Due to the success of Singapore's public housing policy, which begins 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 property 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 purchase
First and foremost, buying a property for investment or owner-occupation makes a difference.
Naturally, if it for investment, the chief factor in consideration will be the capital gain. On the other hand, 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 couple may also choose a small flat if their financial means are limited, or a large flat if they are planning to have children and provided if they are rich enough to afford it.
Type of housing
The next consideration is the housing type. With the many types available, buyers are often spoil for choice. The below two tables compare the private and public housing segments.
Available Housing Types in Singapore
HDB (99-year lease) |
Private Housing (60-*, 99-, 999- year lease; freehold)
|
Build-to-Order (BTO)
- Studio Apartment (30-year lease)
- 2-room Flat
- 3-room Flat
- 4-room Flat
- 5-room Flat
Executive Condominium**
Design and Build (DBSS)
Executive Flat (No longer built)
Executive Maisonette (No longer built)
HUDC (No longer built)
|
Walk-up ApartmentHigh-rise Apartment
Condominium
Shoebox Apartment
Soho
Strata Titled Cluster Housing
- Inter Terraces
- Semi Detaches
- Bungalows
Landed Housing
- Inter terraces (Type 1 and 2)
- Corner terraces
- Semi Detaches
- Bungalows
- Good Class Bungalows
- Sentosa Landed Housing (the only landed properties in Singapore for which foreigners are eligible)
|
* A land at Jalan Jurong Kechil is the first 60-year lease plot to be sold (on 15 November 2012); thus a 60-year private property will be available in a few years' time.
** Executive Condominium becomes private after 10 years.
Comparison of HDB and Private Housing
HDB |
Private Housing |
Eligibility:Direct Purchase from HDB -
- Singaporeans
- Gross Monthly Household Income ≤
$10,000 (For Executive Condominium ≤
$12,000)
Resale -
- Singaporeans and Permanent Residents
99-year Lease
Most Affordable Type of Housing
For Owner-occupation
Lower Maintenance Cost (Conservancy Charges)
Stringent Restriction for Leasing Out
Minimum Occupation Period |
Eligibility:Non-landed -
- Foreigners, Singaporeans and Permanent Residents
Landed -
60-*, 99-, 999- year Lease; Freehold
Tend to be More Expensive
For Owner-occupation and Investment
Higher Maintenance Cost (Property Taxes, Monthly Maintenance Charges, etc.)
No Restriction for Leasing Out
No Minimum Occupation Period |
* A land at Jalan Jurong Kechil is the first 60-year lease plot to be sold (on 15 November 2012); thus a 60-year private property will be available in a few years' time.
To decide which housing type 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 outstanding 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 roughly 30%, which still falls within the affordable range.
Another widely used affordability measure divides the price of a home by a potential buyer’s annual income.
Nevertheless, these two measures are only short-term measures as buyers' income may change over time.
To overcome 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 property, besides the affordability, buyers may also want to look at the investment potential of the houses.
HDB flats' investment potential
From the Government's standpoint, HDB flats are meant for living purposes and not for speculation. Hence HDB flats are subjected to a Minimum Occupation Period (MOP) of 5 years whether for a resale or direct purchase 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 property market may not be better off as they will have to pay a high price for another flat. Moreover, 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 still 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 can be made for owners who live overseas or meet other special conditions.
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 not allowed to rent out their flats at all. In addition, when buying a HDB flat PRs will have to pay an Additional Buyer's Stamp Duty (ABSD) of 5%.
Private housing's investment potential
In contrast, the rental rules for private properties are less stringent. Of note 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 properties. Approvals have to be sought from HDB if they wish to living in their private homes and rent out their HDB flats instead.
However, for adventurous homeowners who are looking at flipping private properties to increase their wealth, they are restricted by the string of anti-speculative measures instituted by the Government since 2009.
Properties acquired after 20 February 2010, are subjected to 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 purchase.
In addition, for property purchases after 12 January 2012, an ABSD of 7% is imposed on Singaporeans buying their second properties, and 10% on their third and subsequent properties. For PRs, a 5% ABSD is imposed on their first property, and 7% on their second and subsequent purchases.
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