Understand Your Finances

Finding out how much you can actually afford to pay and setting a budget for your new home should be the first step when making a property purchase.

Bank Loan

The amount money that you can potentially borrow depends on your creditworthiness and the Loan-To-Value limit imposed by the Monetary Authority of Singapore. You can expect to obtain up to 75% of the property price on your first housing loan but this is subjected to the loan tenure. Additionally, there is the Total Debt Servicing Ratio (TDSR) to consider as it allows you to utilize up to 60% of your salary on debt repayment. However, if you are purchasing an Executive Condominium, the TDSR will be limited to up to 30% of your salary.

Therefore, you can apply for an Approval-in-Principle (AIP) from the bank. What an AIP does is that it does not only provide you with a rough gauge of how much the bank will lend you, but it also gives you a glimpse of the monthly mortgages required to service that loan.

CPF

You can also tap into your CPF when purchasing your new home. For your first property, your entire Ordinary Account up to the Valuation Limit can be utilized. However, if you are purchasing a second or subsequent property, only the amount in your Ordinary Amount less the Basic Retirement Sum can be utilized.

BSD and ABSD

The Buyer Stamp Duty (BSD) is a tax levied on all property buyers regardless of nationality who purchase any property and it is dependent on the purchase price or market value of the property (the ‘Base’). Generally, the more expensive the purchase price or market value of the property, the higher the BSD Rate.

The BSD can be calculated as follows:

The Additional Buyer Stamp Duty (ABSD) is a tax levied on the purchase of residential property and is in addition to the BSD and is only applicable to the following buyers:

– A Singapore citizen who already has ownership of a residential property and wishes to acquire another;
– A Permanent Resident; or
– A foreigner.

Essentially, the ABSD affects everyone except Singapore Citizens who are buying their first property. The ABSD can be calculated as follows:

Source: IRAS

Other Fees

A consideration of the miscellaneous fees will also allow you to come up with a more realistic budget. Included in 20% of the property price that you will have to pay using a mix of cash and CPF, are a 5% Option Fee and a 15% Exercise Fee. Additionally, you may want to engage a Property Agent and a Property Lawyer – a small sum to pay to facilitate a seamless property-buying journey.

Look Around

With the assistance of your property agent, who will provide you with a list of possible property options based on your budget and requirements, you may begin your search for the home of your dreams through show flat visiting.

Show flats present potential buyers with a realistic representation of the property upon completion. Yet, the design of the show flats is merely a prediction of the actual property through the artist’s impression. Therefore, one should focus on solid facts such as the size and layout instead of the design of the unit. Besides visiting the show flat itself, a short walk to the actual site of the property to assess factors not shown to you during the open house, such as traffic, routes to the nearest MRT and etc. is also recommended to help with your decision making.

Submit an Expression of Interest

Once you have made a decision, you will have to complete an Expression of Interest and submit it along with an unsigned, blank cheque for the booking fee of 5%. The actual amount of this booking fee will only be made known to you when the price of the property is revealed. While it may seem risky to hand over a blank cheque before knowing how much the property will cost, you can be assured that the submission of an EOI and cheque does not automatically obligate you to make a purchase and it will be returned to you should you decide not to go ahead with the purchase.

Select Your Unit

On the launch day, you will be able to pick out a unit based on the ballot number assigned to you by the developer. Therefore, it is advisable to have a few units in mind beforehand. Once you have selected a unit, all you have to do is fill up the blank cheque (previously submitted above) with the appropriate amount before you will be made to sign on a set of Property Details Information documents. These documents which set out all the floor plans, rules and regulations, included items and other documentation. Subsequently, you will be granted an Option to Purchase (OTP).

Get a Bank Loan and Sign a Sale & Purchase Agreement

The developer will take up to 2 weeks to deliver the Sales & Purchase Agreement to you. In the meantime, you should secure a bank loan using the OTP so that you will be able to sign the Agreement and exercise the OTP within the 3-week time frame. Once the Agreement has been signed, you will have to pay the remainder of the deposit, referred to as the Exercise Fee, of 15%. This amount will be due at the point of signing the Agreement or within 9 weeks from the date of the OTP, whichever is later. The BSD and ABSD (if applicable) will also be due within 2 weeks of signing the Agreement.

This is also the stage where you will have to engage a lawyer to take on the important burden of carrying out the conveyancing work on your behalf. The bank may recommend a lawyer to you, but you may opt to hire your own.

Start Making Progressive Payments

Payments will have to made in a progressive manner by either cash, CPF or a bank loan each time the developer completes a construction milestone. Construction milestones may include:

Collect Your Keys

As soon as the TOP is attained, you can finally move into the home that you have been waiting for! However, do not be too quick to rejoice – you should run a thorough check on your new home for defects immediately after obtaining your keys. The reason for this is because developer is obligated to rectify defects that are discovered within the 12-month Defects Liability Period.

Benefits of Owning a Freehold Property in Singapore

One of the key benefits for owning a freehold property is the perpetuity of ownership that grants the owner the peace of mind that the lease will never run out. Such properties are especially useful for legacy planning because they allow owners to pass them down from generation to generation since there is no time limit to their ownership. A word of caution – It is still possible for governing bodies to take back that land for national development projects. So, make sure to take a long-term view when selecting the properties to avoid land locations that are more likely to cross paths with national infrastructures such as train lines or communication networks.

Another benefit for perpetual ownership lies in the ease of on-going financing. In Singapore, banks require properties to have at least 30 years of remaining tenure. The amount of financing that these banks can provide, also known as Loan to Value (LTV) ratio, can be significantly lowered if the property starts to age. As such, buyers for properties with limited tenure can access fewer financing options, consequently restricting the owners’ ability to sell their properties. However, owners of freehold properties are free from such a problem because of their infinite ownership.
Additionally, the sale price of a new freehold condo unit can be 10 to 15% higher when compared to a leasehold unit in the same area. Because of the prestige and perceived value that are tagged to freehold properties, they are usually one of the more sought-after property types in Singapore.

Does Freehold Mean I Own the Land?

The answer is yes and no, it all depends on the property type.

If it is a landed property such as Detached house, Semi-detached house, Terrace House or Good Class Bungalows (GCBs), the owner of the property is essentially the owner of the land too.
For freehold condominiums and cluster houses however, the individual unit owners are not the landowner.

The lands in which multiple property units are built are held by the Management Corporation Strata Title (MCST). Such an entity is empowered by the law to administer and oversee the common property of strata developments such as private condominiums, shopping centres and industrial facilities to fulfil management duties under the Building Maintenance and Strata Management Act (Chapter 30C). In short, it serves as a managing agent to upkeeping the property and facilities in compliance with the Act.

What Does En-bloc Mean?

A collective sale, also known as an en-bloc, refers to a sale of two or more property units to a common developer. This occurs when a developer wants to buy up the land on which an existing property stands and redevelop it as a new estate.

What Are the Factors Affecting En-bloc Potential?

1. Condo Plot Ratio

The key factor that can affect en-bloc potential is plot ratio. It determines the height of developments and the number of residential units that can be built. Primarily, developers favour old condos with under-utilised plot ratios so that they can build more residential units than the existing development to reap a greater profit margin.

2. Development Location

The location and the land size also play a huge part in gaining developers’ interest because they can affect the marketability and profitability of the new development. A prime location can naturally draw buyers with its convenience, however, if the land size is too big, developers might be threatened by the additional government tax and charges that they will incur if the development is not built and sold out within five years of obtaining the land.

3. Tenure

Tenure is another indicator for en-bloc potential because the older the property, the more likely to be the target of collective sales and easier for the developer to round up enough residentials to agree to the sale. As a rule of thumb, for a development that is older than 10 years, only 80% of its owners need to agree to sell their homes before the collective sale can take place. For developments less than 10 years, the percentage increases to 90%.

4. Well-Developed Neighborhood

A well-developed neighbourhood such as one with improved accessibility such as new train stations, amenities and rising prices in other property developments in the vicinity can also signal a potential for en-bloc because development in such areas are more marketable and developers can price their projects higher for greater profit.

Enbloc Cycle in Singapore

The en-bloc cycle seems to run on a 10-year cycle. The first wave occurred in 1997 with almost 100 collective sales completed in the three years preceding, and the second happened in 2007 when almost 170 en-bloc deals worth $12.61 billion were closed in one single year. The most recent wave that occurred in 2017 also witnessed at least 37 tenders.

In general, developers tend to favour freehold properties for their en-bloc initiatives because the Government Land Sales (GLS) is no longer releasing freehold plots to developers, hence buying over old freehold properties through collective sales are the only possibilities for regaining these lands. Nevertheless, these are win-win situations for developers to acquire freehold plots and property owners to profit from these collective sales that tend to offer higher prices.

Is En-bloc Potential a Factor to Consider When Purchasing a Property?

Again, the answer is yes and no because it all depends on the buyers’ objective and preference. Besides, with the 2018 cooling measure that imposes 30% Additional Buyer’s Stamp Duty (ABSD) on developers purchasing residential properties, en-bloc may be harder to come by.

With the ever-changing Singapore property market, buyers should conduct substantial research and analysis before embarking on their buying spree. When in doubt, reach out to our experts to tap on their insights

Should I Buy a Freehold Condo with En-bloc Potential?

While the potential to reap a profit from an en-bloc sale is attractive, this should not be the key deciding factor for purchasing a freehold condo. Before making the purchase, why not consider the objectives for the purchase of a property and different lifestyle of the occupants? Such exercise can often reveal suitable alternatives that are not considered before.

List of Freehold Condo we think with a En-bloc Potential

If freehold condos with en-bloc potential are still on top of the buying list, here are some possible options we think have a good En-bloc potential:

Buying a property based on the en-bloc potential alone can be a real gamble for buyers because there is no guarantee of such collective sales or when it will happen. In Singapore, there are many property options to suit different needs, contact our trusted agents now and let them assist you in your search for that ideal property.

Disclaimer: The list of condos and content article does not take into account of your personal investment and property purchase objectives and does not constitute property purchase or investment advise. The information are not intended to be and do not constitute property advice, investment advice, property investment advice or any other advice or recommendation of any sort offered or endorsed by Prop.sg also does not warrant that such information and publications are accurate, up to date or applicable to the circumstances of any particular case.

Working out your finances to understand your budget

The amount money that you can potentially borrow depends on your creditworthiness and the Loan-To-Value limit imposed by the Monetary Authority of Singapore. You can expect to obtain up to 75% of the property price on your first housing loan but this is subjected to the loan tenure. Additionally, there is the Total Debt Servicing Ratio (TDSR) to consider as it allows you to utilize up to 60% of your salary on debt repayment. However, if you are purchasing an Executive Condominium, the TDSR will be limited to up to 30% of your salary.

Moreover, there is a minimum cash down payment that one has to take note of. This cannot be made from either your own funds or from your CPF account, so you have to ensure that you have sufficient cash.

With reference to the financing that you are able to obtain, your real estate agent will be better able to narrow down properties that will best meet your budget.

Consider your key requirements

Attaining the home of your dreams begins with knowing what you want. All home buyers yearn for property that is able to reap generous returns. To determine the potential of a property, it is imperative for home buyers to do basic research and consider the following factors:

Freehold or Leasehold Condo

Depending on one’s risk appetite, some buyers are inclined towards freehold developments because such property tends to appreciate, and their tenure offers security to buyers. In contrast, some buyers may prefer leasehold developments for their higher capital appreciation and thus, higher yields.

Upcoming Regions and Availability of New Projects in Those Regions

Developments that are situated in areas designated for major redevelopment tend to provide better returns.

Proximity to MRT Stations

Developments that are in close proximity to MRT station(s) are able to fetch better resale values due to their potential to slash commute times for the residents.

Possible School Choices Relocation

Singapore’s distance-based priority allocation rule favors developments that are within a 2km radius from prestigious schools. To reap favorable gains from your potential property, it is thus wise to consider the location to which the good schools may possibly relocate.

Other requirements may include your budget and a convenient timeline for you to move in.

Engage a Real Estate Agent

Now that you have your requirements in mind, you will need assistance in narrowing down your options from a myriad of available ones – this is when you engage a real estate agent. A real estate agent will work with you to comprehend your requirements, subsequently creating a list of properties for your consideration. Subsequently, you may further narrow down the options on that list and start viewing the properties of your choice. Throughout the process, your agent will provide advice on aspects such as market rates and guide you along for a seamless transaction.

However, be sure to run a check on the Public Register (maintained by the Council of Estate) to ensure that you are engaging an authorized professional.

Engage a Property Lawyer

Your team of property professionals is not complete without a property lawyer. A property lawyer will assist in taking you through the complex financing and legal documentation process.

Running through contractual terms and conditions is one of the fundamental tasks of a property lawyer. Additionally, he also has to run a title search to check that the seller is the actual owner of the property. Next, he will have to send out legal requisitions to at least nine government agencies to ensure that there will not be any problems with your purchase, even in the future. After which, he will receive payment from you and exercise the Option-to-Purchase in a timely fashion.

A property agent also plays a crucial role in the preparation of your financing and i) making progress payments (for incomplete property) or ii) determining and making the right amount of payment needed in order to change hands (for completed property).

Buyer Stamp Duty (BSD), Additional Buyer Stamp Duty (ABSD)

The Buyer Stamp Duty (BSD) is a tax levied on all property buyers regardless of nationality who purchase any property and it is dependent on the purchase price or market value of the property. (the ‘Base’). Generally, the more expensive the purchase price or market value of the property, the higher the BSD Rate.

The BSD can be calculated as follows:

To avoid or reduce your ABSD liability, your lawyer may assist you in timing the sale of your existing property with the purchase of the new property.

Secure the Option to Purchase (OTP)

After determining the BSD and ABSD taxes that are payable, you may proceed to secure an OTP. Securing an OTP involves the payment of the first option fee (1% of the purchase price of the property). The payment of this option fee prevents the seller from selling that property for a specific duration (usually two weeks).

Afterwards, a second option fee (4% of the purchase price of the property) will be incurred (Step 8).

Final Payment

Finally, you will have to pay your real estate agent and your property lawyer.

If you are purchasing a resale unit, it is customary for the seller to pay his own agent, who will then pay your agent. If you are purchasing a new condo unit, your agent will receive his payment from the developer.

Payment to your lawyer does not only consist of his legal fees; payment will also have to be made to the Singapore Land Authority and Inland Revenue Authority of Singapore.

Exercise the OTP and pay balance of down payment

Within two weeks of securing your OTP (Step 6), you will have exercise it and pay the first option fee (1%). Your property lawyer will assist you with this and ensure that the OTP is exercised before the deadline.

Next, you have to obtain your financing and pay the second option fee (4%). Once this payment has been made, you can then make the down payment of 15% or 45% on your first or second property respectively.

Payments for both option fees must be made in cash, while the down payment can be paid via a combination of cash and CPF.

Wait for completion, Awaiting the keys

Once all the relevant paperwork and payments have been processed, you can officially look forward to collecting the keys to your new home. The purchase of property that is approaching its Temporary Occupation Permit (TOP) allows for a shorter wait.

Home Renovation and Make Over

Let your imagination run wild by borrowing the creative juices of interior designers. When selecting an interior designer to help you with transforming your vision into a reality, you should weigh the cost involved with the designer’s track record to reduce the likelihood of having to incur repair costs in the future.

Once the house has been designed and furnished to your heart’s desire, you may begin moving into your new home. Creating a list of all the belongings you would like to take with you and packing them in an orderly fashion will guarantee that you will have an easier time unpacking. You may engage professional movers, family or even close friends to assist you in moving bulkier items.

Summary

Purchasing a condo may seem daunting on first glance but it does not necessarily have to be if you follow the steps in this simple guide and engage a professional, reliable team.

If you’re looking for to buy a condo in Singapore with professional guidance at every step of the way of your property purchase, look no further because Prop.sg is the team for you and do you know what is the best part of it all? The resale condo buyer services provided by us are completely free of charge (i.e. no commission) to you as a buyer.