Singapore Housing: What Are the Upfront Costs?
TLDR; It’s going to be pricey 😢
- Many factors determine whether you rent or buy a home, including affordability, eligibility, future plans, and level of commitment.
- The type of home you’ll be able to afford will vary depending on your income, expenditures/liabilities, cash savings, investments, CPF Ordinary Account savings, sales proceeds from your current home (if any), and your creditworthiness.
- When calculating whether you can afford a type of housing or not, consider upfront and ongoing costs.
Upfront Costs When Purchasing a Home
This fee reserves the flat that you wish to purchase. The size of the fee depends on the flat:
This is paid when signing the agreement for the lease. The amount will vary depending on whether you are:
- Taking out an HDB housing loan
- Not taking any housing loan
- Taking a bank loan
Of the down payment sum, the amount paid in cash vs from CPF savings will be contingent on:
- The value and type of property
- Whether you have an existing housing loan and the length of the new loan
- The loan-to-value limit (loan ceiling) of the property.
For an HDB loan:
For a Bank Loan:
The valuation fee is a report on the property being financed. This is owed to a professional appraiser.
The legal fee is for processing the mortgage on the property being financed. This is owed to lawyers. (This is sometimes covered by the bank you take the mortgage out with as part of a package deal, though naturally, you would need to use lawyers on their panel)
The stamp duty is a form of taxation owed to the government for the registration of the mortgage.
The insurance premium covers your property against multiple damages. Any lender will require you to sufficiently insure the property being financed. It is payable to an insurance company.
What Are the Ongoing Expenses for Housing?
There will be ongoing expenses away from monthly home loan repayments. These should be budgeted for accordingly:
- Monthly expenses such as property tax, fire, service and conservancy charges, mortgage insurance
- Future interest rate hikes if you take out a floating rate loan
LTV Potential Risk ⚠️
A potential decrease in property value could lead to the original LTV (Loan-to-Value) ratio being surpassed, meaning borrowers must be aware that there is a risk they may have to top up with cash to stay below their bank's maximum LTV.
If property prices fall, there is a risk, in the opinion of lenders, that those with a high LTV would not be able to cover their outstanding balance with the sale of their property. If you had an LTV at the HDB limit of 85%, then a 16% decrease in property value would result in the property going into negative equity, i.e. the sale of the property would not cover the outstanding balance. The risk taken on by lenders when lending to those with high LTV ratios is reflected in the higher interest rates they offer.
Additional Tips on Housing in Singapore
Public housing has a Minimum Occupancy Period (MOP) of 5 years before you can rent the whole flat or sell it. You do not have to worry about a MOP for private housing, but there is a degressive Seller Stamp Duty (SSD) if you sell within the first three years:
SSD rates if you have sold property after owning for…
- Less than a year = 12%
- More than one year and up to two = 8%
- More than two years and up to three = 4%
For public housing, you have a resale levy to keep in mind, which will lower your housing grants when you purchase public housing in the future. Housing grants are not eligible for private properties. However, you can get executive condominiums (ECs) grants, even though bank loans finance them.
Most of the time, foreigners cannot buy landed property. In addition, foreigners are not allowed to own HDB flats unless they marry a Singaporean. There is no ban on buying condos; however, you’ll have to fork out a sizable 60% Additional Buyer’s Stamp Duty (ABSD) on top of the selling price.
The ABSD also applies to Singapore Citizens and PRs buying their second homes and was first introduced by the IRAS in 2011 as a "cooling measure" to dampen surging demand for property in order to maintain affordability for Singaporeans.
- Singapore Citizens: ABSD levied on the second (12%) and subsequent (15%) purchases
- Singapore PRs: ABSD levied on the first (5%) and subsequent (15%) purchases
HOUSING: UPFRONT COSTS AND ADDITIONAL TIPS! COMPLETED. ✅
- Header photo from Unsplash