How To Buy A Private Residential Property In Singapore-A Step By Step Guide

Purchasing a private property in Singapore is not that complicated. But first-time buyers may be unaware of the potential risk involved in a transaction. Photo by Tierra Mallorca on Unsplash

Introduction

Purchasing a private residential property in Singapore is not a complicated process. However, there are certain potential pitfalls most 1st time buyers are unaware. So, to give you a better idea of what to prepare in the process of purchasing a private residential property in Singapore, here’s a comprehensive guide of what to expect from beginning to end.

Eligibility (Age)

To be eligible to purchase private residential property in Singapore, you will need to be at least 21 years old. There are exceptions to the rule where a trust can be used as an instrument to “hold” a property for someone below this age. Upon reaching the legal age of 21, the trustee can now gain ownership of this piece of real estate, technically not breaking any regulations. However, to use this instrument, the property must be paid in full.

Eligibility (Minimum Occupation Period)

If you are currently holding on to an HDB flat, you will need to fulfil the minimum occupation period stipulated by HDB before you can purchase private property. The time frame is generally five years and starts from the 1st day you collect the key to the unit. Any whole unit rentals during this time will not count towards these five years. More details available on HDB’s website.

https://www.hdb.gov.sg/cs/infoweb/residential/living-in-an-hdb-flat/acquiring-private-property

Eligibility (Strata Landed/Landed Houses)

If you are a Singaporean, you are free to purchase any residential property in Singapore. If you are a PR or foreigner, there is a restriction on what kind of residential real estate you can buy. Under the residential property act, foreigners are not eligible to purchase

1. Vacant Land
2. Landed Property of any kind like Terraces, Semi-Detached, Townhouse, etc
3. Landed Property in strata developments such as strata landed houses

The only exceptions are landed properties on Sentosa island. If you are a permanent resident (PR) or foreigner and wish to purchase restricted properties on the mainland, you will need to write-in to Singapore Land Authority for approval first. One of the criteria would be “exceptional economic contribution” to Singapore in addition to being a PR for at least five years.

Financing (Initial Deposit/Loan Quantum)

The initial deposit and loan quantum is mostly dependent on how many mortgage loans you are servicing at the moment. As well your age when the loan tenure ends. Here’s a summarised table for your reference.

Residential Home Loan Regulations By MAS

 

First Loan

Second Loan

Third Loan

Loan Tenure

Up to 30 years

31 to 35 years

Up to 30 years

31 to 35 years

Up to 30 years

31 to 35 years

Age

Age used to calculate loan tenure, will be based on income-weighted

Up to 65

Up to 70-75

Up to 70-75

Up to 65

Up to 70-75

Up to 70-75

Up to 65

Up to 70-75

Up to 70-75

Maximum

75%

55%

55%

45%

25%

25%

35%

15%

15%

20% (non-individual)

Minimum Cash Downpayment

5%

10%

10%

25%

25%

25%

25%

25%

25%

Guarantors/Borrowers

All co-borrowers must be mortgagors. Guarantors must be co-borrowers if the latter did not pass the TDSR criteria

Mortgage Servicing Ratio

N/A

Total Debt Servicing Ratio

60%

Stress Test Interest Rate

3.5%

Financing (Total Debt Servicing Ratio/TDSR)

Let’s assume you are a Singaporean and a first-time private residential property purchaser. The maximum loan quantum is 75%. However, to qualify for the loan, you would need to pass the TDSR set by the Monetary Authority of Singapore (MAS). The TDSR is a framework where you cannot exceed 60% of your household income on debt obligations.

Additionally, the calculation uses the interest rate of 3.5% for this stress test. Or market rates, whichever is higher. Failing this TDSR would mean that you will not be able to borrow the maximum loan quantum of 75%.

Financing (Stamp Duties ABSD and BSD)

There are two types of stamp duties payable to IRAS for all residential properties transacted in Singapore. The buyer’s stamp duty is a standard fee and applies to all property transactions in Singapore. The additional buyer’s stamp duty, on the other hand, is mainly dependent on how many properties you are holding on to as well as your nationality. You can use CPF monies to pay for both. However, due to the timeframe of the shorter option period for resale transactions, you would always need to use cash first before getting reimbursement from CPF. For new launches that are under construction, this will not be an issue.

Buyer's Stamp Duty

Purchase Price Of Property

BSD For Residential Properties

BSD For Non-Residential Properties

First S$180,000

1%

1%

Next S$180,000

2%

2%

Next S$640,000

3%

3%

Remaining Amount

4%

Additional Buyer's Stamp Duty

Nationality

1st Property

2nd Property

3rd Property

Singapore Citizens

N.A

12%

15%

Permanent Residents

5%

15%

15%

Foreigners

20%

20%

20%

Entities/Companies

25%

25%

25%

Understanding CPF Monies

If you are purchasing your first property, you would be able to use all the monies in your ordinary account for the purchase. However, the maximum amount of CPF that you can use on the property is dependent on two things. The lease of the property as well as your age.

For those purchasing a 2nd property while holding on to the first one, there is a limit on how much OA you can use. You would need to fulfil the basic retirement sum (BRS) requirements before you can use the remaining funds in your ordinary account. BRS will increase every year. For the year 2019, the amount is $88,000. To give you a clearer idea, I will use a case study of someone who is 40 years and have $100k in the ordinary account(OA) and another $150k in the special account(SA).

The total CPF monies are $100k + $150k=$250k, which is well above $88k. However, that does not mean you can take out the difference of $162k for property purchases. Only funds from the OA can be used. In this case, only $100k from the CPF can be used to purchase the 2nd property.

There is also a new regulation on CPF usage announced on10th May 2019. If the remaining tenure of your current property plus your age does not exceed 95 years. Then you will need to set aside the full retirement sum before you can use your OA. That’s also part of the reason why we prefer new homes. They will have more demand in the future compared to resale condos with a lesser lease. More details on MOM’s website

https://www.mom.gov.sg/newsroom/press-releases/2019/0509-more-flexibility-to-buy-a-home-for-life

Check valuation

After going through all the viewings and finally decided on a property. It is now time to offer a price. It is crucial to understand how much is the “market price” or valuation of the unit. While there are various tools and analytics with advance algorithms to determine this value, the most accurate assessment would be the one from the bank. Why? Technically how much you own the property is the deposit, with the rest of it being a loan while you are repaying it slowly. In other words, ownership of the property is a partnership between yourself and the bank. Being a majority shareholder, it makes absolute financial sense for the bank to be buying something of value. Of course, you can still go ahead with the purchase for something above valuation, don’t expect your majority shareholder to pay for it.

Check owner status

More commonly seen in rental scams, where the primary tenant collects rents from subtenants and disappears. Why do people fall for this scam so easily? Well, because the main tenant would have the address listed on the NRIC or identification since they are living there. Having an address listed on the NRIC does not mean they are the real owner. You would need to access the Singapore Land Authority to do an ownership check to verify the true identity of the seller.

Option To Purchase(OTP)

To form a contract, the buyer would need to offer a consideration with the seller accepting it. For resale transactions, the initial deposit is usually 1% of the purchase price. After acceptance, the seller will issue you an option to purchase. This OTP will have a timeframe called the option period. If you decide to go ahead with the transaction, you would need to head down to a conveyancing law firm to exercise the OTP by paying another 4%. Making a total of 5%. During this time your lawyer will request for the fees payable for the BSD as well as the ABSD. By law, the ABSD/BSD is payable to IRAS within 14 days of exercising the document. Any delays will result in late penalty fees.

The OTP is also a powerful legal instrument to protect the buyer. You can choose to back out of the transaction by forfeiting the 1% deposit, but the seller is unable to do so. If they do change their mind, you can do ahead and sue them for specific performance, which is to sell the house to you.

Once the OTP is exercised, the conveyancing lawyer will take over to carry out their various duties. Such as writing to CPF board to release the monies, send legal requisitions to government bodies, prepare legal documents, etc. The lawyer will also confirm the completion date as stated on the OTP for key collection and funds transfer.

Summary

So, there you have it. The step by step basics of how to purchase private property in Singapore. Now that we have covered most of the potential risk involved, you would have a clearer idea of what to expect when buying a home. While you can do everything by yourself, why not get a buyer’s agent to help you?

Firstly, private property buyers in Singapore generally do not pay any commission fees even if they employ a buyer’s agent. The buyer’s agent collects their fees from seller’s agents via an industry practice called co-broking. Co-broking is a win-win scenario for everyone because

  1. Owners get a larger pool of buyers for their property.
  2. Seller’s agent will get to sell their property faster.
  3. Buyers do not need to pay any commission

Secondly, the buyer’s agent is familiar with the entire sales process. That way, you can rest assured that the transaction can go through smoothly without any hiccups.

Thirdly, the buyer’s agent has your interest at heart and can carry out data analytics and market analysis. Some of these data include recent transacted prices with unit numbers, initial launch prices and even property trend reports. Also, some of these agents are mortgage brokers and can carry out complex financial calculations such as TDSR or even refinancing savings analysis.

If you are someone looking to purchase private residential property in Singapore, want all the benefits of a buyer’s agent. Fill in the form, and we will get back to you shortly.

Article contributed by Jerry Wong

Jerry Wong is a realtor with Huttons Asia Pte Ltd. He loves coffee, cookies and condos. Most importantly, he loves connecting people to properties and gets enormous satisfaction when they acquire their dream home or make that capital upside in just a matter of months. Buy Jerry a coffee, and he will meet up with you on a 1 to 1 session to share the following

  1. How certain factors affect real estate prices. (Using historical transactions as references)
  2. Applying lessons from history to determine if a condo has the potential for upside or not. These condos can be those under construction, resale or the very one you are staying in right now.
  3. Or prepare the toughest question you have on your mind! If it is interesting enough, the answer will be in a blog post and shared with everyone!

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