Considerations For Residential Property Investment In Singapore
Singapore, a global city with its strong accolade as an important
financial and trading hub, is under the radar for many investors from
around the world. The country’s solid fundamentals in physical
infrastructure and workforce, the clear rule of law, ease of doing
business, quality education and excellent living standards have created a
highly conducive environment for enterprises, foreign talent and the
high-net-worth community to invest here. Widely perceived as a safe
haven, Singapore is one of the destinations of choice for many potential property investors.
Coupled with high population density, healthy utilisation of real
estate and stable price movements, Singapore’s private residential
property is a highly-watched asset class amongst the locals and foreign
buyers. Notwithstanding the prevailing property cooling measures, the
steady annual transaction volume of over 20,000 private home units in
2017 and 2018 reflects healthy liquidity in the private residential
market, which supports prospects of capital appreciation and investment
To begin the journey of owning a private residential property in Singapore, an investor must consider two essential factors:
1. Establish Purchase Objectives
The intention to purchase a private residential property – for
owner-occupation, investment or asset portfolio diversification, is a
crucial driver to determine the selection process of the choice
property. The prime objective of owner-occupation would require an
assessment that is predominantly buyer-centric, whereby the location and
project attributes must fulfil the residence needs of the buyer. In
comparison, selecting a residential property for investment purpose
would firstly entail a comprehensive review of the location prospects,
for instance, if there are current and future demand drivers that would
enhance the rentability of the property. Asset portfolio diversification
would require a specialised approach in the selection of a new
residential property purchase that would achieve overall performance
objectives for the investor’s asset portfolio, in terms of holding
period and target returns. Establishing a clear purpose would aid the
investor in the selection process of a choice residential property in
the myriad of various options in Singapore.
2. Estimate Costs and Financing of Property Purchase
a) Stamp Duties
The cost of acquiring a private residential property extends beyond
the price of the property and fitting out costs in Singapore. Stamp
duties form an essential component, and the existing framework of stamp
duties (comprising standard Buyer Stamp Duty and Additional Buyer’s
Stamp Duty) in Singapore is a prime consideration for both local and
With effect from 6 July 2018, a Singapore citizen who is acquiring a
second property would have to pay an Additional Buyer’s Stamp Duty
(ABSD) of 12% of the property price*, while a Singapore permanent
resident is required to pay an ABSD of 5% for any first residential
property purchase. Foreigners are required to pay an ABSD of 20% for
buying any residential property.
All entities will be subject to the prevailing ABSD rate of 25%. In
addition, housing developers are subject to an additional non-remittable
ABSD rate of 5% upon stamping, i.e. aggregate ABSD rate of 30%.
b) Loan Limits
Financial institutions in Singapore are required to adhere to
loan-to-value (LTV) limits for all housing loans granted to residential
property purchasers to ensure they maintain a stable leverage position.
With effect from 6 July 2018, the government adjusted the LTV limits,
which do not apply to loans granted by the Housing and Development
Board, the master builder of public housing in Singapore.
The LTV limits for loan applications is also subjected to the Total
Debt Servicing ratio calculation to be assessed for the borrower.
c) Total Debt Servicing Ratio Framework
Since 28 June 2013, the government has implemented the Total Debt
Servicing Ratio (TDSR) framework for all property loans granted by
financial institutions (FIs) to individuals. The TDSR requires FIs to
take into consideration borrowers’ other outstanding debt obligations
when granting property loans.
In computing the total debt obligations of the borrower, all monthly
repayment for the property loan that the borrower is applying for, plus
the monthly repayments on all other outstanding property and
non-property debt obligations of the borrower, will be taken into
account. A specified medium-term interest rate or the prevailing market
interest rate, whichever is higher, is also to be applied to the
property loan that the borrower is applying for when calculating the
TDSR. In addition, a haircut of at least 30% to all variable income
(e.g. bonuses) and rental income, and haircuts to and amortisation of
the value of any eligible financial assets are to be applied in
assessing the borrower’s debt servicing ability.
Any property loan extended by the FI must not exceed a TDSR threshold of 60% for the borrower.