Property investment guide for beginners

Property investment is a popular investment method in Singapore as you can invest in a property long-term without worrying about short-term fluctuations. But there are factors you have to take note of when buying an investment property.
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Looking for a way to grow your hard-earned money? Investing in property is one popular way to do so in Singapore, thanks to the robust property market and its strong growth. 

Here are some property investment basics you should know.

What is an investment property?

An investment property is any property you own or are buying, not with the intention of living in or using it, but in hopes of receiving a return on your investment. Investment properties can be residential, commercial or industrial.

The main ways you can receive a return on your investment property includes selling the property at a higher price later on and or renting it out.

Pros and cons of investing in property

Property certainly isn’t the only way to invest in Singapore, but it is extremely popular with investors.

That’s partly because property is considered a stable way to invest for the long term. Investors need not worry about short term fluctuations but can instead focus their research on factors such as location and potential rental yield.

The fact that CPF Ordinary Account savings can be put towards a down payment and monthly mortgage repayments also makes property investment a popular choice.

However, one of the biggest cons is obviously the fact that purchasing an investment property requires a relatively large outlay in terms of the down payment and monthly mortgage repayments. It is a long-term commitment and a financial burden that you must be prepared to bear for many years. As property is an illiquid asset, the only way to get your money back if you need it urgently is to sell the property, which takes time.

Other factors that can affect profitability include cooling measures imposed by the government and rising interest rates.

Also, if you plan to rent out the property, finding and replacing tenants and rectifying damage is another obligation to consider.

Restrictions and cooling measures such as ABSD

It is important to understand the government’s cooling measures before starting to invest in property. Additional Buyer’s Stamp Duty, or ABSD, is one measure all prospective investors must understand.

If you are a Singapore citizen buying your second residential property, you must pay ABSD equivalent to 12 percent of the property price. For your third and subsequent residential property, you will pay a hefty 15 percent.

For Singapore Permanent Residents, you pay five percent ABSD on your first residential property, and 15 percent on your second and subsequent property.

Foreigners buying any residential property must pay 20 percent ABSD.

Another cooling measure to be aware of is the Total Debt Servicing Ratio (TDSR), which limits the amount of money banks can lend you. Under the TDSR, your debt repayments must not make up more than 60 percent of your gross income. The catch is that this includes ALL your debt repayments, including car loans and credit card debt, not just your mortgage.

What are the costs involved when investing in property?

Other than the property price, stamp duties and legal fees you must pay when purchasing a property, you should also consider the costs that you will bear as a property owner.

Property tax must be paid annually on all properties you own, but is much higher for properties that you, the owner, do not live in. Property tax for non-owner-occupied properties starts at 10 percent for the first $30,000 in annual value and as it rises, the higher the annual value of your property.

Other costs include MCST fees and a sinking fund which must be paid by condo unit owners, as well as renovation costs and furnishing costs when you first get the keys to your property. If you are renting out the property, you will also need to factor in maintenance costs.

Determine your budget and affordability

Before searching for a property to buy, you will need to know how much you can afford to pay and how much the bank will lend you.

Use PropertyGuru’s affordability calculator and TDSR calculator to find out.

Figure out your criteria for an investment property

Once you know how much you can afford to spend, it’s time to make a list of your requirements for a property.

If you are not sure which areas are promising, check out PropertyGuru’s AreaInsider to get the lowdown on Singapore’s various residential areas.

You should also think about other factors such as property type and size, whether you prefer freehold or leasehold, and the years remaining on the property’s lease.

Also consider current and future market conditions before buying. Ideally, you want to buy when prices are low but expected to rise.

Understand the risks involved when investing overseas

If you are looking to invest in overseas property, don’t jump in without first understanding the risks.

You will need to understand the regulations of the country in which you wish to invest, as some countries may place restrictions or cooling measures targeted at foreign buyers, which will raise the cost to you above the asking price.

Foreign exchange rates can also drastically affect the profitability of your property investment, so it is wise to also research future predictions for the country’s currency vis a vis the Singapore dollar.

It is also a bad idea to invest in a country or area with which you are not familiar. You do not want to risk buying property in an unsafe neighborhood or in a country facing political unrest.

Engage a property agent to help you find a suitable property

Once you have your list of criteria for a property, get in touch with a property agent who can help you find one that meets your needs.

Browse agents on PropertyGuru’s property agent directory. You can sort agents using parameters like region, specialty or agency name to find one who can best serve you.

When should you sell your investment property?

As an investor, your goal should be to eventually sell your property.

Ideally, this will be when the value of your property has accrued to the point where you are able to make a decent profit, and when it would be more beneficial to you to sell it rather than continue renting it out.

There is no hard and fast rule as to when you should sell your property. A lot depends on whether you intend to use the property as a long-term or a medium-term investment, whether you wish to pass it on to your children and so on.

Other factors, such as your financial situation at the time, the rental yield, ease of finding a tenant and future development plans for the surrounding area will likewise influence your decision.

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