Are you considering to buy your second property in Singapore? One should not choose to buy a second property without understanding the dynamics of the residential market, whether they can really afford it, or if they are even eligible for a second property purchase in Singapore.
While you MIGHT have gone through this before at the time of purchasing your first property, it is still a good idea to revisit the information and knowledge as there might have been revisions and updates to related policies and regulations, which could affect your decision of purchasing or investing in your property number two.
Most Singaporeans own at least one property, giving Singapore one of the highest rates of homeownership in the world. It is also not uncommon for homeowners to buy more than one property as a form of investment, generating rental income from it.
IS IT WORTH IT TO BUY A SECOND PROPERTY IN SINGAPORE?
Investing in property is one of the popular ways of growing your money in Singapore. And in the current low-interest-rate environment, it would be quite enticing to buy a second property in Singapore.
Buying a second property can be a fulfilling investment and may extend beyond the financial benefits. Many Singaporeans see rental income as a gateway to achieve early financial freedom or create a sustainable income stream to augment their pension in retirement.
A second property can also help generate rental income that helps cover your daily bills or monthly mortgage instalments. If chosen carefully, you might also be able to rent it out as a holiday home to business travellers and vacationers to generate extra income.
Some might also consider the second home as a new place of residence for the family or a house for their kids in future. Some people might also want to buy a second home as an addition to their investment portfolio, which they may simply renovate and sell for a quick Return on Investment (ROI) before investing again elsewhere.
Buying a second property can be a risky move and may wreak your finances if you go out unprepared. You must consider whether you can afford the down payment, monthly mortgage repayment and ongoing expenses when deciding whether to buy a second property in Singapore or not.
If you are looking at the property to rent out, consider the area carefully and its market rental costs to get an idea of how much rental income you will be able to generate vs associated bills and expenses with the second home.
CAN I OWN TWO PROPERTIES IN SINGAPORE?
Yes, of course. If you already have a private property, then you can purchase a second and subsequent private properties in Singapore with no legal implications.
On the other hand, if your first property investment is a public housing, such as new or resale HDB flat, Design, Build and Sell Scheme (DBSS) flat or Executive Condominium (EC), then you are bound by certain restrictions for buying a second property.
It is imperative to check the latest Monetary Authority of Singapore (MAS) housing rules to know whether or not you are qualified to acquire a second property.
In Singapore, the government imposes several restrictions on your second property if the first property owned is HDB property. If you are residing in an HDB property, you are not eligible to buy a second property in Singapore until you meet the Minimum Occupancy Period (MOP) of five years.
This applies to both new and resale HDB flats. Also, if you already own an HDB flat, you are not allowed to purchase a second one. You must continue to stay in your HDB property even if you buy a second property elsewhere – i.e. unless you are permitted to sublet it by HDB.
Since ECs are only privatised after the tenth year, they are also HDB properties and hence also subject to the MOP rule. Note that such restrictions only apply for existing owners of HDB properties (public housing) and there are no such eligibility issues for private property owners considering a second property investment.
If you are a Singapore Permanent Resident (PR) who owns an HDB flat and looking to purchase a second or subsequent property, you must move out of the existing HDB flat within six months of buying the new private property.
Meanwhile, if you are a Singaporean citizen looking to purchase a private residential property, you don’t need to move out of your HDB flat or EC. You just need to fulfil the MOP requirements to be eligible to buy the second property.
Those who currently own private property and looking to purchase another EC or HDB must dispose of their private property within six months of acquiring the new property. For EC, it is at least 30 months.
Please note that it will make more sense to sell before purchasing as this will then be considered as your first property.
But before buying your second home, consider these three factors first: eligibility, affordability and intent.
1. Eligibility
Remember the Minimum Occupancy Period (MOP)
Those who already own a HDB flat cannot buy a second property until they meet the five-year MOP. The MOP applies to both new and resale flats in Singapore.
Keep in mind that Executive Condominiums (EC) are only privatised after the 10th year. Until then, ECs are still HDB properties and hence bound by such rules as the MOP.
2. Affordability
How much can you borrow for your second property?
Banks assess your loan eligibility based mainly on these two criteria, which are:
1. Total debt servicing ratio (TDSR)
The TDSR states that you should not have more than 55% of your gross monthly salary devoted to servicing your loans in a month. This can include all types of debt, including car, home, personal, and even student loans.
In the case of loans taken to purchase HDB flats, the monthly repayment instalment cannot exceed 30% of a borrower’s gross monthly income.
2. Loan-to-value (LTV) ratio
In Singapore, HDB loans have a maximum LTV of 85%, whereas for bank loans it is 75%. However, HDB and banks are not required to offer you the maximum LTV. They can choose to lower it if they think it would be more appropriate. Age and the existing number of properties also play a part in the LTV ratio.
The minimum cash down payment
For your second property, you will need to pay up to 25% of your property’s down payment in cash. This will be measured against the property’s valuation limit, which is determined by the property value or purchase price, whichever is lower and any excess above the valuation.