Buying a private residential property as an investment is a tried and tested strategy to growing your wealth and achieving financial freedom. Not only can you earn passive income by renting out your unit, but the rise in your property’s value over time (known as capital appreciation), means you could make a tidy profit after selling it. But before you decide to rush out and buy an investment property, you need to follow these steps.

1. Check your finances

Buying a property is one of the biggest financial decisions of your life, so you need to have enough money saved up to buy a house. Don’t forget that you still need to set aside sufficient cash for everyday expenses like food and transport, as well as for retirement.

While you can take a housing loan to help finance a property, you still require a significant cash outlay of 20% for your down payment. That would amount to $200,000 if you’re looking to buy condominium priced at $1 million. While this might seem like a lot of money, don’t fret because you can choose to pay 5% in cash for the option to purchase and the remaining 15% in CPF upon signing the sale and purchase agreement.

2. Stamp duty for property

You need to factor in the various stamp duties when buying or selling residential property in Singapore. These include:

Buyer’s Stamp Duty

The Buyer’s Stamp Duty (BSD) for buying residential properties is up to 4%. The BSD is computed based on the purchase price or market value of the property, whichever is higher.

The table below shows the current BSD rates for residential properties.

Source: IRAS website

Additional Buyer’s Stamp Duty

Foreigners looking to buy residential property in Singapore are liable to pay an Additional Buyer’s Stamp Duty (ABSD) of 20% on top of the existing BSD. Singaporeans who are buying their second or third property also need to pay ABSD, but the rates are lower. ABSD is computed based on the purchase price or market value of the property, whichever is higher.

The table below shows the different ABSD rates based on the buyer profile.

Source: IRAS website

Seller’s Stamp Duty

If you’re not planning to hold the property for very long, then you should be aware that Seller’s Stamp Duty (SSD) is payable if you sell the property within the holding period, which is currently three years from the date of purchase. The SSD was introduced as part of measures to curb property speculation in Singapore.

Below is a table showing the SSD rates payable on residential property purchased on or after 11 March 2017 and sold within a certain period.

Source: IRAS website

3. Get a home loan

Unless you’re a multi-millionaire and can fund your property purchase entirely in cash, you will need to take a housing loan. Most major banks in Singapore such as UOB, OCBC and DBS would be willing to loan you up to 80% of the property’s price, but this would depend on your age, the loan tenure, and how well you manage your finances.

Under the Total Debt Servicing Ratio (TDSR) rules, your monthly home loan repayments cannot exceed 60% of your monthly income. As such, it is advisable to first get an Approval in Principle from the bank. This offers an indication of whether you can afford to pay the monthly home loan and also how much you can borrow from the bank.

The process of getting a home loan is pretty straightforward, but you need to submit a few documents beforehand, including your latest CPF statement, credit card statement and salary payslip. Banks also want to know if you have other financial commitments such as an existing home loan or car loan. This is mainly to protect borrowers so that they do not overleverage themselves.

Don’t forget to do a home loan comparison beforehand to see which banks are offering the lowest interest rates.

4. Search for a suitable property

Depending on your budget and how much the bank is willing to lend you, you can start searching for a property online. You can shortlist your search based on certain requirements such as price, unit size and location.

Aside from photos, many online listings now provide videos to give prospective buyers a better idea of the quality of the apartment. 

Find a suitable location you know offers upside potential. If you’re looking to rent out the unit, then keep in mind that expatriate tenants prefer to live near an MRT station, their workplace, shopping malls and established international schools. Having said that, city fringe properties that are close to good amenities will command a premium price.

5. Engage a property agent

Now that you’ve shortlisted your search to a few properties, it’s time to view the units. Set up an appointment with a property agent who can organise viewings on the day you are free. He or she will be happy to show you around the house, share more details about the project and location, as well as answer any questions you might have.

If you are looking to buy a resale condo unit, the agent can also help to negotiate for a better price. As the property transaction process can be complex with lots of paperwork involved, it is the agent’s job to guide you through the buying process.

6. Hire a conveyancing lawyer

Once you’ve decided on which property to buy, you need to hire a conveyancing lawyer who can help execute the sale and purchase agreement, register the transfer of the property to you, and submit the legal documentation to get the CPF Board to release the money to finance the property. Ask your property agent to recommend an experienced legal firm to help you. 

Once this is done, then the next step is to arrange for an appointment for the collection of keys. If you need help with the move, check out Wisemove. 

Happy house hunting!