Can You Truly Afford a Second Property Investment in Singapore?

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With more than 90% of Singaporeans owning at least one property, the city-state has one of the highest home ownership rates in the world. However, that is not to say that everybody settles on just one. It is not uncommon to hear of homeowners buying up more than one property as a form of investment. 

Before purchasing a second property in Singapore, the first question you have to ask yourself is this: can you really afford it? 

To help you decide, this article will cover 

  • An introduction to Singapore’s housing market
  • What are your main factors affecting affordability?
    • Second property eligibility 
    • Loan-to-Value (LTV) limit
    • Total Debt Servicing Ratio (TDSR) 
  • What financial considerations do you need to make?
    • Minimal downpayment 
    • Buyer’s Stamp Duty
    • Additional Buyer’s Stamp Duty  

 

An Introduction to Singapore’s Housing Market

Despite the ongoing COVID-19 pandemic, Singapore’s housing market is holding up reasonably well. According to our Property Market Index Report, the PropertyGuru property price index increased by 2.15% in Q2 2020. 

Although it seems only a marginal uplift, this is actually quite telling of the market’s resilience, especially since two out of three months in that quarter were disrupted by stringent circuit breaker measures which put a halt on many property-related activities. 

So it seems that people are still buying – should you too? Here are several important factors to keep in mind if you’re considering a second property. 

Second property eligibility

The Singapore government imposes several restrictions on your second property if your first is a Housing Development Board (HDB) flat. For example, if you already own an HDB or Design, Build and Sell Scheme (DBSS) flat, you must continue to stay there even if you purchase a second property elsewhere – that is, unless you are given permission by HDB to sublet it. Of course, since these restrictions only apply to public housing, there are no such eligibility issues for private property owners looking to purchase a second property.

Loan-to-value (LTV) limt

The LTV limit determines the amount that you can borrow from banks for a particular property. Bank loans, for example, have an LTV ratio of up to 75% for the first property, which means that you can only borrow up to 75% of the property’s value or purchase price (whichever lower). 

The LTV decreases with the number of housing loans you take on. For your second home the permitted LTV ratio is currently at 45% of the property’s value. In short, the more housing loans you have, the less you can borrow each time. 

Total debt servicing ratio (TDSR)

TDSR is the percentage of your gross monthly income that can be used to repay all your loans in a given month, and the current amount is set to 60%. This means that if you are a salaried employee and your salary is fixed in nature and you earn $10,000 per month, only up to $6,000 can be used to repay your debts; these include everything from your car loans and student loans to the home loan you took out for your first property as well as the minimum sum due on your credit card balance. If your salary is not fixed, then the amount may be lower. In short, unless you somehow increase your gross monthly income, you might not be able to finance a second home loan with the TDSR limits in place.

 

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What Other Financial Considerations Are There? 

Downpayment 

The down payment required depends on the LTV and how much you end up loaning from the bank. If you’ve fully paid up for your first home and only need a new mortgage to finance your second property, it will be considered your first mortgage and the LTV can be up 75% again. That means your minimum cash down payment is 25%. 

However, if you are still servicing your existing mortgage for your first home and need to take up a second mortgage, the LTV is up to 45% only, which means your minimum down payment is then 55%. 

If you have enough savings in your Central Provident Fund (CPF) Ordinary Account, you may be able to use these funds to pay part of the down payment. 

Buyer’s Stamp Duty (BSD)

The Buyer’s Stamp Duty must be paid when documents are signed for the transfer or sale and purchase of property. The amount is calculated as follows: 

Purchase Price or Market Value of the Property

BSD Rates for Residential Property

First $180,000

1%

Next $180,000

2%

Next $640,000

3%

Remaining Amount

4%

Additional Buyer’s Stamp Duty (ABSD)

ABSD applies to Singapore Permanent Residents (PRs) and foreigners if they are buying their first property in Singapore. However, for second and subsequent properties, ABSD applies to everybody. 

Who Must Pay ABSD

ABSD payable 

Singapore citizen buying second property

12%

Singapore citizen buying third and subsequent properties

15%

Singapore PR buying first property

5%

Singapore PR buying second and subsequent properties

15%

Foreigner buying any property

20%

Exceptions: US Nationals, and Nationals and PRs of Switzerland, Liechtenstein, Norway, and Iceland are allowed the same stamp duty treatment as Singapore citizens.

For Singaporeans, the ABSD for the second property is 12% of the purchase price. For Singapore PRs, the ABSD for their first property is 5% and climbs to 15% for their second and subsequent properties. For foreigners, the ABSD for every property is 20% unless they are eligible for remission under Free Trade Agreements

 

Here’s an Example 

Let’s put these numbers into perspective with an example. Let’s say you are a single Singapore citizen who owns a condominium. You are looking to buy a second property, a $700,000 studio apartment to be exact. 

Condominium Property Value

$700,000

Minimum Downpayment of 55%

$175,000 (Cash) + $210,000 (Cash or money in your CPF Ordinary Account)

Bank Loan of 45%

$315,000

BSD

$15,600

ABSD

$84,000

Purchasing a second residential property in Singapore may provide a stable investment for you and your family. Whether or not you can afford a second property as an investment really depends on several factors though. Aside from eligibility, you most definitely need to have enough gross monthly income, cash on hand, and CPF savings to make the investment worthwhile. 

When you’re ready to discuss financing a second property, speak to one of our Home Finance Advisors. They’ll be able to provide you with the latest information on all of your residential property financing needs. 

 

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