Property is likely to be your most important asset in your adult
life. While most of us would choose to buy a government subsidized
HDB flat, there are some who have the means and preference to buy
condominium properties.
For example, you've done your sums and decided on the famous The
Sail Marina Bay condo listed for a cool $1.5 million. If you agreed
on this price, we are going to tell you what are the other expenses
that you would have to incur at different stages of purchase.
In the same spirit, we at GET.com are going to
disclose the true cost of purchasing a $1.5 million condo with all
the additional add-ons for 2 groups of people:
HDB upgraders
First time condo buyers
You should ask for a bank valuation before you consider your
purchase.
New And Refinance Home Loans in Singapore
Is It The Right Time To Purchase A Condo?
Before we go into the details of buying a condo, prospective buyers
should consider if this is the right time to purchase a condo.
You could consider if you are buying it for investment or
residential purposes and check the foreseeable price trend for
condos. Consider the fact that over 80% of Singaporeans stay in HDB
estates.
HDB
prices are generally more stable than condo prices as they
are mainly purchased for residential purposes.
Condo prices are subjected to macroeconomic conditions. Condo
demand would be higher when the economy is doing well, along with
growing affluence of Singaporeans and with more foreign talents
residing here.
If you are thinking of buying a condo for rental purposes, you
should note that condo rentals (categorized under ‘non-landed
private residential rental market’) had fallen from the index price
of 121.5 in January 2015 to 114.1 in November 2015 with a slight
rebound to 114.2 in December 2015 according to SRX Research. It is
too early to say if condo rentals have rebounded.
On the other hand, it is clear from the
Globalpropertyguide chart that
housing prices have slowed their rate of increase since 2011.
Private residence prices started to decline in 2013, which raises
the question: Will this be the true bottom for condo prices? That
is hard to say.
BNP Paribas had the view that private property prices would drop
another 10% in 2 years. Any way you slice it, you are not
purchasing at the most expensive time.
At the end of the day, nobody can really call a bottom accurately,
it is more important to purchase a condo within your means.
The Total Debt Servicing Ratio (TDSR) regulation forbids you from
spending more than 60% of your monthly income on total debt
repayments.
For those looking to buy an Executive Condominium, do take note of
the Mortgage Servicing Ratio (MSR) guidelines which means that the
monthly mortgage repayment should not exceed 30% of your combined
monthly income. As a recommended practice, the monthly installment
for your private condo should similarly not exceed 30% of your
combined monthly income (including CPF contributions).
Fees
If you have decided that this is the right time to purchase your
condo, we will now look at the fees involved.
For the purpose of this illustration, we will assume that you are a
Singapore Citizen that is purchasing a completed condo that is
worth $1.5 million.
Stamp Duty - Compulsory
The first major fee that you will have to pay is the Buyer Stamp
Duty (BSD). This is basically a tax paid to the government for your
property purchase.
Source: Inland Revenue Authority of Singapore (IRAS)
The BSD for the $1.5 million condo would be as follows:
The additional buyer stamp duty would not be applicable if this is
your first property purchase. It would be slightly more complicated
if you are upgrading from your HDB flat.
If you already have a contract or agreement to sell your HDB flat
and the buyer has exercised his right to purchase, then the HDB
flat would not be counted as one of the properties owned by
you.
This must be done before you sign the contract or agreement to
purchase your condo, and it applies to both completed and
uncompleted condos. Otherwise, once you have accepted the condo
purchase, the condo would be counted as one of the properties owned
by you.
A good property agent should advise you accordingly and ensure that
the sequence is done properly.
For HDB upgraders, if you choose to hold onto your HDB for the
purpose of getting rental income and wait for a better resale
price, then you will have pay the Additional Buyer Stamp Duty
(ABSD).
Please note that both the BSD and the ABSD are rounded down to the
nearest dollar.
Seller stamp duty is applicable if you hold your property for less
than 4 years. If you have never purchased a property before or you
are selling your HDB (5 years holding period is required) then it
would not apply.
Fees That Used to Be Absorbed By Banks (But Not
Anymore)
There are also 3 types of fees that used to absorbed by the bank,
especially when purchasing a $1.5 million property.
They are:
Legal Fees
Valuation Fee
Fire Insurance
The market rate for legal fees are 0.4% of the property price and
market price, at around $2500 per transaction which can be
negotiated. When you borrow from the bank, the bank would appoint a
lawyer from its panel.
This legal fee should include fees payable to Singapore Land
Authority, $500 mortgage duty payable to IRAS and of course the
professional legal fees for your lawyer.
As a rule of thumb, you should not pay more than $2500 in legal
fees unless you have special and more complex requirements.
Banks are required to do a valuation of your property before they
can provide you with the housing loans.
The fees depend on the complexity of your condo valuation. It can
range from $200 to $500 per condo valuation. Landed property
valuation would be higher.
Fire insurance is compulsory for all banks. Its purpose is to
reimburse your items in the case of a fire.
The cost ranges from $100 to $300 per year, depending on your
situation. Banks used to subsidize these fees before MAS stepped in
on October 2012 and discouraged banks from doing so for new
purchases (refinancing excluded).
Agent Fee
One of the best things about being a buyer is that you can engage
the service of a professional property agent without paying their
fees.
The governing agency for property agents is the Council of Estate
Agencies (CEA) and you can search for all property agents
there.
CEA does not have a pre-set fees and allows you to negotiate with
your agent. Generally, a condo seller would pay his agent 2%
commission but he can pay more if he is happy with the service. The
market practice is that the seller's agent will have to share half
of their fees with the buyer agent.
Hence you should engage your own agent because the seller's
property agent has a conflict of interests with you.
As the agent for the seller, he is motivated to push up the price.
Without the guiding hand of an experienced agent on your side, you
might overpay for your condo.
In order to engage a property agent, it is likely that you have to
sign an Exclusive Estate Agency Agreement For Purchase Of
Residential Property. This industry-standard agreement spells out
his duties to you in black and white.
Some of the standard terms such as disclosure of conflict of
interest are mandatory. Schedule 2 explicitly states their duties
which include but is not limited to:
Show you all condos that fit your budget and requirements
Negotiate the best possible price for you
Advise you on property matters including getting Approval In
Principle (AIP)
You can also include additional details such as:
Connect you to the best service providers (mortgage bankers,
renovation companies, etc.)
Protect your financial details if you have special needs.
This is valid for a period of 3 months and you cannot find another
agent. You can choose to compensate the agent directly so that they
will work extra hard for you. This is optional.
By engaging an agent, you can be sure that you will get
professional treatment and find your ideal condo in an efficient
manner.
Condo Payment
The money paid in this category would then be used to pay for your
actual $1.5 million condo. By law, you cannot borrow more than 80%
for your first property and 50% for your second property. For the
amount that you cannot borrow, you have to pay cash for it.
There are 3 types of fees that you pay:
Option fee (1%)
Option exercise fee (4%)
Downpayment (remainder)
The option fee is paid when you are interested in the condo and
want to exclude other buyers for a period of 2 weeks while you
contact your bank to arrange its finances.
It is usually at 1% of the agreed price. Once you have secured your
financing, you will pay the option exercise fee which is 4%. If you
cannot find your financing, then you forfeit your 1% option
fee.
This is why it is wise to get Approval In Principle (AIP) from your
bank first. They'll normally get back to you in 3-5 working days
and it will last for 1 month.
The remaining $1.2 million would be lent to you by the bank.
Assuming that you are borrowing it for 30 years, this is your
monthly repayment amount:
Source: GET.com
If this is your second property, then you can only borrow half of
it and these are your options:
Source: GET.com
Conclusion
As you can see, you would have to pay more than just your agreed
condo price. In the image below you can see all the fees that you
will have to pay upfront before you can get your keys for your $1.5
million condo.
You can make your inquiries with GET.com's home loan genius to
compare home loans and see which package would suit you the
best.
Currently OCBC home
loans, UOB home
loans and DBS home
loans are offering the best rates.
Hence, if you are looking to purchase a $1.5 million condo, you
will need to prepare at least $78,300 in cash and have at least
$264,600 in your CPF. Therefore a $1.5 million condo would cost you
at least $1,542,900 before renovation.