Yay for first-time home buyers but nay for multiple Singaporean property investors, Singapore Permanent Residents and foreigners By Khalil Adis The Urban Redevelopment Authority’s (URA) flash estimate of the price index for private residential property for the second quarter of 2018 showed that Singapore’s private property index has increased 4.9 points from 144.1 points in the first quarter 2018 to 149.0 points in the second quarter. This represents an increase of 3.4 per cent, compared to the 3.9 per cent increase in the previous quarter. URA’a data showed that private properties in the Rest of Central Region (RCR) increased the most in Singapore - by 5.7 per cent, after registering an increase of 1.2 per cent in the previous quarter. Meanwhile, those in the Core Central Region (CCR) increased by 1.4 per cent compared to the 5.5 per cent increase while those in the Outside Central Region (OCR) increased by 2.9 per cent after registering a 5.6 per cent increase in the previous quarter respectively. The Monetary Authority of Singapore (MAS) in a statement said the adjustments to the Additional Buyer’s Stamp Duty (ABSD) rates and Loan-to-Value (LTV) limits on residential property purchases were needed “to cool the property market and keep price increases in line with economic fundamentals.” Additional, MAS said private residential prices have increased sharply by 9.1 per cent over the past year after declining gradually for close to four years. See table below for the summary: Here are five ways the new ABSD rate will impact you
#1: First time Singaporean private home buyers can heave a sigh of relief The ABSD measures are aimed at second and multiple property owners to ensure they do not engage in excessive speculation which may bring property prices to unsustainable levels. Therefore, first time private home buyers will not be penalised as they are deemed as genuine homeowners. #2: However, bank loan margins for first-timers has been decreased Be prepared to cough up more cash upfront. The loan-to-value limit has been decreased from 80 per cent or 60 per cent if the loan tenure is more than 30 years or extends to more than age 65 to 75 per cent or 55 per cent if the loan tenure is more than 30 years or extends to more than age 65. This means you will need to pay 5 per cent in cash upfront if your loan tenure is 30 years or 10 per cent if it extends to more than age 65. While the remaining will need to be paid in cash and/or CPF. #3: Be prepared to pay an additional 5 per cent ABSD for second and/or subsequent properties for Singaporeans ABSD rate for second property has been increased from 7 to 12 per cent. Meanwhile, the ABSD rate for third and subsequent properties has been increased from 10 to 15 per cent. #4: Lower LTV ratio for a second property The loan-to-value limit has been decreased from 50 per cent or 30 per cent if the loan tenure is more than 30 years or extends to more than age 65 to 45 per cent or 25 per cent if the loan tenure is more than 30 years or extends to more than age 65. The minimum cash downpayment is now 25 per cent. #5: More cash upfront makes buying in Iskandar Malaysia more attractive You get more bang for your bucks investing in Iskandar Malaysia than in Singapore with the new ABSD rates. Assuming you are buying a second property for your own occupation, that 25 per cent cash downpayment for an S$1 million condominium translates to S$250,000 which could easily buy you a freehold landed or condominium development across the causeway. With a minimum purchase price of RM1 million and a 70 per cent loan margin, you might as well convert it to your RM300,000 downpayment, not including stamp duty, state levy, legal fees and so on. The downside is you will have to make to with the daily commute and traffic congestions until the Johor-Singapore Rapid Transit System (RTS) is ready in 2024.
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While this is the stuff of every Singaporean home owners’ nightmare, it is better to err on the side of the caution by knowing what happens when you break the law.
In Singapore where 80 per cent of the population lives in government- owned flats, (popularly known as Housing & Development Board or HDB flats), losing the roof over your head is really a big deal. Being government-owned, there are strict laws and regulations in place governing HDB flats. They include a minimum occupation period (MOP) of five years and a minimum rental period of six months per application when renting out your HDB flats. According to the Housing & Development Board, this is necessary “as it may disrupt the living environment and pose security concerns for our residents”. Take the example of two home owners whose flats were seized in 2014 for illegally renting them out to tourists. In both cases, the two owners had openly flouted HDB laws by renting them out on a daily basis. While there is no latest data as of 2018, the numbers could be higher due to the popularity of AirBnb listings. Between January 2012 to 2014, for instance, the HDB had seized 202 flats for breaking the law. So what can lead to such confiscations? Here are some of the common scenarios: #1: You illegally rent out your property Every HDB flat has a MOP of five years. us, you are not allowed to rent out your flat if you have not reached the MOP. #2: You rent out for a short-term period AirBnb type of accommodations are not allowed in HDB flats as the minimum rental period for each tenant must be 6 months per application. us, flat owners are not allowed to rent out their flats or bedrooms on a short-term basis. #3: You did not register with the HDB after renting out your flat Granted, you have fulfilled the MOP, it is still against the law if you do not register the particulars of your tenants with the HDB. #4: Your tenants are involved in illegal activities Illicit businesses like prostitution in the heartlands have become rife and a common problem nowadays. While the tenants are the ones breaking the law, the onus is on the owners to do regular spotchecks to make sure your tenants are not involved in such illegal businesses as this may affect the harmony of your neighbourhood. #5: You bought a private property before the minimum occupation period is up Owning a HDB flat is a privilege and not a right. By buying a private property in Singapore or overseas, before the minimum occupation period is up, you are essentially denying a more deserving Singaporean a roof over their head. #6: You have not been paying your mortgage This is a last minute resort if you have persistently not been clearing your arrears despite HDB’s best intentions. In this case, the HDB has the right to confiscate your flat. However, such households will be given alternative accommodation such as downsizing to a flat that they can afford or renting a flat directly with the HDB. With the exception of the last scenario, losing your HDB flat can have very grave implications. Let’s take a look at them: Implication No: 1: Financial losses Assuming you had broken the laws, the HDB has the right to take back your flat at the price that it was purchased after deducting a penalty. While the HDB does not leave you financially destitute, this also means you will not be able to enjoy the capital appreciation on your flat. Let’s take the case of a property agent, Poh Boon Kay whose HDB flat was repossessed by the HDB in 2010 after he and his wife was found to have illegally sublet his home. While they both had bought the HDB flat from the open market at S$150,000, he was reportedly paid S$125,000 after deducting the penalties. At the time of the confiscation, his flat was worth S$320,000. That’s almost a loss of S$200,000! Implication No: 2 No roof over your head Unlike the last scenario, because you had broken the law, you’re on your own. This not only creates a huge fiinancial burden as you will now have to either rent or buy a private property, but also deal with the emotional stress and uncertainty of not having a roof over your head. Takeaways While HDB is an asset, it can also lead to huge financial losses if you break the law. The takeaway is this, it is always better to err on the side of caution when it comes to government-owned flats in Singapore as the repercussions far outweigh one’s ignorance and financial greed. This article was first published by Asian Property Review, March-April 2018 issue |
Khalil AdisAn independent analysis from yours truly Archives
July 2023
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