Factors to Consider in Buying a Residential character in Singapore

Factors to Consider in Buying a Residential character in Singapore

Due to the success of Singapore’s public housing policy, which began in the 1960s, 80% of the Singapore’s populace live in HDB flats today. Private housing are mainly for higher income earners. Those considering buying a residential character in this island nation have to take into account a variety of factors, we will take a closer look at each in turn in this article.

Reason for buy

First and foremost, buying a character for investment or owner-occupation makes a difference.

Naturally, if it is for investment, the chief factor in consideration will be the capital gain. however, buying for owner-occupation makes capital gain a secondary concern. In this case, more important factors will be the current or future size of the household. A retiree or single may opt for a smaller flat. While a young, married associate may also choose a small flat if their financial method are limited, or a large flat if they are planning to have children and provided if they are high enough to provide it.

kind of housing

The next consideration is the housing kind. With the many types obtainable, buyers are often spoil for choice. The below two tables compare the private and public housing segments.

Table 1: obtainable Housing Types in Singapore

1. HDB (99-year lease)

  • Build-to-Order (BTO)
  1. Studio Apartment (30-year lease)
  2. 2-room Flat
  3. 3-room Flat
  4. 4-room Flat
  5. 5-room Flat
  • Executive Condominium
  • Design and Build (DBSS)
  • Executive Flat (No longer built)
  • Executive Maisonette (No longer built)
  • HUDC (No longer built)

2. Private Housing (60-*, 99-, 999- year lease; freehold)

  • Walk-up Apartment
  • High-rise Apartment
  • Condominium
  • Shoebox Apartment
  • Soho
  • Strata Titled Cluster Housing
  • Inter Terraces
  • Semi Detaches
  • Bungalows
  • Landed Housing
  • Inter terraces (kind 1 and 2)
  • Corner terraces
  • Semi Detaches
  • Bungalows
  • Good Class Bungalows
  • Sentosa Landed Housing (the only landed similarities in Singapore for which foreigners can buy with express approval)

* A land at Jalan Jurong Kechil is the first 60-year lease plot to be sold (on 15 November 2012); consequently a 60-year private character will be obtainable in a few years’ time.

** Executive Condominium becomes private after 10 years.

Table 2: Comparison of HDB and Private Housing

1. HDB

  • Eligibility:
  1. Direct buy from HDB – Singaporeans Gross Monthly Household Income ≤ $10,000 (For Executive Condominium ≤ $12,000)
  2. Resale – Singaporeans and long-lasting Residents
  • 99-year Lease
  • Most Affordable kind of Housing
  • For Owner-occupation
  • Lower Maintenance Cost (Conservancy Charges)
  • Stringent Restriction for Leasing Out
  • Minimum Occupation Period

2. Private Housing

  • 60-, 99-, 999- year Lease; Freehold
  • Tend to be More Expensive
  • For Owner-occupation and Investment
  • Higher Maintenance Cost (character Taxes, Monthly Maintenance Charges, etc.)
  • No Restriction for Leasing Out
  • No Minimum Occupation Period
  • Eligibility:
  1. Non-landed – Foreigners, Singaporeans and long-lasting Residents
  2. Landed – Singaporeans

* A land at Jalan Jurong Kechil is the first 60-year lease plot to be sold (on 15 November 2012); consequently a 60-year private character will be obtainable in a few years’ time.

To decide which housing kind suit the buyer’s budget, a commonly used measure of housing affordability is the debt-to-service ratio (DSR), defined as

DSR = Monthly Debt Service / Monthly Gross Household Income

The internationally recognised benchmark for housing affordability is a DSR of 30 per cent. For example, based on a household with a monthly income of S$3,000 buying a S$300,000 3-room HDB flat, with no housing grants, the household can take a loan of up 80 per cent of the price (assuming that they have no noticeable mortgage loan), or S$240,000. Given an annual interest rate of 2 per cent, based on a 30-year loan, the monthly installment incurred will be about S$887. This works out to a DSR of approximately 30%, which nevertheless falls within the affordable range.

Another widely used affordability measure divides the price of a home by a possible buyer’s annual income.

Nevertheless, these two measures are only short-term measures as buyers’ income may change over time.

To conquer this issue, a long-term measure of housing affordability was developed by Prof Abeysinghe of the National University of Singapore, to find out more about this measure go here.

When deciding between a HDB and private character, besides the affordability, buyers may also want to look at the investment possible of the houses.

HDB flats’ investment possible

From the Government’s standpoint, HDB flats are meant for living purposes and not for speculation. Hence HDB flats are placed under a Minimum Occupation Period (MOP) of 5 years whether for a resale or direct buy from HDB. This curbs house flipping of HDB flats.

Nevertheless after MOP, owners of larger HDB flats can make a profit by downgrading to a smaller unit. Those who are tempted to sell for a profit during a booming character market may not be better off as they will have to pay a high price for another flat. additionally, if their current flat was bought with a housing grant, they will have to incur a resale levy when they buy a second subsidised HDB flat.

However, some Singaporeans are nevertheless profiteering from renting out their HDB flats.

Under current regulations, owners of subsidised or non-subsidised HDB flats have to meet the requirement of a 5-year MOP before they are allowed to rent out their flats. Exceptions are made for owners who live overseas.

Furthermore, there are restrictions on the rental periods. For Singaporean owners they could rent out their flats for a period of 3 years after which they could request for extensions with no cap on the number of requests. For PRs, however, it is a different story. They are only allowed to rent out for a period of a year, unprotected to discretionary extensions, with a limit of 5 years on the total rental years allowed.

Private housing’s investment possible

In contrast, the rental rules for private similarities are less stringent. Of observe is that Singaporeans are not allowed to own HDB flats and private homes concurrently within the MOP. After the MOP, Singaporeans often make a profit by living in HDB flats while renting out their private similarities.

However, for adventurous homeowners who are looking at flipping private similarities to increase their wealth, they are restricted by the string of anti-speculative measures instituted by the Government since 2009.

similarities acquired after 20 February 2010, are placed under a Sellers’ Stamp Duty of 4% to 16% of the selling price or market value, whichever is higher, if they are disposed of within 1 to 4 years after buy.

In addition, for character purchases after 8 December 2011, an additional Buyer’s Stamp Duty of 3% is imposed on Singapore citizens buying their third and later similarities. For PRs, the 3% will be imposed on their second and later purchases, instead.

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