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5 Must-Know Questions Before Investing in Real Estate

Posted by Jayson Ang on June 15, 2023

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TLDR

When considering whether to buy a new development or a resale property, it can be challenging. In the blog post mentioned, various aspects of investing in condos in Singapore are discussed, covering topics such as leasehold versus freehold. It provides insights into the real estate market in Bedok, Changi, Pasir Ris, and Tampines in 2023, along with considerations for purchasing a condo despite high PSF. The post also highlights the impact of Singapore’s development on real estate markets and explores buying mega development condos while addressing overlooked issues. Moreover, it delves into cash over valuation in HDB resale flats and offers a simplified guide to buying landed property in Singapore. Additionally, it shares lessons from homebuyers’ experiences in the unpredictable Singapore housing market and lists frequently overlooked questions for new condo buyers to avoid regrets in the future.

Investing in property is a more secure, long-term choice compared to more speculative options like stocks, and remains a popular choice in Singapore – despite the restrictions and cooling measures that make it harder for property investors to make a profit.

But before you commit to your next property, you should ask yourself these five questions to ensure you make the right decision.

1. Am I Eligible To Buy?

Before you purchase another HDB flat, eligibility is a must. If you live in a new or resale HDB flat, or an Executive Condominium (EC), you are obligated to abide by the five-year Minimum Occupancy Period (MOP). This entails that you must stay in your current dwelling for five years before you can acquire your subsequent or second property.

2. What Type Of Property Am I Looking For?

The kind of real estate you plan to purchase will largely influence the further actions you’ll have to take. Examples of real estate types include:

HDB has a wide range of residential properties to offer, from two-room flexi apartments, to luxurious executive flats, as well as Design, Build, and Sell Scheme (DBSS) flats,
Executive Condominiums (ECs),
condos,
apartments,
semi-detached or terrace houses, and even
Good Class Bungalows (GCBs)!

Considerations before buying a second HDB flat

Be sure to confirm your eligibility for an HDB flat under the Ethnic Integration Policy and Singapore Permanent Resident quota!

Upon receiving the keys to your second HDB flat, you must sell your previous HDB flat within a six month period.

3. What Are Key Factors To Consider When Choosing The Right Property?

If you’re seeking to purchase a second property – be it for investment or occupancy – there are four key factors to keep in mind!

1. Location

The location of your property can make a world of difference in the type of tenants you’ll attract.

If your property is in a Central Business District (CBD), you’ll be able to draw in expats seeking to rent near their place of work.

On the other hand, if you are an owner-occupier, your second property’s location will dictate your lifestyle and community.

Choosing to live in the bustling city of Orchard brings the hustle and bustle to your doorstep – life at a faster pace.

But if you decide to buy a home in the heartlands, you will be surrounded by a majority of family units, enjoying a slower lifestyle.

2. Surrounding Developments

If you’re an owner-occupier, what amenities are around your second property? Are there transportation links?

These can influence the kind of tenants you attract, but don’t forget to assess whether the surrounding facilities fit your own domestic requirements.

Are there supermarkets close by?

If you’re buying the second property for your elderly parents, are there hospitals and clinics in the area?

If you have kids, you’ll want to know if there are any good schools in the vicinity too.

3. Upcoming Developments

To ensure you are attracting the right tenants to your property, always make sure to check what Urban Redevelopment Authority (URA) has in store for the area it’s located in.

For instance, the URA’s plan to turn Jurong East into a second Central Business District (CBD) is expected to bring a flurry of property buyers.

With the multitude of malls and retail chains, as well as the proposed Kuala Lumpur-Singapore High Speed Railway, it’s no wonder that Jurong is becoming a sought-after area.

4. Rental Rate

When it comes to investments, it is important to consider potential rental yields and capital appreciations, as well as the estimated return on investment.

You can also analyze average rental rates in the area over the span of five to ten years to see if there is any notable decline.

As a general rule of thumb, the rental rate should be at least enough to cover the monthly loan repayments for the property you sold.

4. If It’s An Investment, Is It The Right Time To Buy?

No matter what type of investment, there are associated risks. In light of the government implementing stricter foreign regulations, expats have been departing the nation, resulting in a drop in the number of inhabitants since 2003, consequently pushing rents downwards.

Don’t Forget About The Total Debt Servicing Ratio (TDSR)

If you are looking to invest in another property and considering taking out a home loan, be sure to take the TDSR into account.

This rule, in place for Singaporean loan holders, prevents borrowers from becoming overleveraged with their debts.

5. Can I Afford A Second Property?

Finally, to determine whether you have the financial capability to purchase a second property, you must carefully calculate the associated costs.

Loan-To-Value (LTV) Ratio

Following the unveiling of the most recent property cooling measures, banks now limit Loan-to-Value (LTV) to 75% when taking out a loan for purchasing property.

For those looking to buy a second property, the maximum LTV stands at 45%, or 25% for loan tenures over 30 years.

Additional Buyers’ Stamp Duty (ABSD)

In December 2021, the Singaporean government, in response to the growing number of transactions and escalating prices, implemented a series of new property cooling measures.

For locals, the Additional Buyer’s Stamp Duty (ABSD) for a second property purchase was set at 17% of the purchase price or value (whichever is higher), while Permanent Residents faced a 25% duty, and foreigners, a 30% duty.

Starting on May 9, 2022, new regulations will come into effect for residential properties transferred into a living trust :

The extra Buyer’s Stamp Duty (ABSD) of 35% now applies when a residential property is transferred into a living trust – even if there isn’t a discernable beneficiary.

By shutting down this loophole, ABSD (Trust) has to be paid upfront when the transfer takes place.

Property Tax

At the Singapore Budget on February 18, 2022, the authorities declared that the Property tax rates for both owner-occupied and non-owner-occupied residential properties will be increased in two phases from 2023.

Homeowners with an annual value greater than $30,000 will see a rise ranging from 5 to 23 percent in 2023, and 6 to 32 percent in 2024.

When buying your second home in Singapore, it pays to be financially prudent, as the taxes on non-owner-occupied properties, such as investment properties, are set to rise.

The current 10-20 percent tax will go up to 11-27 percent in 2023 and 12-36 percent in 2024.

To ensure you are on the right track with your purchase, it is a wise idea to create a clear plan with a financial planner, so you don’t end up in any unexpected financial difficulties.

Should You Buy, Sell or Wait?

If you’re reading this, you must be trying to figure out the best course of action right now: is it the right time to buy or sell?

It’s difficult to give an exact answer since everyone’s situation is unique and what works for one person may not necessarily work for you.

I can bring you a wealth of on-the-ground experience and a data-driven approach to provide clarity and direction. From beginners to experienced investors, our top-down, objective approach will help you on your real estate journey.

I can help you by:

Offering Strategic Real Estate Advice – I can help create a comprehensive plan to guide you through your property journey.
Connecting Your Home with the Perfect Buyers – Through stunning visuals, an effective communication strategy, and an in-depth knowledge of the market, we’ll ensure your home is presented in the best possible way to fulfill your goals.

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5 Must-Know Questions Before Investing in Real Estate

TLDR

1. Am I Eligible To Buy?

2. What Type Of Property Am I Looking For?

Considerations before buying a second HDB flat

3. What Are Key Factors To Consider When Choosing The Right Property?

1. Location

2. Surrounding Developments

3. Upcoming Developments

4. Rental Rate

4. If It’s An Investment, Is It The Right Time To Buy?

Don’t Forget About The Total Debt Servicing Ratio (TDSR)

5. Can I Afford A Second Property?

Loan-To-Value (LTV) Ratio

Additional Buyers’ Stamp Duty (ABSD)

Property Tax

Should You Buy, Sell or Wait?

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