January 31, 2024

Guide to Buying Private Property for First Timers: 2023 Checklist

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Guide to Buying Private Property for First Timers: 2023 Checklist

In 2023, with housing prices skyrocketing across the boards, buyers often wonder if this is the best time to seal the deal on private residential property. Though a resale flat seemingly offers more room at lower costs, eligibility restrictions could always bite back in future.


We always encourage buyers to adopt a long-term perspective – remember to take into consideration factors beyond purchase price, especially when it comes to such a big financial commitment. 


If you are wondering whether to take the leap on your first home purchase and nab a private property, here’s a quick guide on buying private property in Singapore for first-timers – we’ll let you in on some of the trade pros and cons


Pros of Buying Private Residential Properties



It goes without saying – most private condos have facilities like gyms, pools, or clubhouses – so we won’t state the obvious. What you REALLY want to consider is the list below:


1. Fewer eligibility issues



Here’s the thing: Housing Development Board (HDB)‚ flats have heaps of eligibility issues. HEAPS. For one, couples that are both Permanent Residents (PRs) must both have possessed PR status for a minimum of three years. Plus, you can’t buy a flat as a single until you hit 35…and don’t even get us started on the ethnic quota. There’s loads more to consider.


Private properties help you to skip all these nitty-gritty rules. Although some regulations still do exist (e.g. foreigners can’t buy landed houses beyond Sentosa Cove), aside from these, you don’t really have much standing in the way.


In a few cases of first-time buyers (e.g. life-long singles, couples that can’t be married, or couples where one is a foreigner), you may find it makes more sense to head straight for buying a private home (financial constraints withstanding, of course).


*If you purchase an HDB flat where one spouse is a foreigner, only the Singapore citizen is eligible to own the property – the spouse can only be an essential occupier. Thus, the citizen must singlehandedly qualify for, plus take on, the entirety of the home loan. 


Avoid Additional Buyer’s Stamp Duty (Property Tax)

Loathed by second-time home buyers (and for good reason), the ABSD rates increased to 17% after the 2021 property cooling measures kicked into full gear. But how does this impact first-time private homeowners exactly? You’ll still have to fork out ABSD temporarily, as the amount will be refunded to you once you’ve sold your previous property within the 6-month window.


New laws from 9 May, 2022 with regards to residential properties transferred into a living trust:


Additional Buyer’s Stamp Duty (ABSD) of 35% will now apply on any transfer of residential property into a living trust. ABSD will be payable even if there is no identifiable beneficial owner at the time the residential property is transferred into a trust.


So this new change closes a loophole. This ABSD (Trust) is to be paid upfront when the transfer is made.


2. Fewer restrictions on resale



Buyers can sell private property whenever they fancy, although do note that Sellers Stamp Duty (SSD) will apply within the first three years. This fee comprises 12% of sale proceeds in the first year, 8% in the second, and 4% in the third.


Though this is admittedly a large portion of proceeds that you need to sell early on, this does allow for more flexibility. Some private properties have even sold for a profit as subsales (before completion)!


Sadly, HDB flats don’t give you this option, in which you must legally meet the Minimum Occupation Period (MOP) of 5 years before selling your flat. Do remember that MOP is from the date of your key collection, so for BTO flats, this totals to 9-10 years before you are free to sell your flat.


Of course, there are exceptional circumstances in which you may be able to sell before MOP, but these are largely dependent on HDB’s decisions (typically, it’s divorce cases that get approval).


Buyers’ needs differ from person to person, and some may need flexibility. For example, you may not be sure that a home you’re looking at now will still fit right in 3-4 years. Because of this, some home buyers would prefer a small private residential property in a desirable location, while still keeping the flexibility to move soon if needed.


3. Immediate rental is on the cards



Some first-time home buyers are alright with living with in-laws for a period, or having other family properties they can live in. These fortunate few can consider buying a property of their own and renting it out instead – the income inflow can help cover interest and maintenance fees, so this helps them keep a steadily appreciating asset under their belt.


It’s not unheard of for young couples to purchase a property, then rent it out for a few years before moving in and settling down. This move helps to defray a portion of home ownership costs. 


On the other hand, with an HDB flat, until your Minimum Occupancy Period (MOP) is up, you can’t rent out the unit (and PRs can’t even rent out the whole flat, even then). You can only rent out rooms, and only if your flat is 3-room or larger.


4. Might be required for certain pet owners



HDB flats only allow a restricted range of dog breeds. Cats are technically not approved; neither are loads of exotic pets (e.g. snakes, iguanas, big spiders, etc).


Generally, it’s safe to say that if nobody lodges a complaint, nothing happens. But if you have to choose between your pet and your house in the unlucky event someone does, remember you’re still bound by a 5-year MOP.


Though a private condo can be just as severe with pet rules, you’ll find that a condo generally is more open to pets than HDB flats are. If you’ve already got pets in the mix, you may find that an HDB flat is just not on the cards for you.


5. TDSR will improve your affordability



Affordability is often a key constraint for first-time buyers. Two major measures that constrain how much you can borrow are (1) Total Debt Servicing Ratio (TDSR) and (2) Mortgage Servicing Ratio (MSR). To summarise, TDSR is applicable to private property, and MSR for HDB flats.


Because private residential properties are limited by TDSR but not MSR, the affordability of your unit actually improves!


For example, let’s posit that your monthly income is $10,000, and you’re looking to take on a bank loan with a minimum down payment of 25%.


The MSR rule of 30% means that the maximum property size you can feasibly take is about $800,000. In contrast, under the TDSR rule of 55%, this number leaps to $1.46 mil.


Cons of Buying a Private Property



1. Much higher cash outlay


For private propreties, you must use a bank loan, which means paying the first 5% in cash. The typical $1.5mil condo means this number totals to roughly $75,000! This is a hefty amount for young couples, particularly when you consider other miscellaneous costs (e.g. wedding, children).


Though the borrowed percentage from banks tends to be less than an HDB home loan, the sheer quantum means that monthly recurring costs (i.e. monthly repayments) are much more sizable. We strongly advise that monthly home loan payments stay below 30% of your combined monthly income (even though some debt limitations will allow up to 60%).


2. Banks are far less forgiving to young couples



Where HDB’s main objective is to provide housing to the people, a bank’s is purely for business. In the event that something goes awry and you have to miss mortgage repayments, having an HDB loan will be more favourable for you.


HDB only repossesses the flat as a final, final last resort, and it’s much likelier for them to be flexible – for example, allowing you to make up late payments at a later date, resell before your MOP is up without penalties, etc.


Though do note that these are often decided on a case-by-case basis. And of course, this does not mean you can get off scot-free without paying for your HDB loan – we just mean that HDB will often try to find alternatives!


Homebuyers in higher-risk situations (for example, both spouses have a purely commission-based salary) may find that the HDB route offers more security. This is the same for those just kick-starting their own business, or who expect medical or family issues in the future that could prove a financial disruption.


3. Maintenance fees are much higher



On average, you’ll fork out $200 to $300 every month for condo maintenance. Contrast this to how even conservancy fees for 5-room flats rarely total to beyond $90 monthly. Perks like pools, tennis courts, BBQ pits, and gyms all come at a cost…and these costs add up. This can again present a problem, like the high cash outlay, for buyers who already have other costs like a child or paying off a wedding.


Plus, something people don’t often mention with regards to maintenance fees is that if you happen to pay up late, there’s a pretty hefty interest fee charged – typically around 15% annually. And you’ll find that unlike conservancy fees, you can’t plead your case at a town council.


4. En-bloc risk



Private residential units are at risk of en-bloc attempts, especially for older developments coming near to the middle of their leases. Do remember that SSD still applies to en-bloc sales, regardless of whether you voted for or against the en-bloc.


This means that new buyers should be careful of purchasing very old resale condos – you never know if an en-bloc will happen in the first few years of ownership. Plus, if you’ve just bought and renovated a home, you’ll incur pretty substantial costs on top of SSD charges that will far outweigh the feasibility of the deal you’ll get.


Particularly for a new condo, you should know that en-bloc attempts are all around common for private properties; it’s only a matter of time. If you’re not a fan of this, HDB flats rarely ever see en-bloc attempts: they are only made by the government (and this typically only happens to roughly 5% of all HDB estates).


Of course, there are buyers that view en-block risk as en-bloc potential, and consider this an advantage instead, so do with this information what you will!


5. Difficult to get a BTO flat when downgrading



Sadly, young couples often face issues when switching from landed property back to HDB flats. 


For instance, if your first condo is a 1 or 2-bedder, you’ll probably have to sell it to get a bigger resale flat when it comes to starting a family. However, after selling, you’ll have to wait 30 months to ballot for a BTO flat!


Realistically speaking, this restricts most Singaporeans who want to downgrade to the resale HDB market – and not all buyers are happy with flats that are more expensive, but have shorter leases.


Hence, if your first home is going to be private, that’s why we suggest it be large enough that it can accommodate future life changes (e.g. marriage, children, pets, etc) down the road.


Frequently Asked Questions

What is considered private property in Singapore?


In Singapore, properties fall under two categories: public (HDB flats), and private housing. In this article, we refer to private properties as condominiums, landed property, and executive condominiums (ECs).

Do take note that executive condominiums (ECs) are only considered full-blown private housing from the 11th year and beyond. Prior to this, ECs are subject to some of the same rules as public housing.

Who can purchase private property in Singapore?


Source: New Condo Launch Singapore 2021


Foreigners above 21 cannot buy landed property or HDBs, unless they marry a Singapore citizen. Though they can purchase condos, this will cost an extra 20% in Additional Buyer’s Stamp Duty (ABSD) fees. 


Looking for more information on purchasing private housing as a foreigner? Check out this article for more details! https://www.wtg.com.sg/landed-property/foreigner-singapore


What are the benefits of purchasing private property?

Source: myexclusivecondo.com


There are loads, as we mentioned earlier, but some of the crowd favourites are that the freehold or 999-year lease on private properties are highly valued, especially in land-scarce Singapore. 


What else should I note about purchasing private property?

Source: Singapore Property Website


In summary, restrictions on home loans are different for private and public housing. SSD is present for private housing, though buyers do not have to abide by a MOP. Take note, however, that grants are not applicable in the case of private properties.


Citizens can use their CPF savings from their CPF Ordinary Account (OA) to purchase property in Singapore. The amount you can use is subject to the valuation limit (VL) and withdrawal limit (WL). 


VL refers to market value or purchase price of the property at the time of purchase – whichever is lower.


WL refers to the maximum amount of CPF monies you can use on your property; this is presently capped at 120% of the VL.

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