With the current situation of the real estate market, it is without a doubt very enticing to buy a second property. Whether you are fully paid or half-way through your first property purchase, acquiring another residential asset can seriously wreck your finances. If come unprepared, there’s a huge possibility that you will end up slaving another 15-20 years of your life just to pay that second home loan.
Even if you are a cash-rich entrepreneur or a working class citizen who wants to beef-up your investments, there are certain things you need to know before buying second property in Singapore. These tips will help you understand the crucial elements needed to make that yet another huge gamble of yours more on the winning side. Excited for that second property? Check out these tips to ensure that your subsequent acquisition will certainly be worth it.
7 Tips Buying Second Property
1. Verify the Housing Rules
Before you even begin looking for properties, it is imperative to check first the latest Monetary Authority of Singapore (MAS) Housing Rules. Keep in mind that buying second property in Singapore is bounded by qualifications especially for those who previously own HDBs or ECs. By knowing the MAS housing rules, you’ll be able to determine whether or not you are qualified on acquiring a second property. You don’t want to end up disappointed that after going through the whole buying process, everything would be rejected because you are not eligible to own a second property.
2. Know your Eligibility Status
Those living on HDB flat or Executive Condominium should fulfill the Minimum Occupancy Period (MOP) of 5 years before they are allowed to purchase another property. If you are a Permanent Resident who owns an HDB flat, and planning to buy a second property, you must first dispose the existing HDB flat within 6 months of purchase of the new property. But if you are a Singapore Citizen planning to buy a private residential property, you don’t need to dispose your EC or HDB flat, instead you just need to fulfill the MOP. On the other hand, those who owns a private property and planning to acquire another EC or HDB, you need to dispose your private property within 6 months (at least 30 months for EC) of purchase of the new property.
3. Ask About the Down Payment
When it comes to the required down payment, there is a huge difference between your first and second home purchase. If on your first home purchase you are required to make at least 5% cash down payment, on your second property purchase things will be very different. When buying second property in Singapore, you are obliged to shell out at least 25% down payment of the property’s valuation limit in full cash. The 20% difference is so significant that it will definitely have a huge impact on your finances. That is why, scrutinizing the numbers before signing the paper is a must.
4. The Loan-to-Value Ratio Matters
Loan-to-Value or LTV is a term used to describe the housing loan quantum a bank or any financial institution is willing to offer for potential home buyers. Simply put the LTV as an assessment before approving your mortgage. On your first home purchase, the LTV can range from 80-90%. Yet for your second property, the LTV drops down to 50% for loan tenure up to 30 years. If the tenure extends beyond 30 years or your 65th birthday, the LTV further drops to 30%.
5. Consider the Cost of ABSD
Continuing on these tips buying second property, you must equally take into account the cost of ABSD or the Additional Buyer’s Stamp Duty. Should you plan to acquire a second property in Singapore; you need to pay 7% ABSD if you’re a Singapore Citizen and 10% ABSD if you are a Permanent Resident. Foreigners on the other hand are tied to 15% ABSD regardless of subsequent property purchase. Bear in mind that the ABSD is paid on top of the Buyer’s Stamp Duty.
6. Assess your Total Debt Servicing Ratio
To ensure you don’t go over-the-top with your finances, it is wise to check your Total Debt Servicing Ratio or TDSR before finalizing the purchase of your second property. The TDSR is the sum of your total liabilities (including car loan, credit card, student loan, etc.) divided by your gross monthly income. This ratio measures how much of your take home pay is used to pay off debts like mortgage, car loan or credit cards. In a nutshell, your TDSR should be around 30-40%, anything that is over 50% is considered excessive. If your TDSR gives a value of over 50%, it is a big warning sign that you’re taking too much risk and may end up losing both properties.
7. You can still use your CPF to fund the 2nd property
Lastly on these tips buying second home in Singapore is the use of CPF to fund your subsequent property purchase. Under the Multiple Property Rule, you are allowed to utilize your Central Provident Fund to finance your second property. For your second property purchase, you can use the excess savings in your Ordinary Account (OA) after you have met the Basic Retirement Sum or BRS. To put this ruling in simple terms, you can use your CPF to pay down your second property provided that you have garnered enough savings for retirement.
Acquiring a second property can be very tricky not to mention financially challenging. But with the above tips buying second home in Singapore, you can make that subsequent property purchase indeed stress-free! Remember that not everything written on the internet about second property limitations are true, to clear all your worries away it is advised to consult with your trusted real estate agent.
Lastly, buying second property in Singapore doesn’t stop from acquiring the asset. You have to keep in mind the additional things you need to do such as paying the progressive tax rate, making sure that the unit is well-maintained, finding ways on how to make a passive income out of it, searching for tenants if needed, and many more.
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