When it comes to investments, property is one of the most sought-after commodities in Singapore. However, property in Singapore isn’t cheap, with the Global Living Report announcing that property prices in the country were the second most expensive in the world in 2019.
Although this means investors need a significant amount of capital to secure their investment, there are promising signs from the market that property is likely to return an excellent yield. Even in spite of the COVID-19 pandemic, the property market has remained resilient, with house prices even increasing by 2.08% in quarter four of 2020.
There’s little doubt that property in Singapore is a sound investment, but there are several things you need to be aware of before you make a purchase. This article deals with things you should know before investing in private property in Singapore.
What makes buying in property in Singapore a good investment?
Generally speaking, investors look to two key indicators when it comes to a return on their investment: capital appreciation and rental yield. Capital appreciation is where you make a direct profit on your purchase, so for example, if you buy a property for $400,000 and sell it in future for $700,000, that’s a capital gain of $300,000.
Rental yield works slightly differently. If you buy a property for $500,000 and decide to rent it out for $3,000 per month, you would earn $36,000 a year in rent. This equates to a yield of 7.2%. Both approaches have their multitude of benefits, so you can decide which works best for you. Whichever you choose, you will have to consider the following points before making a purchase.
Things you need to know before investing in property in Singapore:
1. Property tax in Singapore
You need to be aware of the way in which property tax works before investing and depending on how you plan to utilise your property, it works slightly differently. Here are the key things you need to be aware of regarding property tax in the country:
- Property tax in Singapore is charged on the annual value of your property. You can find out your property’s annual value through the Inland Revenue Authority of Singapore [IRAS] website, by signing up and following their instructions.
- If you’re an owner-occupier, tax rates are currently as follows:
Owner-Occupied Tax Rates
| Annual Value | Tax Structure | Tax Rate | Tax Payable |
|---|---|---|---|
| Up to $55,000 | First $8,000 Next $47,000 | 0% 4% | $0 $1,880 |
| $55,000 to $70,000 | First $55,000 Next $15,000 | As above 6% | $1,880 $900 |
| $70,000 to $85,000 | First $70,000 Next $15,000 | As above 8% | $2,780 $1,200 |
| $85,000 to $100,000 | First $85,000 Next $15,000 | As above 10% | $3,980 $1,500 |
| $100,000 to $115,000 | First $100,000 Next $15,000 | As above 12% | $5,480 $1,800 |
| $115,000 to $130,000 | First $115,000 Next $15,000 | As above 14% | $7,280 $2,100 |
| Above $130,000 | First $130,000 Above $130,000 | As above 16% | $9,380 - |
- For non-owner occupiers, you are taxed differently. The following applies:
Non-Owner-Occupier Tax Rates
| Annual Value | Tax Structure | Tax Rate | Tax Payable |
|---|---|---|---|
| Up to $45,000 | First $30,000 Next $15,000 | 10% 12% | $3,000 $1,800 |
| $45,000 to $60,000 | First $45,000 Next $15,000 | As above 14% | $4,800 $2,100 |
| $60,000 to $75,000 | First $60,000 Next $15,000 | As above 16% | $6,900 $2,400 |
| $75,000 to $90,000 | First $75,000 Next $15,000 | As above 18% | $9,300 $2,700 |
| Above $90,000 | First $90,000 Above $90,000 | As above 20% | $12,000 - |
- As you can see, your taxes will be considerably higher if you don’t intend to live in the property, which is something you should consider.
- As for non-residential properties, you will be taxed at 10% of the annual value.
2. Restrictions and cooling measures
In an attempt to combat speculation within the real estate market, the government has introduced rules that you should be aware of that make it less profitable if you’re planning to sell your property in the short term. The cooling measures you should be aware of include:
- Additional buyer’s stamp duty – This is applicable to people who already own a property in Singapore and wish to buy another, as well as to foreign citizens. Foreigners are charged stamp duty of 20% on real estate purchases.
- Seller’s stamp duty – If you’ve held property for less than four years, you may need to pay stamp duty before you sell it. If you’ve only held property for one year, this could be as much as 16% of the sale price, so you need to be wary of this if you’re planning a short-term investment.
- Total debt servicing ratio – This determines how much money you’re allowed to borrow to complete a home purchase. In Singapore it can be no more than 60% of your income.
- Loan to value ratio – The more home loans you need to service, then less money you’re allowed to borrow. In Singapore, for your first mortgage your LTV ratio can be up to 75%, whereas for your third mortgage onwards it can’t be more than 35%.
If you’re a non-Singapore permanent resident buying alone, you can only buy a private executive condominium (EC) that is more than ten years old. As a foreign buyer, you will also be required to pay a Buyer’s stamp duty and mortgage duty. As such, and in order to fully understand which cooling measures and restrictions apply to you as a foreign buyer, contact us now and we would be delighted to talk you through each of these in finer detail.
3. Be aware of the factors that affect real-estate prices
As well as the taxes and government restrictions & cooling measures, there are several factors that affect real-estate prices in Singapore that you need to be aware of. These include:
- Interest rates – Current interest rates in Singapore are low, sitting at around 0.10%. This is great news for potential investors, but you should be aware that this is liable to change.
- Leasehold agreements – There tend to be two types of leasehold in Singapore: 99 years or 999 years. The latter is more lucrative and desirable, and as such may make the purchase price of the property higher.
- Freehold agreements – There are two main types of freehold estates in Singapore. The first is known as ‘fee simple,’ where the owner owns the property indefinitely without the need to pay rent. The second is known as ‘life estate,’ which is much less common, and confers ownership for the duration of the person’s lifetime.
- Estate in perpetuity – This is an interest in land, which is created by the grant of land to an individual by the state in perpetuity (subject to terms and agreements agreed by the two parties).
- Location – Naturally, the location of the property will affect the price of your investment. Be sure to carry out some research into the most sought-after locations in Singapore.
- Surrounding infrastructure – Properties located close to excellent transport links, education institutions, and healthcare facilities are likely to command a higher price.
- The overall condition of the property – As you would expect, older properties that are in comparatively worse structural condition will not be as expensive but may require ongoing repairs. Be careful when buying older properties, particularly if you plan to rent it out.
All of these factors will affect your decision when it comes to investing in property in Singapore, so you should factor them into your budget to ensure you aren’t met with any unpleasant surprises along the way.
4. Where to buy property in Singapore
Singapore is a densely populated city, and there are many enviable places to invest in property. You will have to think about what is most suitable for you and your family, but the following might help you as a brief guide:
- Districts 15 & 16 (East Coast Vicinity) – best for outdoor activities and leisure.
- District 9 (Killiney, Orchard, River Valley & Grange Precinct) – best for shopping, high-end entertainment and dining.
- District 10 (Bukit Timah precincts) – best for spacious homes in leafy suburbs, with close access to international schools.
- Districts 1-8 (Marina Bay, Raffles Place, and Sentosa) – best for those looking for an easy commute to central business district.
There’s no right or wrong place to buy property in Singapore, so you will have to research each area to find something that’s suitable for you.
