To everyone else, the answer to this question will seem obvious but you might be shocked that many new home buyers would reply for both stay and investment. The fact is you can’t do any of these. Why? It is simply because the strategy pursued to manage the property would be different depending on the intent, thereby also affecting property choice.
As it is a form of public housing, HDB flats are intended for owner occupancy and as such have some characteristics that make it more difficult for investment. That includes meeting the Government’s eligibility requirements for buyers, as well as a minimum length of employment before you can rent or sell.
Obviously you may also acquire a private condominium for your own residence, but the form and location of your home will be influenced by the buying purpose. For example , if you buy it for your own stay, you’ll typically take your family’s lifestyle needs into consideration.
Compare this to buying a rental-income home. You would likely go for a smaller studio or 1 bedroom unit closer to the city centre, a place within walking distance to the MRT station and use one that has some sets of facilities that could appeal to the expat. You would probably also opt for a new condominium so you don’t have to spend on your home renovation.
Preparing Your Finances
If you opt to buy a condo over a HDB apartment, there are a range of additional costs and your budget needs to take these into account. You need to measure four main numbers here to find out what kind of condo you can afford. Are you planning on buying a condo by the end of next year for example? If so, this gives you more of a runway to accumulate your savings for the necessary 25 per cent down payment.
Are your CPF OA contributions larger or smaller than the amount of monthly loan repayments? When you spend less than you pay out, you’ll need to take the cash top-ups into account. And make sure to get your loan ‘s Approval-in-Principle before putting down the non-refundable option fee for the new condo. Unfortunately, hundreds of thousands of homebuyers have lost more than a few because they had not completed their due diligence in advance. When you have a family, you will also be factoring in fixed or recurring costs such as private tuition for your children, car loans and care for the elderly.
Housing Loan Types
When you take out a bank loan, you can borrow up to 75 per cent of the value of the house, as long as you have not reached the TDSR cap. A word of warning though: many people are financially overextending to purchase their dream homes and refusing to see the risks associated.
Loan interest levels are extremely volatile and macro environmentally prone. Any adverse market effect can easily cause a sudden rise in interest rates, resulting in you paying out more than you’d originally expected every month. And with the Seller Stamp Duty in place, if you don’t want to pay the extra fee, you have no choice but to sit there. That’s why it’s best to get a clear picture of your financial position before purchasing a condo on a steep commitment.
Checking For Eligibility
Once set a definite objective of purchasing a house, the ability to purchase the house also plays a significant part. For HDBs, in order to apply for purchase, you would need to satisfy the requirements of nationality as well as family nucleus. You don’t have these requirements for condominiums, but visitors do need to be mindful of the extra buyer’s stamp duty imposed as part of the land refrigeration measures introduced in 2013. Permanent Resident will have to pay an additional 5% on their first purchase of the land, and foreigners would have to pay an additional 15%.
Another significant factor is another constraint laid down as part of the cooling steps – Total Debt Servicing Ratio (TDSR). This applies fairly to both Singaporeans and foreigners. The TDSR effectively restricts the amount lenders will spend on overall debt repayments to 60 percent of their monthly gross income. Full debt repayments do not only include your mortgage loan, but also other debts that you may have, such as vehicle loans, research loans , personal loans and credit card bills. So before you even start looking for your perfect home, it might be prudent to figure out how much loan you can take on your salary to narrow down the option of the type of property you can afford.
HDB Flat Or A Condominium
Singapore is one of the world’s most expensive countries to buy a home, but it also has a high level of ownership of over 90%. This may be the initial presumption – considering that in recent years, public housing buildings, known as HDBs, have been reaching the S$1 million mark. Nonetheless, the high percentage of home ownership can be due to the genius retirement-saving scheme called the CPF, which enables many Singaporeans become homeowners, as well as the substantial amounts of grants given by the government.
For many Singaporeans home ownership is a growing dream. Yet there’s still the dilemma between purchasing a HDB and purchasing a private home. Considerations involve option of lifestyle, qualifications and, of course, the capital appreciation opportunity should one intend to sell the property one day.
Freehold vs Leasehold
If there is really no doubt that the best option is to purchase a private home, then the next thing to consider is: Freehold or leasehold?
The option depends on your expected stay time and on your budget. Since of the permanent possession, you pay more for freehold property which also makes fast financing. This is ideal for house buyers or HDB upgraders who expect to live a long time.
If budget is a constraint, leasehold can be a viable alternative, given the property is under the age of 21. They begin showing greater depreciation after this point. Unless you intend on selling your HDB flat after the MOP, we will suggest buying a brand new or fairly new leasehold.
Yet don’t be misled into believing freehold assets often command higher sale rates than leaseholds. The price will depreciate as a freehold property is aged just like any other property. Keep in mind, too, that as new condos are being constructed each year, older properties will face even more competition over time.
Buying Condos for Investment
You will still find fantastic investment properties in Singapore so long as you don’t expect the same returns as you might get a decade or two ago.
The numerous cooling steps have considerably quieted the market, but it has also contributed to a more competitive market with sufficient financial backing from buyers and sellers. There is more room for growth, too, with the influx of immigrants.
If you are expected to buy a property for investment purposes you will need to take some measured risk and consider the great economic and financial climate. Most people seem to expect their rental income to help offset the annual mortgage repayments that they will have to account for. You may want to look at the global pattern in the interest rate setting for this. Even the rental price is primarily determined by rental flat demand and supply. Although your apartment may be in a position to order a premium because of its venue, furnishings or services, you will not be able to avoid the trend. And you would want to research the macroeconomic climate before taking the plunge.
When you’re more interested in capital gains, condominiums may be the way to go, because they cater for a broader variety of buyers, and historical figures have shown that returns from private housing are typically higher than public housing.
Find Out More
There’s no correct or incorrect to buy a condo in Singapore so long as you don’t take on too much debt to do so. The interest is still in the beholder ‘s eye but you would certainly benefit from a level-headed attitude in the long term.
Buying a house is after all no small matter. A small misstep by hundreds of thousands will set you back. If you are unsure, always find greater clarification before going forward.
