Property has always been a hot topic amongst Singaporeans. With million-dollar HDBs being sold and rising housing prices, it’s making many wonder if investing in property is the way to go to grow your wealth.
However, investing in property is not as easy as it seems. What’s ABSD? Can you afford the TDSR? Will you be affected with SSD? What do these terms even mean?! To get some tips, we spoke with Angela Cheong, a Propnex real estate agent.
Note: As with any other asset class, investing in property naturally carries some risk. Please speak to a real estate agent or financial adviser to understand what’s right for you.
Types of property you can invest in
There are three categories of property in Singapore that you can invest in:
- Residential Property – Think HDB flats, Executive Condominiums (EC), Private Condominiums, and Landed Property. Take note that you can only hold either one HDB flat or EC under your name at any given time.
- Commercial Property – Spaces that are designated for commercial purposes like shop spaces and shophouses.
- Industrial Property – Spaces in industrial buildings, including light and heavy warehousing spaces.
The most common investments would be in residential property, especially HDBs given their relatively low cost vis-à-vis other types of residentials.
That being said, Angela shares that while investing in residential properties is more “mainstream”, commercial and industrial properties have greater potential for returns.
Investing in Residential Property
Image credit: @hominghumans
If you’re curious to know more about how to invest in residential property, here’s a what you need to know:
1. Suss out potentials for long-term profit
The first step of property investment is to do your homework by researching and identifying potential investable properties. One way to do this is to keep yourself updated on the latest property-related news such as new condo launches and area redevelopment plans.
Investors typically want to target properties that are newly launched for the best returns, says Angela. This is because they generally have greater room for price appreciation.
If you’re looking at resale properties, check out property websites for things like increasing price trends. The appreciation of a resale property would’ve already been factored in the home’s selling price, so there’d be less room for profit if you were to buy one in hopes of the value increasing further.
2. Ensure your finances can tank the payments long-term
Once you’ve already set your eyes on a property – let’s assume it’s a newly launched private condo – the next step would be to check your finances and see if you can afford this investment. Here’s a quick checklist:
- You need to put a down payment of 5% of the unit’s value, in cash.
- Once that’s secured and you’ve signed the Option-To-Purchase (OTP), the next step would be to pay the remaining 20% of the down payment using either cash, CPF, or a combo of the two.
- After which, the remaining 75% will be paid back progressively. This can be in the form of a bank loan, or your own expenses if the former does not cover the 75% entirely.
Using some quick maths – assuming you’re buying a $900,000 unit – that’s $45,000 in cash plus an additional $180,000 in cash/CPF you’ll need to pay upfront.
Then comes the “hidden” costs. You’ll also have to pay Buyers’ Stamp Duty (BSD) upfront, which is a certain percentage based on the purchase price or market value of the property.
There are several tiers, with increasing percentages.
Image adapted from: Inland Revenue Authority of Singapore (IRAS)
Image adapted from: IRAS
If you already own a property under your name and this is your second purchase, you’re going to have to pay what’s known as Additional Buyers’ Stamp Duty (ABSD) on top of your Buyers’ Stamp Duty. Yes, that’s going to be pricey.
Take note that your BSD (and ABSD, if applicable) will have to be paid within 14 days of signing the Sales and Purchase agreement. You can use either your CPF or cash to pay for it.
Note: The government announced on 15th December 2021 that the ABSD rates will be raised. This is what was termed as “cooling measures” on the property market. TLDR; controlling property prices from skyrocketing and acting somewhat like a deterrent for people to own multiple properties.
Image adapted from: IRAS
Once that’s all sorted out, you actually don’t have to do anything else while the property is being built. Depending on your payment plan with the developer, you might have to disburse instalments as the property is progressively built – this can either be in the form of a bank loan or cash.
3. Determine how you want to make money off your property
Zooming down the timeline to the point when you finally get the keys, there are two strategies that you can adopt to get a return on your money.
Buy and sell
One strategy in property investment is to buy and sell, also known as flipping property within a short period of around three to five years. This way, they’ll profit off the value appreciation that it has gained in that period.
Depending on the location of the property, prices will appreciate at different rates. According to Angela, there are three main factors that will influence prices: growth, transformation and rejuvenation.
Non-mature estate Punggol is starting to see a rise in popularity amongst new homeowners thanks to its developing infrastructure
Image credit: @ngl312
If the area sees developments like new malls, transport hubs or even more properties, the value will generally increase collectively. Or if the government announces plans for rejuvenation of regions such as the Greater Southern Waterfront and Bugis, then properties in the vicinity will definitely see greater value over time.
To Angela, the locations which show the most promise are the Core Central Region such as Central Business District, Bugis, Cairnhill, Clarke Quay, and other urban transformations under URA’s master plan.
Image adapted from: Urban Redevelopment Authority
Take note that for some types of properties, you can’t sell it until the Minimum Occupation Period (MOP) is over. HDB flats and ECs have a minimum 5-year MOP, whereas there are no restrictions for private condos and landed property. However, take note you’ll have to pay a Sellers’ Stamp Duty (SSD) if you sell it in under four years. How much SSD you’ll have to pay will depend on the date of purchase of the property, as well as how long you’ve held on to the property before selling:
| Holding Period | SSD Rate (on the actual price or market value, whichever is higher) |
| Up to 1 year | 12% |
| More than 1 year and up to 2 years | 8% |
| More than 2 years and up to 3 years | 4% |
| More than 3 years | No SSD payable |
Once you’ve gotten your keys, you can either sell the unit as is, or stage the place first before selling it. After all, buying property is a very visual and emotional experience, says Angela, and so a buyer who walks in and sees a place all done up would generally be more inclined to purchase. Plus, this can also drive up value!
Buy and rent it out
You can also rent out your property for a regular income. This would be useful if you’re planning to hold a property for a longer term, or at least until your MOP or three years are up.
Despite the pandemic, the rental market in Singapore has been flourishing, says Angela. This might be due to a range of factors, such as younger people flying the coop to live on their own before marriage, or simply to have their own space. You can find tenants through various means, such as social media, websites and forums.
If you’re servicing a bank loan for the place, you’ll want to ensure that the monthly rental fee minimally covers the mortgage payments plus any other costs such as renovation, repairs, etc.
Image credit: @typesofdays
To maximise the potential for passive profit, some property owners also carve out more living spaces in their home to accommodate more tenants. One tactic that Angela has seen is that some owners convert the living room space in a 3-bedder unit to two more mini-bedrooms, essentially making it into a 5-bedder unit.
While renting is a great way to earn some passive income, there are of course some additional hassles of being a landlord. For example, you’ll have to factor in periods when you have no tenant but you still have to service your mortgage loan.
You’ll also have to make sure your tenants pay up on time, as well as not trashing the place, or worse, conducting…illicit activities.
5. Buying and selling en-bloc
In the real estate version of the lottery, you’ll have people who will buy ageing property in hopes that they’ll hit the jackpot when it gets sold en-bloc. This will usually secure a pretty modest profit.
Angela shares that one of her clients bought a unit in an estate called Eunosville in late 2015 at an entry price of $1.15M. It was sold en-bloc the following year for $2.3M. The profit he netted was a cool $870,000 after factoring in an SSD of 12% for holding a property for under two years.
Image adapted from: PropertyGuru
Before you jump the gun and buy just any old condo, tread with caution, Angela warns. Not all properties have en-bloc potential; this is rare and highly dependent on the attractiveness of a property’s location and whether or not there are buyers.
Assuming a property is slated for en-bloc, there will usually be a vote conducted amongst all unit holders; they’ll need to reach a consensus of 80% approval for the entire development to be sold. Once that is confirmed, it’ll usually take about a year for all the paperwork and processes to take place and another six months for unit holders to vacate before you’ll get your money.
Most of the time, everyone will generally enjoy some profit from their units when the entire development is sold en-bloc, although the amount of profit will depend on their entry price. For example, someone who bought a unit really early on would have had a lower entry price than someone who bought it two years away from en-bloc. Also don’t forget about the SSD – you wouldn’t want to actually lose money after paying for that.
Ultimately, you have to be careful and do your due diligence if you’re planning to go down this route, because going en-bloc is not guaranteed. The risk would be that if you buy a property and it doesn’t go en-bloc, then you’ll have to hold onto that ageing property until you can exit.
Tips for Investing in property in Singapore
Image credit: Marcus Sia
To help prospective investors, Angela shares her top five tips when it comes to property investment:
1. Do your research on locations
In the property market, location is numero uno. Invest in a property in an area that has transformation, rejuvenation, and buzz – easy access to public transportation, vibing with activity, or near offices and work spaces.
The last one is actually quite interesting, because estates near places with a high employee count (e.g. hospitals, airport, CBD, industrial estates) tend to have a bigger potential tenant pool of workers who would want to rent out property nearby, or at least near enough for convenient transportation to their work.
2. Don’t be led by your emotions
You may not like the colour or exterior design of a particular development or even the landscaping, but your tenant might not be too concerned. Objectively assess if a property will attract tenants. The numbers won’t lie, and they often make more sense than your personal tastes or preferences.
3. Have an exit strategy
As with all investments, it’s important to have an exit strategy in mind for your money. Set for yourself a target on when you should sell your investment, such as a certain value that the property has appreciated to, or when the property has reached its growth potential and is plateauing in value.
Another viable exit strategy would be when new opportunities arise, and selling your current property will lock in some sweet profit plus ammo for the next investment.
4. Start young, if possible
We get it, property investing requires a larger sum of capital to start with, as compared to, say, stocks. And not everyone will be able to afford it, especially in the first few years when you’ve just started working.
Since most will have to take out a mortgage loan to pay the remainder of the property, starting young would mean that you’ll have a longer loan tenure and your monthly repayments would be more palatable.
$400,000 in 30 years does sound a lot easier to manage than $400,000 in 10 years.
5. Work within your budget
Don’t get carried away by all the bright lights and wonders of property investing. You’ll have to work within your budget, especially if you have other commitments like elderly parents or kids.
A good benchmark would be the 25% rule for properties: can you afford the downpayment of a property? If you don’t, then you’ll probably have to look for something that’s lower in value, or hold off property investing until you have the means to do so. Also, remember that mortgage instalments still carry on during periods where you don’t have tenants to collect monthly rent from.
Property investment in Singapore
And there you have it, our easy guide on property investing in Singapore. As with all investments, please do your due diligence before actually committing, because it is your own money after all! To get more information and advice, you can also contact real estate agents to help you make a more informed choice – they would usually be glad to assist!
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