Buying a property for own stay or investment is a major financial decision and naturally a good place to start is to do a financial assessment. Engage a qualified professional to help you work out the numbers as regulations may change from time to time. You will then be in a better position to make an informed decision and plan for next steps. Be objective and don’t be short-changed by fear, uncertainty and doubt.
The following are some important things to know:
The Total Debt Servicing Ratio (TDSR) framework was introduced by the Monetary Authority of Singapore (MAS) in 2013 and while not officially a cooling measures, it had arguably the biggest impact in moderating property prices. TDSR limits the maximum loan amount you can take based on your monthly income less debt obligations such as car loan, personal loan and credit card repayments. Loan eligibility will be a major factor in determining your maximum property purchase price.
- Housing loan tenure and loan-to-value limits
MAS has regulations that govern loan tenure and loan-to-value (LTV) limits for a housing loan based on borrower’s age and existing loans. The minimum cash down payment for a property varies according to different scenarios.
*w.e.f. 16 Dec 2021, LTV limit for HDB concessionary loan is reduced from 90% to 85%.
- Stamp duty
Buyer’s Stamp Duty (BSD) is payable based on the purchase price or market value of the property. Additional Buyer’s Stamp Duty (ABSD) may also be payable on top of BSD if you own more than one property.
- Payment scheme
New and resale properties have different payment schemes. If you are buying a new property under construction, the developer will call for partial payments as and when different stages of the project are completed. This is known as the Normal Payment Scheme (NPS) or Progressive Payment Scheme.
Return on investment
For investment properties, projected rental yield, mortgage repayments, interest cost, maintenance fees and property tax are used to calculate cash flow and return on investment. Property tax rates for non-owner occupied properties are higher than owner occupied ones.
Start sooner rather than later
We’ve all heard the saying “time and tide waits for no man” and this is absolutely true in real estate.
Let’s look at the examples below of the different monthly repayments for a $1.2M property with 75% loan i.e. $900,000, at an interest rate of 1.5% p.a.
Notice how the monthly repayment increases at an increasing rate as the maximum loan tenure gets shorter with age? If the buying decision is deferred long enough, the numbers may eventually look too daunting and it becomes a missed opportunity.
Real estate is a medium to long term investment and instalments are like a regular savings plan. It is better to start sooner rather than later.
To get help with doing the sums and starting your real estate journey, get in touch with me today.