Discover 11 Helpful Tips for Buying an Older Condo : A Comprehensive Guide for Buyers
By 2023, the high prices of newly launched properties at an average of $2,000 psf had priced out many aspiring...
Read More
Considering an upgrade from HDB to private property brings forth many dilemmas and questions. What is the purchasing process like? Is this a safe investment? What other factors should you take into account? To make the best decision, read on to find out the fundamentals to consider when deciding whether to move or not.
Gaining Insights into Singapore’s Real Estate Landscape
As a family’s income increases, it seems the more likely they are to relocate to private properties. Setting income ceilings may act as a stimulus for high-earning households to transition from HDB flats to other residences.
Investment prospects for private homes also serve as a viable motivation for some to move up the Singaporean property ladder, as there are several key distinctions between HDB and private housing.
The Singapore government provides grants and subsidies to encourage essential home ownership through the purchase of BTO and resale flats. HDBs are designed for the owner’s occupancy, however, the equity of an HDB flat cannot be withdrawn unless the property is sold – so if you purchase a BTO for $450k and it appreciates to $750k after five years, the paper gain of $300k will remain trapped.
On the other hand, private property owners can take out an equity term loan to access the value of their property when it appreciates.
For property owners looking to generate a steady passive income, renting out a room or entire unit is a popular option. HDB flats under the Home Ownership Scheme are generally intended for owners to stay in, however, one may rent out a flat or room with HDB approval.
Private property owners have fewer restrictions when it comes to renting out, so if you’re thinking of taking advantage of this, it’s definitely something you should consider.
Acknowledging the Costs and Expenses of Transaction and Ownership
Let us gain a clearer picture of the costs and expenses associated with a private property by examining the following summary table of initial costs.
Initial Cost of a Private Property
Prospective buyers must sign an Option to Purchase agreement to ‘reserve’ the property from the seller. By paying a booking fee (an Option Fee), they are guaranteed that the seller won’t sell the property to another party during the duration stated in the agreement.
The Option Fee to obtain and exercise the OTP is usually 1% & 4% of the purchase price respectively, depending on the buyer and seller agreement.
In Singapore, when purchasing a property, Buyers are required to pay Buyer’s Stamp Duty (BSD) tax, which is calculated based on the highest value between the purchase price and the valuation of the property.
Furthermore, an Additional Buyer’s Stamp Duty (ABSD) is then levied on top of the BSD, at a different rate. In order to find out the market value of the property, Buyers must then pay a valuation fee to a professional appraiser.
When it comes to buying a property, the cost doesn’t end at the purchase price. Other expenses to keep in mind include legal fees for lawyers, title searches, mortgage stamping fees, and Cash over Valuation (COV), which is the difference between the selling price and the property valuation.
Here’s a summary of what you need to know:
Initial Cost of Purchasing a Property
Owning property comes with the responsibility of paying property tax, no matter if the property is inhabited, leased out, or unoccupied. The amount is determined by the Annual Value (AV) of the property—essentially the expected annual rent of the property—times the designated property tax rate.
For those looking to purchase a condominium, there will likely be an ongoing monthly fee to cover the maintenance of the complex.
To transfer the risk and anxiety of unforeseen events, such as a fire, to a third party, obtaining insurance is necessary. Often, the lender requiring the asset to be financed will also require the property to be insured. Some banks even have a partner insurance provider that you can purchase from. If a third-party insurer is used, the bank may require an annual administrative fee.
With private properties not being able to access housing grants, subsidies, and HDB loans, what ways are there for owners to finance their purchase?
Financing a Private Property
Funding your dream home requires an understanding of both debt and equity financing, for oftentimes, a blend of the two is necessary to cover the upfront payments of a property.
Borrowing from an outside source, like a bank, to purchase property is known as debt financing. Depending on factors such as Loan-to-Value and Total Debt Servicing Ratio, the amount that can be borrowed can be determined.
Loans typically span 30-35 years in repayment. On the other hand, equity financing requires the use of existing assets to purchase the property, without any repayment necessary.
Any fees such as Option Fees, Legal Fees, and Valuation Fees are to be paid out of pocket.
Planning Your Timeline
Buying real estate is one of the biggest and longest-term investments one can make. Even if you’re planning on living in the property, it’s important to have a set timeline in mind to help you out with your future finances.
As you mark the timeline of your life, take a moment to consider your and your spouse’s current age and forecast when your lifestyle may be subject to change. This could be when your children are in university, embarking on a career, or getting ready for marriage. Until then, strive to pay off your loan and move into your own private property. When that point arrives, you might choose to divest and put your private property up for sale, then move back into an HDB flat.
We only have a limited amount of time to invest in private residential properties; the years that give the greatest potential for increased income and long-term loans span from 20 to 40 years old. If you choose to enter the private property market at a later date, you can expect a more sizeable monthly mortgage.
Person A, at the age of 35, is able to take advantage of the full 30-year loan term when investing in a $1.5 million property. Conversely, Person B, at age 55, is limited to a maximum loan period of 10 years.
Despite both parties being granted a 75% loan with a 1.4% interest rate, Person B is still left with a larger monthly repayment amount.
We can see a significant contrast between the two monthly payments; starting a real estate investment early may be less stressful than entering later and dealing with a more expensive instalment.
What Does 2030 Hold?
Projections from Singapore’s 2013 Population White Paper reveal that by 2030, the ratio of Singaporeans to foreigners will reach parity.
To gain an insight into potential housing requirements, we summarised the purchasing eligibility of various groups in the table below.
Eligibility of Different Purchase Groups
Surveying the entire landscape, Singaporean citizens largely possess the exclusive right to purchase landed properties and HDBs. Permanent residents and foreigners, on the other hand, face certain limitations in this regard. Fortunately, one type of real estate is available to all: condominiums and apartments.
Despite the fact that some individuals or groups may not be able to afford to purchase a private property, the limited availability and potential high demand may still be a factor in your decision-making.
By applying the basic economic principle of demand and supply, the value of private properties may increase more quickly.
As you take the next step, remember that the final decision rests in your hands. Ensuring your family is content and in agreement with the move is essential.
Don’t let your property control you; let it serve you and your family’s needs. Here are some tasks to keep in mind as you proceed:
Final Thoughts
- Carry out an in-depth financial analysis to guarantee you are making wise decisions for the near future and can confidently stand behind your decisions.
- Also take your timeline and family wishes into account, plan ahead and provide your family with a sense of security so that you can proceed with peace of mind.
If you’re curious about the prospect of relocating to private property and would like expert advice, I’m just a message away!
You May Also Like …
3 Things You Need to Know if You Are Buying a Second Property
Most Singaporeans own at least one property, giving Singapore one of the highest rates of homeownership in the world. It...
Read More
What is Your Next Step in the Property Market?
When you flip open the papers or turn on the news nowadays, the common buzzwords are "INFLATION", " INTEREST RATE...
Read More
Top 5 Reasons : Why Jayson Ang is the Best Property Agent in Singapore. And Why You Should Engage Him Today
In the bustling city-state of Singapore, the real estate market is highly competitive and constantly evolving. Finding the perfect property...
Read More
5 Reasons Why You Should Consider Investing In Singapore Real Estate
5 Reasons Why You Should Consider Investing In Singapore Real Estate Are you looking to invest in property but not...
Read More
Retiring in Singapore? Here’s Where to Find the 5 Best Property Investments for Comfort and Security!
Retirees have unique needs when it comes to property investments. They require properties that offer comfort, security, and easy access...
Read More
Unforgettable Vacation: The Ultimate Guide To Singapore’s 5 Best Hotels
Unforgettable Vacation: The Ultimate Guide To Singapore's 5 Best Hotels It's 五新房产, Singapore is a vibrant and exciting destination, known...
Read More
Top 5 Tips for First-Time Chinese Buyers Looking to Invest in Singapore Today
Top 5 Tips for First-Time Chinese Buyers Looking to Invest in Singapore Today Here are the top 5 tips for...
Read More
5 Techniques for Identifying Undervalued Properties in Singapore 2023
In the realm of property investment, the key to making a profitable investment is identifying undervalued properties. However, in Singapore's...
Read More
Checklist for First-Time Homebuyers in Singapore: A Guide to Viewing Condos
I've been asked lots of questions on what to consider when viewing a condo and what to ask the listing...
Read More
Are Early Bird Discounts At New Launches Genuine Or A Marketing Gimmick?
You've probably heard marketing agents using phrases like "Early bird discounts" and "First mover advantage". They use these terms to...
Read More
HDB Market Outlook 2023
Overview The HDB resale market remained resilient in 2022, with more than 24,000 units resold in the first 11 months...
Read More
Invest During the Bearish & Exit During the Bullish
Time Truly Flies! As I Write This, We Have Already Passed 2022. Let's Take A Look At The Chart Below....
Read More
Discover the 7 Unique Attributes of Real Estate Investing
Real estate is without a doubt one of the oldest and most valuable asset classes out there; no wonder 68%...
Read More
How Can Decoupling Help You in Buying a Second Property?
For those wishing to become property owners in Singapore, purchasing a second property may be a dream come true -...
Read More
5 Proven Strategies for Increasing the Value of Your Singapore Property
In Singapore's competitive real estate market, adding value to your property can be the key to making a profitable investment....
Read More
Discover the Best Breakfast in Singapore: Top 5 Must-Try Spots!
Trying out some of the best breakfast places, I've put together a list of the top 5 must-try breakfast spots...
Read More
Resale Viewing Do’s and Don’ts: Expert Advice from a Singapore Real Estate Agent
Are you in the process of viewing resale properties in Singapore and unsure of what to do and what to...
Read More
5 Risks Upgraders Should Be Aware of To Avoid Financial Troubles When Progressing Their Property
Imagine yourself sitting with a real estate agent, talking about your future financial objectives. You express your aspiration to increase...
Read More
5 Insider Tips From Real Estate Experts On How To Get The Best Deal On Property In Singapore
Investing in property can be a great way to build wealth and secure your financial future. However, with Singapore's highly...
Read More
