Singapore shines across the globe for its stable economic environment and promise of robust growth for investors. Our hi-tech, culturally rich, and cosmopolitan country has increasingly attracted real estate investors eager to build their portfolios – and prosper enormously.
Many are ready to purchase their second home here to capitalize on investment opportunities and earn a passive income. But before you take the plunge, there are a few rules for buying a second property in Singapore that are important to take into account.
Your Loan Eligibility May Change
If you took out a loan to secure your first property, you likely won’t receive the same amount a second time.
There are two different ways that banks determine your second property loan eligibility. They are:
- Your loan-to-value ratio (LTV)
- Your total debt servicing ratio (TDSR)
A loan-to-value ratio is simply the amount you’re able to borrow from a bank. It’s initially capped at 75% of the property’s value for first-time buyers but drops to 45% for 30-year loans. Your LTV ratio will continue to drop with each subsequent property purchase, and you’ll be required to pay the remaining percentage as a down payment.
A total debt servicing ratio states that the loans you’re responsible for servicing (paying) in a month shouldn’t exceed a certain percentage of your monthly income. That percentage is currently 60% and encompasses all types of loans, including personal, car, and student loans.
Both of the LTV ratio and TDSR ultimately mean you should have sufficient minimum assets available to afford a second property in addition to your first.
You Have To Fulfill the Minimum Occupation Period (MOP) to Buy Privately.
In order to purchase a second property in Singapore, you’re required to meet the basic MOP, or Minimum Occupation Period. The MOP is five years from the date you obtain the keys to your property and excludes subletting. That means you won’t be eligible to buy private property in Singapore if you haven’t already demonstrated the right amount of commitment.
However, this rule only applies if you already own an HDB (Housing Development Board) or DBSS (Design, Build and Sell Scheme) flat, and your second purchase will be private property. In other words, if your first home is already private property or is a HUDC (Housing and Urban Development Company) flat, you’re not subject to the above MOP requirements.
You can use your CPF Ordinary Account savings.
If you have leftover funds in your CPF Ordinary Account, you may be able to use it to purchase your second property by applying it to a down payment.
There are limits, of course. First, you must meet the Basic Retirement Sum (BRS) before using OA funds. Second, you cannot use more than the Withdrawal Limit (WL) of your CPF when buying a 2nd property in Singapore. The WL is equal to the Valuation Limit (VL), which is either the property value or purchase price at the time of sale, depending on which is lower.