What You Should Think of Before Buying a Second Property in Singapore?

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Buying a second property is a tough decision these days because of the added stamp duties. Still, there are many investment opportunities out there and a second house is a huge benefit to the next generation. For example, there are numbers of property in Hougang Singapore where it is a popular residential area. Before you take the big step of buying a second property however, make sure you are ready.

1. Extra Cash 

For Singaporeans, the Additional Buyers Stamp Duty (ABSD) applies when purchasing any property beyond your first. This is currently 7% of the purchase price or property value, pending whichever is higher. Singapore Permanent Residents would already have paid 5% ABSD on their first property. This is doubled to 10% for their second property. For foreigners, the common ABSD rate of 15% applies on all properties they purchase. However, bear in mind that some foreigners such as American citizens do not pay this ABSD rate due to free trade agreements. You may check with your embassy or the Inland Revenue Authority of Singapore (IRAS) for more details. The ABSD and other stamp duties, are to be paid within 14 days of signing the purchase and sale agreement. If the agreement is executed overseas, the stamp duties are to be paid within 30 days of receiving the relevant documents in Singapore. 

2. Using your CPF to buy a second property 

You may use your CPF Ordinary Account (CPF OA) to pay for the stamp duties, however, the CPF monies may not be pay out in time to meet the 14-day requirement. This would require you to pay in cash first, and then be reimbursed from your CPF later. Furthermore, if you have already used your CPF for you first property, you can only use the excess CPF Ordinary Account savings for your second property after setting aside the current Basic Retirement Scheme (BRS). 

3. The minimum cash down payment 

You are required to pay up to 5% down payment in cash when you buy your first home. When you purchase your second property, you will need to pay up to 25% of your property’s down payment in cash. This will be measured against the property’s valuation limit, which is determined by the property value or purchase price, pending whichever is lower. 

4. Loan-to-value (LTV) ratio 

When you are buying your first home, you are entitled to borrow up to 75% of the property value if you are taking up a bank loan. This was abbreviated from the previous 80% in the latest round of property cooling measures. When you buy your second property, your loan-to-value (LTV) ratio drops to 45%, for loan tenures up to 30 years. If the loan term stretches beyond 25 years or your 65th birthday, your LTV drops to 30%. The main point is that even if you are eligible for a bigger loan, do not accept unless you are sure that you have sufficient holding power to survive any instabilities in property prices which may rise and fall and rental demand before making a purchase. However, it may not be a good idea to buy a second house until the first is paid off. You may seek advice from your wealth manager to determine if it’s worth going ahead. 

5. Minimum Occupancy Period (MOP) 

Singaporeans who have bought a Housing & Development Board (HDB) flat, Design, Build and Sell Scheme (DBSS) flats or Executive Condominium (EC) must first fulfil the Minimum Occupation Period (MOP) to be entitled to buy private property. If you are living in an HDB property, you cannot purchase a second property until you meet the MOP of 5 years. This rule is applicable to both new and resale flats. If you own an EC, bear in mind that ECs are only privatised after their 10th year. Before that, ECs are still HDB properties, and therefore subject to rules like the MOP. Take note that if you already own an HDB flat, you cannot purchase a second one. 

6. If you are going to have two mortgages, make sure you upgrade your savings fund 

Always have an emergency fund to deal with situations such as retrenchment, or injuries that prevent you from working. You should have sufficient funds to survive with at least six months of mortgage repayments, for both houses before you go ahead and buy. Otherwise, an emergency could force you to sell one of the properties in an unfavorable market.