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3 Things You Need to Know if You Are Buying a Second Property

Key points to take note when buying your second property in sg

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Most Singaporeans own at least one property, giving Singapore one of the highest rates of homeownership in the world. It is also not uncommon for homeowners to buy more than one property as a form of investment, generating rental income from it.

Table of Contents

3 pro tips before purchasing 2nd property

  1. Eligibility Criteria and Affordability: Ensure you meet the eligibility requirements and assess your financial situation to determine if you can afford a second property.
  2. Increased ABSD Rates: The recent hike in Additional Buyer’s Stamp Duty (ABSD) means you’ll need significantly more cash for a second home. Be prepared for these higher costs.
  3. Financial Responsibility: Buying a second property involves greater financial responsibility. Make sure you are clear about your objectives and the long-term financial implications of this investment.

1. Eligibility

Remember the Minimum Occupancy Period (MOP)

Those who already own a HDB flat cannot buy a second property until they meet the five-year MOP. The MOP applies to both new and resale flats in Singapore. 

Keep in mind that Executive Condominiums (EC) are only privatised after the 10th year. Until then, ECs are still HDB properties and hence bound by such rules as the MOP.

2. Affordability

How much can you borrow for your second property?

Banks assess your loan eligibility based mainly on these two criteria, which are:

1. Total debt servicing ratio (TDSR)

The TDSR states that you should not have more than 55% of your gross monthly salary devoted to servicing your loans in a month. This can include all types of debt, including car, home, personal, and even student loans.

In the case of loans taken to purchase HDB flats, the monthly repayment instalment cannot exceed 30% of a borrower’s gross monthly income.

2. Loan-to-value (LTV) ratio

In Singapore, HDB loans have a maximum LTV of 85%, whereas for bank loans it is 75%. However, HDB and banks are not required to offer you the maximum LTV. They can choose to lower it if they think it would be more appropriate. Age and the existing number of properties also play a part in the LTV ratio.

The minimum cash down payment

For 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, whichever is lower and any excess above the valuation.

The Additional Buyer’s Stamp Duty (ABSD)

In addition, Singaporeans will have to pay a 20% ABSD on either the property value or purchase price of a second residential property, whichever is higher. Permanent Residents (PR) will pay 30% ABSD for a second residential property and foreigners will cap off at 60% after April 2023.

Below are the various ABSD rates for buyers of different profiles and depending on the number of properties they own:

ABSD rates for 1st, 2nd, 3rd and subsequent properties

CitizenBuying 1st Residential PropertyBuying 2nd Residential PropertyBuying 3rd and Subsequent Residential Property
Singapore Citizen (SC)0% (no change)20% (up from 17%)30% (up from 25%)
Singapore Permanent Resident (SPR)5% (no change)30% (up from 25%)35% (up from 30%)
Foreigners buying any residential properties60% (up from 30%)60% (up from 30%)60% (up from 30%)
Entities buying any residential properties65% (up from 35%)65% (up from 35%)65% (up from 35%)
Source: IRAS

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

Additional Buyer’s Stamp Duty (ABSD) of 65% 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.

Property Tax

During the Singapore Budget on February 18, 2022, the government announced that the Property taxes rates for both owner-occupied and non-owner-occupied residential properties will be revised in 2 steps starting from 2023.

Rates for owner-occupied homes with an annual value in excess of $30,000 will be raised – ranging from 5 to 23 percent in 2023, to 6 to 32 percent in 2024.

For non-owner-occupied homes, which includes investment properties – taxes will be hiked across the board: from the current 10-20 percent, to 11-27 percent in 2023 and 12-36 percent in 2024.

Using CPF for your second property

CPF can be used to buy a second property. However, if you have already used your CPF for your first property, you may only use your CPF Ordinary Account savings for your second property after setting aside the Basic Retirement Sum (BRS).

However, there is a limit on the amount of CPF savings you can use to buy private residential properties at 120% of the valuation limit. Once you have reached the Withdrawal Limit, you will not be allowed to use further CPF savings, and you will need to pay the remaining home loan in cash.

3. Intent

Decide whether the new property will be an investment or a second home

Do you plan on using the second property for an investment or as a primary residence for your family members? This is because the type of usage will impact your property tax rate. Currently, the property tax for owner-occupied residential properties ranges from 0% to 16% on a tiered basis, while properties that are rented out have a tax of between 10% to 20% of annual value. The annual value is determined by IRAS and is based on how much rental income the property could generate per year.

6 different ways to buy a second property in Singapore

Sell your first property

This is the most common way for you to buy a second property and avoid paying ABSD, so it’s a good move if you’re moving from a HDB to a condo and don’t want to pay a hefty sum. This also frees up your capital for your new property purchase.

Ohmyhome property agents holding orange folder

Decoupling

Decoupling is another way some married couples try to get around the ABSD, where one spouse essentially “gives up” their share of the house, leaving the other spouse as the sole owner. The spouse who gave up their share is now considered a first-time buyer and is able to buy a property without incurring ABSD.

Handling existing mortgage

However, when you become the sole owner of the first property, you must be able to afford the mortgage payments and that your total monthly debt does not exceed 55% of your monthly income, as per the TDSR, which may not fall under this limit. In which case, you’ll need to discharge the loan and obtain a new mortgage, but there could be hidden costs and/or penalties if redeemed before the lock-in period ends.

If your existing property is a HDB flat or an executive condo (which are sold and considered as public housing in its first 10 years), there is also the Mortgage Servicing Ratio (MSR) which means that your mortgage payments should not exceed 30% of your gross monthly income.

Take note that you are only allowed to decouple a HDB flat for reasons such as death , divorce (which could lead to disputes and lead to stickier issues), marriage, or one partner losing Singapore citizenship.

Additionally, if you have an outstanding home loan, your maximum LTV for a bank loan is 45% of the property price or value (whichever is lower). By decoupling, you could get the usual maximum LTV of 75% when buying your next property.

Getting a mortgage for the second property

The spouse buying the second property must also show they can handle the new mortgage on their own. But as you’re considered a first-time buyer, you can benefit from a higher LTV ratio of 80% for HDB flats and 75% for private properties. Your TDSR should not be more than 55% of your gross monthly income.

Take note, though, that this spouse must return all the CPF monies used for the downpayment and home loan repayments, including the 2.5% interest, used for the property they previously co-owned with their partner.

Buy under your child’s name

It’s quite common for parents in Singapore to buy a property in their child’s name, a sort of safeguard for their future (and potentially earn some passive income too). However, you can only do this if your child is over 21 years old and has a steady income to apply for a mortgage. As a parent, you’ll need to act as a guarantor or co-borrower to support the loan application in their name.

If you already own a house (which you most likely do), your child must have enough in their CPF to meet the Basic Retirement Sum (BRS) before they can use any excess funds for another property.

The TDSR requirement also applies in this case, as well as the LTV ratio mentioned above.

Gift or Transfer of Property

When you gift or transfer a property, you change the ownership of the property to another person, usually a family member. This can make you eligible to buy another property without incurring ABSD, as you will no longer be considered a multiple property owner. However, the process is not without its complexities.

If your existing property has an outstanding mortgage, it needs to be discharged, and the new owner will have to secure a new mortgage. The transferring party must also return any CPF monies used for the property, including accrued interest. This typically includes the CPF used for the down payment and home loan repayments.

You may have to pay several stamp duties and fees when you transfer a property, such as the Buyer’s Stamp Duty (BSD), ABSD (if the recipient owns more than one property), and Seller’s Stamp Duty (SSD) if it’s sold within the first three years of purchase.

Is now the right time to buy a second property?

Get professional advice on whether it’s a good time to buy a second home. Chat with our Super Agents via our Live Chat or drop us a message on WhatsApp.

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Frequently asked questions before buying a second property

1) Can I manage the downpayment if I have an outstanding home loan?

Yes, buying a second property requires a substantial cash outlay. So it may be a good idea to have ample savings before setting out to get one. Speak to Ohmyhome’s agents for a comprehensive evaluation.

2) What is the most suitable property for rental?

The type of property will determine the type of tenant you attract. For example, a shoebox unit on Orchard Road will probably attract single, affluent expats. If you’re looking to rent out your property, you can speak to Ohmyhome’s agents for a comprehensive evaluation of all the available options.

3) Will the government decide to build a skyscraper in the future next to my second property?

You may check the URA’s Master Plan which is the statutory land use plan that guides Singapore’s development in the medium term over the next 10 to 15 years.

4) Is it worth getting a second property near good schools?

Homes within a 2 km radius of a prestigious primary school can command large price premiums due to their demand. Speak to Ohmyhome’s agents for more information now.

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