There is no more anxious time than the time when you were buying your first property. You are probably young with less experience and less financially stable.
But believe it or not, buying your second property can be a daunting and tiresome experience too.
The Singapore government has strict rules and regulations for individuals planning to buy their second property.
Before buying a second property, it is best that you get to be familiar with the requirements and rules. So, here are ten things you have to know if you are planning to buy a second property in Singapore. Read up!
Before deciding to buy your second property in Singapore, you first have to be mindful of the contract you have with your first property. Note that the Singapore government have strict restrictions if your first house is under the Housing Development Board (HDB) housing program.
An HDB flat has its so-called 5-year minimum occupation period (MOP) which means that you are required to stay there for at least five years before renting, leasing, or selling the house. If you are a Singaporean citizen, you cannot own two HDB flats. Hence your second property must be a private flat or house.
Remember that if you buy a new property before selling your current one, you are only given 6 months to sell your HDB flat. If you fail to reach this deadline, you can contact HBD to appeal for more time. Note that all these restrictions do not appeal for those who own private properties or a flat from a Housing and Urban Development Company (HUDC).
However, if you short of cash flow during the transition period, you can apply for bridging loan to cover the shortage.
When buying a second property, you are asked to pay a down payment of around 25% of the property’s valuation limit. This is extremely high compared to only 5% down payment when buying your first property. The property valuation limit depends on the current value of the property or the purchase price, whichever is lower.
For those who do not have cash, you can also use your Central Provident Fund (CPF) funds to pay a part of your down payment. But, take note that only funds from the Ordinary Account of your CPF can be used here. You are still required to keep your Basic Retirement Sum in your CPF account before you can use any excess to pay off housing loans.
Loan to value ratio (LTVR)
Another thing to know when planning on buying a second property is the idea of LTVR or Loan to Value Ratio. In essence, LTVR refers to the percentage of a loan to the value of a property you are going to purchase. An LTVR ratio of 50% means that you borrow or loan up to 50% of the value of the property and will pay the remaining 50% in the form of down payment.
Remember that your LTV ratio decreases with the subsequent loan you take. Hence, for your second property, you might have a lower LTV ratio. If you wish to increase this, you can choose to pay for your first housing loan first before purchasing other properties.
Additional Buyer’s Stamp Duty (ABSD)
Additional Buyer Stamp Duty (ABSD) refers to the tax applied every time you purchase a property in Singapore.
The ABSD you have to pay depends on your citizenship status and if you are buying your first, second, or third property. For citizens, ABSD is waived in your first property purchase, but you will be charged 12% on your second, then 15% in your third and subsequent purchases.
For Singapore permanent residents, ABSD Singapore rate is 5% for the first purchase, then 15% for the second and subsequent purchases.
Meanwhile, for foreigners, ABSD is 20% when you purchase any property. And for companies, corporations, or associations, ABSD is 25% plus an additional 5% for Housing Developers. Check Singapore’s Inland Revenue Authority of Singapore (IRAS) for more information regarding this.
In terms of the residential property tax, it is computed by multiplying the Annual Value (AV) of the property with the Property Tax rates that apply to your specific situation.
For example, if your property is worth $20,000 and your tax rate is 10%, you would have to pay $20,000 x 10%, which is equal to $2,000. To know more about the residential property tax rate, check out IRAS’ detailed explanation here.
Rental rates depend on the location and quality of the residential property. If you are thinking of renting out your first home or another private property, the rule of thumb is that the rental rate should cover or even exceed your monthly loan repayments.
This is to ensure that you get the value of your first home or any other private property for that matter.
Debt to net worth ratio
To calculate your debt to net worth ratio, you just have to divide the sum of your total liabilities by your net worth. If the number goes below 50%, this is a warning that you are taking too much risk. And, if your second property brings to lower than 50%, it is best that you do not proceed with this purchase.
Note that if you cannot pay your home loan, it is possible that you will lose both of your properties.
Remember that if your Total Debt Servicing Ratio exceeds the threshold of 60%, you can bring in another person as co-borrower.
Note that your co-borrower will have lower LTV limits when they apply for their housing loan in the future. Also, your co-borrower has an obligation to repay the loan if you in case you fail to pay it. Hence, finding a co-borrower can be difficult and challenging for many. You can read more about the requirements here.
Home loan interest rates
Singapore property investors would tell you that the property market is constantly changing. There are instances that a fixed rate is cheaper today, but five years later, a floating rate is the better loan rate. Learn more about the differences between fixed and variable home loan rates.
The best way to know the best home loan interest rates is to contact as many trusted banks you can find. Choose one that can give you the most competitive rate.
Also, banks have their own promos and deals when it comes to home loan rates or other loans for purchasing properties. You can look into the deals offered by specific banks or financial institutions to make sure that you are getting the best interest rates in the market.
If you are planning to purchase a second property, it is important that you are armed with all the necessary knowledge about the property market.
Are you planning to purchase a new property while you are waiting for your current property to be sold? Apply for a bridging loan, it will help you “bridge” the gap between your new property and the sale of your old one.
Purchasing a private property or a residential property is a big decision. Hence, it is essential that you understand everything before making this big purchase. You can refer to the Monetary Authority of Singapore (MAS) Rules for new housing loans here to better understand this topic.
Also, as stated above, the best way to choose the best home loan interest rates is to compare loan offers from various banks and financial institutions.
You can check out Loan Advisor to start comparing loan offers. We can give you an idea which of the trusted banks in Singapore can give you the best residential or private property loan rate. We can also help you better understand the processes when purchasing your second property or other properties.