Due to the success of Singapore’s public housing policy, which began in the 1960s, 80% of Singapore’s population today live in HDB flats. Private housing is primarily for people with higher incomes. Those considering buying residential property in this island nation need to consider a variety of factors, we will take a closer look at them in this article.
reason for purchase
First, buying investment or owner-occupied property makes a difference.
Naturally, if it is an investment, the main factor to consider will be capital gains. On the other hand, buying for owner occupancy makes capital gain a secondary concern. In this case, the most important factors will be the current or future size of the household. A retired or single person can opt for a smaller flat. While a young married couple can also choose a small flat if their financial means are limited, or a large flat if they plan to have children and are wealthy enough to afford it.
type of housing
The next consideration is the type of housing. With the many types available, buyers are often spoiled for choice. The two tables below compare the public and private housing segments.
Table 1: Types of housing available in Singapore
1.HDB (99 year lease)
- Build to Order (BTO)
- Studio apartment (30 year rental)
- 2 bedroom flat
- 3 bedroom flat
- 4 bedroom flat
- 5 bedroom flat
- Executive Condo
- Design and construction (DBSS)
- Executive Floor (No longer being built)
- Executive duplex (no longer built)
- HUDC (no longer built)
2. Private housing (60-*, 99-, 999-year lease; freehold)
- Apartment without elevator
- high rise apartment
- Condominium
- apartment shoe box
- soho
- Strata Titled Cluster Homes
- Inter-Terraces
- semi separated
- bungalows
- Terrestrial Dwelling
- Interterraces (Type 1 and 2)
- corner terraces
- semi separated
- bungalows
- Good class bungalows
- Sentosa Landed Housing (the only real estate in Singapore that foreigners can buy with express approval)
* A plot of land on Jalan Jurong Kechil is the first 60-year leased plot to be sold (as of Nov. 15, 2012); therefore, a 60-year-old private property will be available in a few years.
** Executive Condo becomes private after 10 years.
Table 2: Comparison of HDB and Private Housing
1. HDB
- Eligibility:
- HDB Direct Purchase – Singapore Gross Monthly Household Income ≤ $10,000 (for Executive Condo ≤ $12,000)
- Resale: Singaporeans and Permanent Residents
- 99 year lease
- Most affordable type of housing
- For owner occupancy
- Lower maintenance cost (conservation charges)
- Strict Restriction for Leasing
- Minimum occupancy period
2.Private Housing
- Lease of 60, 99, 999 years; life property
- They tend to be more expensive
- For owner occupancy and investment
- Higher Maintenance Cost (Property Taxes, Monthly Maintenance Charges, etc.)
- No Lease Restrictions
- No Minimum Occupation Period
- Eligibility:
- Non Landed – Foreigners, Singaporeans and Permanent Residents
- Landed – Singaporeans
* A plot of land on Jalan Jurong Kechil is the first 60-year leased plot to be sold (as of Nov. 15, 2012); therefore, a 60-year-old private property will be available in a few years.
To decide what type of home fits into a buyer’s budget, a commonly used measure of home affordability is the debt-service ratio (DSR), defined as
DSR = Monthly Debt Service / Monthly Gross Family Income
The internationally recognized benchmark for housing affordability is a DSR of 30 percent. For example, if a household with a monthly income of S$3,000 purchases a 3-bedroom HDB apartment worth S$300,000, without housing assistance, the household can borrow up to 80% of the price (assuming have no outstanding balances). mortgage loan), or S$240,000. Given an annual interest rate of 2 percent, based on a 30-year loan, the monthly fee incurred will be about 887 Singapore dollars. This results in a DSR of about 30%, which is still within the affordable range.
Another widely used measure of affordability is dividing the price of a home by the potential buyer’s annual income.
However, these two measures are only short-term measures as buyers’ incomes can change over time.
To overcome this problem, Professor Abeysinghe of the National University of Singapore developed a long-term measure of housing affordability. For more information on this measure, click here.
When deciding between an HDB and private ownership, in addition to affordability, buyers may also want to consider the homes’ investment potential.
Investment potential of HDB flats
From the Government’s point of view, HDB flats are intended for living and not for speculation. Therefore, HDB flats are subject to a Minimum Occupancy Period (MOP) of 5 years, whether for resale or direct purchase from HDB. This slows down the change of houses from the HDB flats.
However, after the MOP, owners of larger HDB flats can make a profit by downgrading to a smaller unit. Those tempted to sell for a profit during a booming housing market may not be better off, as they will have to pay a high price for another flat. Also, if their current flat was purchased with a housing subsidy, they will have to incur a resale tax when they purchase a second subsidized HDB flat.
However, some Singaporeans continue to profit from renting out their HDB flats.
Under current regulations, owners of subsidized or unsubsidized HDB apartments must meet a 5-year MOP requirement before they are allowed to rent their apartments. Exceptions are made for owners who live abroad.
In addition, there are restrictions on rental periods. Singaporean landlords could rent their flats for a period of 3 years, after which they could apply for extensions with no limit on the number of applications. For public relations, however, it’s a different story. They are only allowed to rent for a period of one year, subject to discretionary extensions, with a limit of 5 years on the total number of years of rental allowed.
Investment potential of private housing
In contrast, the rental rules for private properties are less strict. It is noteworthy that Singaporeans cannot own HDB flats and private houses at the same time within the MOP. Post-MOP, Singaporeans often make a profit by living in HDB apartments while renting out their private properties.
However, for adventurous homeowners looking to sell private property to increase their wealth, they are restricted by the series of anti-speculative measures instituted by the Government since 2009.
Properties acquired after February 20, 2010 are subject to a seller’s stamp duty of 4% to 16% of the sale price or market value, whichever is greater, if disposed of within 1 to 4 years after of the purchase.
In addition, for property purchases after December 8, 2011, an additional 3% buyer’s stamp duty is levied on Singaporeans purchasing their third and subsequent properties. For PRs, 3% will be levied on their second and subsequent purchases, instead.
