What to Look for When Buying a Condo in Singapore

Written by Chris Pang
Tuesday, 07 March 2023

Looking for a new residence or a real estate investment in Singapore? Here are the recommended steps to take before purchasing a condo in Singapore.

Singapore is one of those places where the land is sometimes valued higher than gold. Few can buy landed properties, while the bulk of the population (us normal folks) still relies on public housing by HDB. Yet for young professionals, working citizens, and those who can afford more, landed properties are way out of their league. Hence, buying a condominium is a practical option.

However, purchasing a condominium in Singapore is about something other than the building’s location and grandeur. There are some elements to consider when buying a condo in Singapore if you want to make one of your most significant financial investments worthwhile. 

In this article, I’ll share some important factors for you to select the right property and some pitfalls you should avoid which could cost you dearly.

1. Research The Singapore Real Estate Market 

Before even looking online for available condominiums and new launches, it is prudent to assess the current health of the real estate market. However, the problem is the housing market is now probably bubbling than a year ago:

  • The economic outlook has deteriorated.
  • Inflation is at its highest level in almost a decade.
  • Low-cost borrowing is a thing of the past.

Another set of measures to promote sensible borrowing was implemented last week, pushing the property market closer to an inflexion point.

The Singapore government’s most recent initiatives include boosting the medium-term stress test interest rate used to calculate loan eligibility from 3.5% to 4% for all home loans. 

Because mortgage rates have already surpassed 3% in recent months, an upward calibration of the medium-term stress test interest rate is required to protect borrowers’ debt servicing capabilities in a rising rate environment.

The affordability of home ownership will undoubtedly be impacted in the near future. A household with a monthly income of around S$12,200 would now be eligible for a loan of up to S$1.41 million to fund a S$1.88 million home purchase instead of being eligible for a loan of S$1.5 million for a S$2 million property purchase earlier.

In addition, if interest rates change again, choosing a long lock-in period prevents buyers from switching, and they may end up paying much more for the coming years.  Choose loans with a shorter lock-in period (1-2 years), if you are worried about this. 

In addition, if you prefer to pay according to the current market interest rates, a floating rate package is a wiser choice.  As HDB cannot give loans for private condos, there are four types of loan packages that are usually offered by private banks, namely:

  1. Fixed Rate Packages
  2. Floating Rate Packages
  3. Bridging loan
  4. Two-In-One Home Loan

Consequently, before selecting home loan packages, I highly suggest to set aside adequate cash as a buffer in case of interest rate rises or other unanticipated events/

2. Review Your Home Buying Budget 

Purchasing a house is a significant financial investment that requires careful planning. Before buying a property, do your math and figure out what you can afford. Taking into account all of these factors.

  • Salary income
  • Savings interest gained
  • Investment income (e.g. dividends and coupon payments)
  • Personal and household costs
  • Repayment of a loan (e.g. housing loans, car loans)
  • Credit card statements
  • Premiums for health and life insurance
  • Taxes

What you can afford is determined by your income, costs, obligations, and savings, as well as the amount of credit you can obtain. You’ll have to make some upfront fees and keep up with monthly mortgage payments and other ongoing obligations.

3. Know What You Can Afford through Financial Planning

The next step is to start setting your financial strategy. Here are some financial costs to consider:

  1. Buyer’s Stamp Duty (BSD): It is calculated using the higher of the property’s acquisition price or value.
  1. Additional Buyers Stamp Duty (ABSD): This does not apply if you are a Singaporean purchasing your first house. On the other hand, permanent residents and foreigners must pay 5% and 30% in ABSD, respectively.
  1. Total Debt Servicing Ratio (TDSR): This limits the amount you can borrow from financial institutions (FI), which must guarantee that your monthly repayment for all debts (including mortgages, credit card bills, vehicle loans, and personal loans) does not exceed 55% of your total monthly income.
  1. Loan-to-Value Ratio (LTV): The LTV limit is 75% for your first home loan. You must pay the difference out of your pocket if you buy a unit for more than its appraised value.

4. Calculate All The Upfront Costs before Buying a Condo

After sorting out what you can afford, you’ll have to make some upfront fees and keep up with monthly mortgage payments and other ongoing obligations. Let’s look into those in detail!

4.1. Option fee

Option fee is paid to reserve your preferred property. The tables below illustrate the cash option fees for the various home categories. If you do not exercise the option, you must be willing to forfeit the option money.

For an Executive Condominium (EC) or private property:

Type Option Fee (cash)
EC or private property5%
Resale EC or private property5% comprising:1% to obtain the Option to Purchase (OTP)Remaining 4% upon exercising OTP

4.2. Down payment

The amount of cash or CPF savings required for the downpayment is determined by the following:

  • The property’s value and type.
  • If you have an existing mortgage and the new loan tenure (capped at 25 years for HDB flats and 30 years for private properties).
  • The property’s loan-to-value (LTV) limit (loan ceiling).

Here are a few things you need to know about home loan tenures, according to the Monetary Authority of Singapore (MAS) the maximum loan tenure for housing loans is capped at  35 years for non-HDB properties.

Here is a brief overview of the pros and cons to assist you in making your selection.

ProsCons
Longer Home Loan1. Improved cash flow2. Flexibility to choose3. Profits your TDSRMore interests overtime
Shorter Home Loan1. Less interest overtimeHigher monthly paymentLess adjustableWorse for TDS

Put it all in an emulate situation, for instance; you have your heart set on a $700,000 apartment. Your condo down payment would be $175,000, or 25% of the buying price. The first $35,000 must be paid in cash (5% of the buying price), and the remaining money (20% of the purchase price) will be withdrawn from your CPF Ordinary Account.

The details are included in the tables below for better representation.

For a bank loan

No outstanding housing loan2nd housing loan3rd housing loan
Minimum cash down payment5% (for LTV of 75%)10% (for LTV of 55%)25%25%
Rest of downpaymentCan be paid using cash and/or CPF

For example, if you take up a mortgage with a bank, you will be offered a reduced interest rate, resulting in a lower mortgage altogether. This is excellent news for those looking for the greatest mortgage rates.

To qualify for most bank loans, however, you must have an annual income of at least $30,000. Furthermore, because there are no plans like the HPS, the repercussions of defaulting on your bank debt (e.g., breaking your limbs and losing your job) are catastrophic. 

On the other hand, if you use your CPF to pay for your HDB unit, you must enroll in a Home Protection Scheme (HPS).

This implies that if something occurs to you and you can no longer make a living, the CPF board will absorb the outstanding housing debt. When you can no longer bring in money, the last thing you want to worry about is losing your home.

4.3. New changes in 2022

When performing your calculations, remember that all the data must be up-to-date. As of the time of writing, here are some statistics to bear in mind:

4.3.1. Interest Rate

In November 2022, Singapore’s three largest banks – DBS, OCBC, and UOB raised their fixed home loan interest rates to 4.25 to 4.5%.

For that, an HDB unit buyer would pay S$2,709 per month under the DBS two-year fixed rate package with a 4.25% interest rate each year on a S$500,000 loan with a 25-year term.

A comparable variable rate loan with DBS costs the three-month compounded SORA plus a 1% age point margin. Based on the rates, this equates to an annual interest rate of 3.69%, implying that a property buyer would pay S$2,554 per month.

Borrowers will most likely notice the impact of a single percentage point rise after a while. Consider a borrower who receives a $1 million loan over 25 years. They would have paid $4,239 per month if interest rates had been 2% per year, which would have been the typical rate in 2020–21.

Assuming a single percentage point rise this year, they would pay $4,486, or $247 more each month. Most debtors are not in a “crisis,” and those paying their debts with CPF probably won’t notice. However, property gains may have a significant impact over time.

2% interest for 25 years results in about $271,563 in interest-only payments. At 3%, the cost of interest repayments rises to $442,634; this $171,071 difference will certainly reduce your net gains.

Owner-investors might suffer if other recurrent expenses like property taxes and maintenance fees are added. As a result, if you feel that interest rates have risen significantly and have limited room to increase further. It would make sense for you to use floating rates. A fixed-rate loan is also a great alternative if you loathe instability.

4.3.2. Goods and Services Tax (GST)

In addition, the government has also declared to increase the GST next year

On January 1, 2023, the first hike will go from 7% to 8%, and on January 1, 2024, the second hike will go from 8% to 9%.

Regarding real estate, residential properties sold or leased are free from the GST; however, non-residential assets that a GST-registered organization owns are subject to the GST. 

When a property has both residential and non-residential components, GST is due on the non-residential share. Additionally, portable furniture and fittings are subject to GST. 

As a result of the higher GST fees, purchasers and renters can anticipate an increase in the cost of furnished houses.

Similarly, commissions paid to real estate brokers are taxable if the property is situated in Singapore and the estate agent is registered for GST.

4.4. Other expenditures

The many fees and charges that apply are frequently overlooked by customers. If you are purchasing a BTO or a flat straight from HDB, keep the following in mind:

  • Property valuation reports,
  • Buyer stamp duty fees,
  • Property taxes,
  • Home or fire insurance fees.

And, if you’re looking at resale apartments, consider the following costs:

  • Legal fees Property agent commissions &
  • Fee to process the option to purchase (OTP)
  • Renovation costs.

The Option Fee will be between $1 and $1,000, as agreed upon by you and the buyers. Once you’ve given the purchasers the OTP, you can’t give them another one until the first one expires.

For legal fees,  a property lawyer in Singapore charges around $2,000 to $2,500 on average. You may also anticipate paying a 1% commission if you successfully acquire a property with the assistance of a real estate agent.

Other expenses, such as renovation costs, home or fire insurance payments, and taxes, will be based on the purchase price and the obligations that come with the property.

5. Look for the Ideal Home in Singapore

Once you’ve paid the above sum, it’s time to acquire your property! However, before doing so, ensure that the bank has an approved-in-principle agreement on how much they would lend. 

Applicants who do not meet the criteria for in-principle approval may be required to provide extra documentation that will give the bank greater confidence in their capacity to repay the amount borrowed.

Some applicants are rejected in-principle approval simply because they have a poor credit history or a large amount of previous debt – banks do not feel comfortable granting the proposed loan amount to these people. In such circumstances, the bank may either flatly refuse them or indicate the maximum amount they may lend them.

Your ability to buy a property might be in jeopardy if you don’t have an AIP. The following are pretty likely to occur:

  1. Real estate brokers may prioritize other buyers with an IPA. An IPA effectively moves them one step closer to a successful purchase. Without an IPA, the agents may wind up working hard for nothing.
  2. Bargaining will be more difficult. With an IPA, knowing the highest price you can afford to pay for a house will be easier. Without this information, how can you properly negotiate?
  3. The closure procedure requires more time. Even if you get past the primary obstacles and your loan is eventually authorized, the entire process will be time-consuming and pointless.
  4. Your search for properties could be more effective. Although you won’t be required to have an IPA in the initial phase, with a more precise understanding of how much you may borrow, it would be easier to focus on a smaller area.

Ensure that there are no strings tied to purchasing this property from sellers or brokers who may have imposed these requirements before selling their condominiums.

Then, make a checklist with the following elements to help you sort out your dream house.

5.1. Freehold vs Leasehold – Which to consider?

House searchers are likely acquainted with freehold and leasehold, but they may need to be aware that these two kinds of property ownership provide distinct advantages. 

Freehold owners can live in their properties for as long as they wish because there is no time restriction on how long they will possess them, but leaseholders must pay attention to the dwindling number of years left. In Singapore, there are two types of property leases: 99-year and 999-year. 999-year leases will be treated as freehold leases because they are unlikely to expire anytime soon.

If you’re considering buying a home, you should know the difference between freehold and leasehold. Freehold homes are frequently more expensive, but they can provide better stability in terms of location and cost-of-living changes over one’s lifetime (10-15%).

Leaseholds are an excellent method to save money upfront while avoiding that unpleasant duty as soon as feasible! The main disadvantage is that your home may lose value over time, so consider whether this intrigues you because it may turn out poorly.

According to studies, where the initial PSF price premium for freehold was high (usually more than 30%), leasehold homes outperformed freehold ones. When the initial PSF price premium for freehold homes was narrow, freehold assets topped leasehold ones in capital appreciation.

As a result, the lease term has a far smaller influence on pushing up non-landed property values than it does on landed property prices. Other criteria, such as the year of purchase of the property and its proximity to vital infrastructure and amenities (such as MRT stations, schools, malls, office buildings, and so on), tend to play a more extensive influence.

5.2. MRT and Easy Access to Public Transport in Singapore

Staying near an MRT or other mode of transportation is always a wise option. A condo built immediately near an MRT station is way more costly than those built within a reasonable radius.

When a property is near an MRT station, its value rises by 10% to 15% on average. The greater the price, the closer a home is near an MRT station, with 500m or less being the “gold standard.”

According to a NUS study, Circle Line stations boosted non-landed private dwellings by an average of 1.6%. When these stations became operational, people within 400m of the stations had a 13.2% rise over those outside of this distance.

Remember that buying a condo in a mature estate vs a new estate will result in considerable price differences. That is why reviewing the URA master plan for the region is an excellent approach to assessing the community’s potential. Furthermore, the URA master plan discloses the intended developments and the timescale.

5.3. Beware the hidden cost

Whether you own a private condo or an Executive Condominium (EC) in Singapore, you must pay condo maintenance costs to your property management each month.

While you may be required to pay as low as $100 per month for HDB maintenance, monthly charges might range from S$300 to $1,000. The number of people living in your condominium, the size of the unit, the kind of unit you live in (luxury condominiums frequently have the highest prices), and the facilities supplied by the properties all influence the expenses.

With such a significant difference in monthly fees (which may mount up over time), this ‘hidden cost’ is something you’ll want to consider when making the choice to acquire a more expensive house.

5.4. Set aside an extra budget

Paying for a condo is the beginning of many financial concerns. This entails settling in total upfront and incurring monthly maintenance costs but also setting aside enough money each month to cover property tax obligations, which may be as high as $2,100 per year.

If you want to invest in real estate and have numerous properties, keep in mind that the Buyer’s Stamp Duty (ABSD) will be levied if your condo acquisition is considered a second property. As a result, it may cost an additional 17% on top of what you’re already paying for your property.

Assume a property is worth $1 million but the selling price is $1.1 million. If you are liable to an ABSD rate of 17%, the ABSD amount you must pay is $1.1 million x 17% = $187,000.

5.5. Is the condo big enough?

You may believe that condo living is straightforward, but it is necessary to consider the size of your house and what you will require for it to be acceptable. 

A 1-bedroom flat in a condominium currently goes for an average listing price of S$1,025,386. A 2-bedroom costs 42% more on average. Those looking for larger condos that have 4 bedrooms can expect to pay slightly over S$3,100,000—or 74% more than the average condo price. However, just like HDB listings, condo listings have skewed averages. In fact, condos tend to skew much more positively than HDBs (meaning the median is smaller than the average), with some luxury condos priced high enough to skew the average away from the median by 11-27%. 

If the size isn’t a problem, single-bedroom condominiums are ideal for singles or young couples who desire their private refuge without the care that comes with more significant properties with kids next door! Larger estates, on the other hand, may better fit all parties involved if family life is already planned.

Take the time to analyze every aspect when looking for a place to call home. Check out what’s included in your purchase, and don’t forget how crucial location may be a condo fitting may be the difference between living on campus or in the city!

5.6. Measure the capital appreciation

Finally, keep the property’s capital appreciation in mind when considering these condo purchasing suggestions. Remember that for the condo’s price to rise, there must be sustained demand and a scarcity of supply. 

This is where purchasing a condo on a younger estate appears more advantageous in terms of current price and capital appreciation. Despite rapid population growth, there is a need for more new projects on young estates or non-central districts. 

When the young estate matures, the condominium you purchased earlier will undoubtedly improve in value.

Conclusion:

When purchasing a condo in Singapore, there are several variables to consider. Finally, selecting the best one comes down to your tastes; take some time to think about your priorities before taking the plunge to land your dream house. 

Remember that purchasing a condominium in Singapore is more than the price and location. It also has to do with time and monthly maintenance expenses. Consider the “other” factors that, while sometimes overlooked, significantly influence your purchase. 

I hope that this article has been helpful in your search for the ideal house for your family, and please keep these condo-buying tips in mind before you sign the dotted line!

If you need highly personal recommendations and answers to your questions, feel free to ask me, Chris. 

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I am Chris Pang

PropNex Associate District Director

CEA Reg No. R023965A

I specialise in residential property in Singapore and have been in the industry for over a decade. Helping my clients find their dream home or achieve their property goals is one of my favourite aspects of my work. With my knowledge of the vibrant city, I strive to provide my clients with ideal locations by understanding your personalities and preferences in order to better guide you towards the neighbourhoods that are ideal for you and your family.

Seeing the positive impact my work have on their families brings meaning and purpose to my life. Being able to change the lives of my customers for the better and put them and their families in a better position for the future makes me feel fulfilled!

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