Buying your second residential property: what are your costs, implications and how much CPF can you use

Many Singaporeans dream of owning a second property, collecting rental and subsequently selling off the investment unit for a good capital appreciation and sitting on a tidy profit. In this article, we explore a range of considerations that you may consider before taking the plunge. These include:

 

  • Your Eligibility
  • Downpayment
  • Loan to Value Ratio
  • Taxes – ABSD and Property Tax
  • Total Debt Servicing Ratio (TDSR)
  • Usage of CPF funds
  • Rental Yields
  • Interest Rates
  • Market Cycle

 


YOUR ELIGIBILITY

 

IF YOU OWN A HDB FLAT OR EXECUTIVE CONDOMINIUM (EC):

You cannot buy another property within 5 years due to the Minimum Occupation Period (MOP).

 

IF YOU OWN A PRIVATE PROPERTY:

You are not eligible to buy a HDB or EC until 30 months after you have disposed of your current property.

 

If you intend to buy another HDB flat, you are required to dispose of your current flat within 6 months.

 


DOWNPAYMENT FOR MULTIPLE LOANS

 

One of the most important factors is the cash required upfront. If you have an existing loan and require a second loan, this is the amount you need:

 

1st property: 5% cash

2nd property: 25% cash

 

The percentage is based on the purchase price, or valuation of the property, whichever is lower.

 

If you have cleared your first housing loan in full, only the 5% applies.

 


LOAN TO VALUE RATIO (LTV)

 

Your loan to value is the housing loan quantum a bank is willing to loan you based on the valuation of your property.

 

For your first property, if you are taking a HDB concessionary loan, you have 90% LTV, 25 years maximum tenure.

 

If you are taking a bank loan, whether for HDB or not, refer to the tables below:

 

  1st Housing Loan
Loan Tenure Up to 30 years 31-35 years
Age Up to 65 >65  
LTV 80% 60% 60%
Cash component 5% 10% 10%
CPF/Cash 15% 30% 30%

 

 

  2nd Housing Loan
Loan Tenure Up to 30 years 31-35 years
Age Up to 65 >65  
LTV 50% 30% 30%
Cash component 25% 25% 25%
CPF/Cash 25% 45% 45%

 

 

  3rd  Housing Loan onwards
Loan Tenure Up to 30 years 31-35 years
Age Up to 65 >65  
LTV 40% 20% 20%
Cash component 25% 25% 25%
CPF/Cash 35% 55% 55%

 

For other permutations or 3rd property, consult our HomeReward partner agents

 


TAXES

 

This consists of the Buyer’s Stamp Duty (BSD), Additional Buyer’s Stamp Duty (ABSD) and property taxes.

 

The BSD is applicable to ALL property purchases, whether residential or industrial. A simple way to calculate :

 

  • Properties above $360,000 but below $1,000,000 is 3% - $5400
  • Properties above $1,000,000 is 4% - $15400

 

The ABSD applies to purchasers of second properties. Singapore citizens will have to pay 7%, permanent Residents pay 10% and foreigners pay 15%. To check on your ABSD status, use our ABSD calculator HERE.

 

The progressive property tax rate is applicable to all properties. You may only have one owner-occupier tax rate so your second property will be subject to a higher rate of 10% upwards whether rented or left vacant. This rate is based on the Annual Value of your property, which is based on its estimated rental. For a detailed explanation, read our article on property taxes and how it affects you.

 


TOTAL DEBT SERVICNG RATIO (TDSR)

 

The TDSR is the sum of your total liabilities divided by your gross monthly income. The TDSR limits the home loan quantum by ensuring your monthly repayments for all your debts – existing mortgage, credit cards, car loans, personal loans, and so on - do not exceed 60 per cent of your monthly income.

 

If your family’s combined income is $10,000 a month, the TDSR is $6000. If your total loan liabilities are $4000, this means your maximum monthly loan repayment is $2000 ($6000 - $4000).

 

The loan tenure is calculated using the income-weighted age of all borrowers. If you are unsure about your TDSR calculation, contact your mortgage broker or speak to HomeReward consultants now.

 


USAGE OF CPF FUNDS

 

Your Central Provident Fund can be used to finance your second property under the Multiple Property Rule. If you have used your CPF for an existing property, you would need to set aside the Basic Retirement Sum (BRS) before you can use the excess savings in your Ordinary Account (OA) for subsequent properties. For 2018, the sum is $85,500. This figure increases every year. To get more information about the BRS, click HERE.

 

Your Basic Retirement Sum includes amounts in your Ordinary Account, Special account, investments, and Retirement Account (for over 55 years of age).

 


RENTAL YIELDS

 

As the second property will be your investment vehicle, knowing the rental yields will help you to make informed choices to maximize your investment. Some condos are more popular than others and command a better yield. Use an experienced agent or do your own research. These condos tend to be near the MRT and are mixed developments.

 

You can check past transactions of units in your development or compare it with similar units in your precinct to decide how much your rental rate will be. If you are buying a new project, do factor in more time of vacancy due to defects checking lag time, renovation and competition from other owners renting out their units.

 

As a side note, do check out the maintenance fee as well. This will eat into your overall profit.

 


 INTEREST RATES

 

Interest rates are never fixed. 2018 is predicted to be a year of rising interest rates, therefore it makes more sense to go with a fixed rate. You may wish to check with your banker what the best packages are once your lock-in period has expired to save on paying interest, especially if you are using a floating rate now.

 

Many buyers are also under the perception that if the interest rates double, their installment will double as well. This is untrue as interest only makes up a smaller portion of your monthly mortgage repayment.

 

However, when calculating your affordability, always have some leeway for higher interest rates. To consult our HomeReward consultants about your financial standing, click HERE.

 


MARKET CYCLE

 

When you go into the property market plays an important part in whether your investment will make sense or not. Many factors, including government policies and masterplan, population growth, taxation and the global economy status will affect your investment. Besides location and timing, entry price is a major factor that will either make or break your investment. If you are considering these issues and wish to discuss with an experienced agent, click HERE.

 

Lastly, buying a second property requires more careful thought as the purchase will be less leverage and you have to fork out substantially more upfront cash. Failure to keep up with the installments may lead to you losing both properties. We urge you to go through your financial plan with a trusted real estate consultant in order to make sure your new acquisition enhances and progresses your portfolio.

 

Disclaimer : This article serves as a guide only, and you should not make your decision based solely on this article. You are advised to seek professional advice from a licensed real estate salesperson to assist you in planning your real estate portfolio.