Are you looking for a home upgrade? Or maybe you need extra space for the kids to run around? There are a myriad of reasons why homeowners would want to buy a second property.
You’ve heard that buying a second property is expensive and complex, but still want to explore this option. If so, we have the perfect guide for you inclusive of a three step process, as well as the considerations you need to note.
1. Choosing Your Second Home
What is the plan and purpose for your second property? Are you going to live in it or use it as a future investment for rental money? This decision will impact the rest of the choices you make when it comes to budgeting and finances.
A caveat for HDB owners:
- Singaporean Citizens cannot concurrently own two HDBs, so your second home will be a private condominium or house.
- You also can’t buy a second property once you get your HDB, as Singaporean homeowners cannot own both a HDB and private property at the same time if they are still within the MOP (Minimum Occupancy Period). After you’ve fulfilled the MOP of 5 years, you can purchase a private property. Singaporean PRs, though, will need to sell their HDB within 6 months of buying a private property.
Of course, there are others whose first home is a private property. If you are a Singaporean citizen and plan to get a HDB as a second property, you will need to sell your private property if you want to purchase a BTO. HDB resale flats can be bought anytime, as long as the private property is then sold within 6 months.
1.1 Living In your Second Property
You might be planning to live in the property if you require the extra space afforded from buying a larger home, or if you want to move nearer to your elderly parents or your child’s future school. Primary school admission priority is first given to families who are living within 1km from the school, so this explains why you might make this decision to get into a popular primary school. Admission then extends to families living within 1km to 2km, before being provided to families living further.
Food for thought: If you are a current HDB owner and do decide to sell your first HDB to purchase another one, the only grants you will be able to apply for will be the S$15,000 Step-Up CPF Housing Grant (only applicable to 3-room flat in non-mature estates) as well as the Proximity Housing Grant (PHG), which can grant up to S$30,000. Remember that the PHG only applies if you have not received it before.
Regardless, don’t forget to include a larger budget for your second home, as you need to include renovation costs and furniture costs as well. This differs from investment properties, where you can provide it empty, and allow tenants to bring in their own furniture.
If you’re planning to live in your second property, then, you will probably either rent out your first home or in cases of large families, allow your parents or extended family to stay in it. There are some considerations regarding your first home if it’s a HDB though — only Singaporean Citizens can rent out the entire home (if it is a 1 or 2-room HDB flat), but there is a maximum of 4 occupants. Both Singaporean Citizens and PRs can rent out single rooms for HDBs that are 3-rooms or larger, but the total number of people in a 3 or 4-room HDB flat cannot exceed 6 total occupants.
1.2 Renting or Investment
If you’re planning to buy a second property as an investment, you have a few choices: you can either buy a property that’s already on the market, or buy one that’s yet to reach its Temporary Occupation Permit (TOP) date, or still being built. To find options, you can look at portals such as Property Guru, 99.co, and SRX.
For the former option, there’s a chance that you’re looking to make back rental income immediately in the short-term, for example, so you could choose a high-traffic area that is easily accessible for working adults, or near existing MRTs. This provides immediate income that can offset the high cost of buying a second property in a mature estate.
If you’re choosing a home that is still being built, you can afford to look at potential areas that are only going to be popular in a few years. With the upcoming Jurong Lake District (JLD) being built, for example, a second property in that area might be lucrative for homeowners looking to invest in longer-term rental income.
The cost of buying a second home in a non-mature estate also tends to be lower, and comes with the expectation that there is greater potential for price appreciation over the years, as per a 99.co article.
Given that over 80% of Singaporeans own a HDB flat, many renters tend to be either expats or couples looking for a temporary space. This is corroborated by a Seedly study, which shows that smaller properties in general provide better rental yield in Singapore. You can hence consider investing in a smaller unit, as it also provides the benefit of only having to deal with a single tenant, instead of multiple tenants for a larger unit.
2. Financing Your Second Property
After figuring out what you want to do with the property, budget comes into play. If you’re planning to live in your second property, you’ll need a larger budget that would include purchase price, renovation, and furniture. Second properties that will be rented out will, as mentioned above, tend to be smaller, which incurs a lowest cost, especially since it isn’t a necessity to include furniture.
Of course, there are other costs and considerations that will affect your total budget.
2.1 ABSD (Additional Buyer Stamp Duty)
Unfortunately, if you buy a second property now, you will be subject to higher additional buyer stamp duty (ABSD) rates which were announced in July 2018. This is an additional tax amount that will be levied on the purchase price. Singaporean Citizens will have to pay an additional 12%, while Singaporean PRs will pay 15%.
This applies to both HDBs and private property, so for those that will need to sell their HDBs or condos within 6 months, it will make more sense to sell first before purchasing, as this will be then counted as the first property.
2.2 TSDR (Total Debt Servicing Ratio)
The Loan-to-Value (LTV) ratio refers to the percentage of the property value you can borrow from the bank if you are taking a bank loan. For your first property, you can borrow up to 75%, but that drops significantly to 45% for loan tenures that are up to 30 years.
2.3 Downpayment and using CPF for a second property
For the rest of the remaining amount, 25% of the property value will be put down as your downpayment. All of this can be paid with a combination of cash and CPF. As with your first property, there are limitations on how much CPF you can use, as you still need to have the Basic Retirement Sum of between $40,000 to $60,000 (depending on your age) before you can use any excess to pay off housing loans. There are also other limitations, for example, you can only use the savings from your CPF Ordinary Account.
3. Getting Your Second Property
Now that you’ve calculated how much it costs, you can look at timeline. How long will it take to receive your second property, and what is the procedure here?
3.1 Mortgage and Legal Process
Since most couples will be buying a private property for their second property, they will benefit from getting a Property Agent as well as a lawyer to handle the financial and legal matters for the purchase. This is especially pertinent if you are buying a house from an existing seller, as this involves their Property Agent as well. However, this will incur costs of between $2,500 to $4,000 of legal fees.
If you insist on doing it yourself, you will need to prepare 1% of the agreed purchase fee as the first option fee. This needs to be paid to preliminarily ‘book’ the property. After two weeks, which functions as a cooling period where you can change your mind, you will then receive the Sales & Purchase Agreement (S), which you will need to exercise within 3 weeks by paying another 4%.
This is also the period when you need to pay your ABSD of 12% for Singaporean Citizens. For homes that are still being built, you will need to pay the rest of the downpayment at this point. If you are buying an existing home, you can pay it when the sale is completed. At that point, you will then pay the rest of the purchase price, using your bank loan, CPF, and cash.
In the end, buying a second home is a complex process. After you make the initial decision on where to buy and the purpose of your second property, it comes down to your budget, which will need to include the ABSD. You will also need to consider how to pay for your second property, and the ratio that will be paid through a bank loan or CPF. This will be affected by the TSDR and the LTV.
To save money, many couples will sell their first property before buying the second, because it will then be processed as the first property instead. This leads to a higher TDSR and LTV as well as the elimination of ABSD for Singaporean Citizens.
To make the process easier, we would suggest getting a property agent to help assist and facilitate. We hope that this guide has been useful for you in deciding where and how to get your second property!