get information about the property taxes
You might be familiar with calculating your property tax by now. When buying your second property, the tax scheme is not very different from what you had to pay when you bought your first home, yet there are some things you have to take into consideration if your intent is to rent your second property.
If you want to rent out your second property, you’ll need to pay a 10% flat tax on the annual value of your second property, this is basically the only difference between your first and second purchase regarding this subject, but it is worth mentioning in order to save you trouble when renting out the property.
There is one more thing you need to know if you wish to rent your second property.
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If you wish to rent, do your research about the rental rates
Previous to stating the price you intend to rent your unit for, you should investigate what the current rental rate is for the properties in the area you bought. It is ideal that your rental rate covers and exceeds your monthly loan repayments, this way you can get out of debt and have a little money on de side as profits.
The best way to determine your rental rate is by using your monthly repayment as a starting point, this is something to take into consideration before even buying the property, because if you buy a property with a rental rate that is lower than the monthly repayment, you will be losing money until your second loan is paid off.
20% over the monthly repayment amount, is a great rental rate as it will allow you to have enough profit while repaying your debt, lower than that will have you tight in money and higher than that is a bit unrealistic.
You should always aim to protect yourself and your investments, which is why you should have enough money to cover at least 2 months of vacancy.
Evaluate your total Debt Servicing Ratio
The Seller Stamp Duty (SSD) is a tax imposed for selling your property, within a certain time period of buying it. The seller stamp duty applies for commercial properties in Singapore too.
I was introduced by the government as a cooling measure for the property market, much like the ABSD.
Seller Stamp duty for private properties and for commercial ones, work similarly, this means that SSD is one of the few taxes that works almost the same way for most types of properties.
In order to make sure you don’t over expend and keep your finances healthy, it is a smart decision to check your Total Debt Servicing Ratio or TDSR before finalizing the purchase of your second property.
The TDSR is determined by the sum of your total liabilities (like car loan, credit card, student loan, etc.) divided by your gross monthly income.
Once you obtain this ratio, you will be able to measure how much of your income is used to pay off debts.
You should aim to have a TDSR of around 30-40%, anything over 50% is considered excessive.
If your TDSR gives a value of over 50%, you should consider give up buying a second private apartment in Singapore, as the risk of losing both properties is incredibly high.
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Can I get a second home loan? Learn about the best interest ratio
We taught you about the different home loans and the rates before. Now that you have your first property and are aiming for a second one, you should be able to utilize this knowledge to determine the best home loan for your second home and the best interest rates for you.
For example, upon getting a second home loan, you have to take into consideration that the property market is never static, so a fixed SIBOR rate might be the best choice today, but 5 years down the road, a floating SOR rate may offer the best loan rate.
There is only one way to stay updated with the latest home loan interest rates and that is to contact the banks you are interested on and find out what their current home loan interest rates are for a second house loan in Singapore.
CPF to fund your second property
As the last tip for buying a private property in Singapore as your second home, you should know that you can use your CPF to fund your second property purchase.
The Multiple Property Rule indicates that you are allowed to utilize your Central Provident Fund to finance your second property.
For your second property purchase, you can use the excess savings in your Ordinary Account (OA) after you have met the Basic Retirement Sum or BRS.
In simple words you can use your CPF to pay down your second property IF you have already saved enough money for your retirement.
Now, with all this information, you should be able to determine whether it is a good idea for you to buy a second property or not.
I have provided you with the right tools to assess every situation and plan ahead to avoid any trouble when buying your second unit.
As you can see buying a second property has a lot of similarities with the first one but it also has huge difference that are worth studying as they might determine your future on the purchase of a second property.
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