Real estate in land-starved Singapore attracts
buyers from across the world. The country is known for its
political stability and is a favoured location for a host of
multinational companies. Although property prices have been in
decline for almost four years, flats in prime locations sell at
rates that compare with those in the capital cities of the
west.
Over three-quarters of Singapore’s population
of 5.6 million lives in government flats developed by the Housing
and Development Board. Even though these have been developed to
provide Singaporeans with an affordable option, they can be
expensive. A four or five-bedroom HDB resale flat in a prime
location can set you back by S$1 million or more.
But HDB properties are not for sale to expats.
Foreigners are permitted to buy flats, which are also known as
non-landed properties, in private developments. If they want to buy
a standalone unit, which Singaporeans refer to as a landed
property, they need government permission.
Sentosa, a new development off the coast of
Singapore, has attracted a large amount of investment. Its upmarket
residential areas are a big draw for overseas buyers as they do not
need government permission to buy landed properties here. Flats
here can cost upwards of S$4 million, while the asking price for
luxurious standalone residences can be ten times as much.
In addition to paying the seller, a purchaser
also needs to contend with several types of government duties as
well as other costs. Here is a listing of the expenses connected
with buying real estate in Singapore.
The government levies a buyer’s stamp
duty ranging from 1% to 3% of the property value.
What if the seller provides a cash discount on
the property? This practice is followed by developers as an
incentive to buyers. If the cash discount is given immediately, BSD
will be calculated on the purchase price as reduced by the
discount. However, if a non-cash discount is offered, it cannot be
deducted from the purchase price.
What is a non-cash discount? This could be a
benefit in the form of a furniture voucher or a chance to
participate in a lucky draw.
BSD is payable to the Inland Revenue Authority
of Singapore. Here is how it is calculated.
Source: Inland Revenue Authority of
Singapore
At what stage of the purchase transaction is
BSD to be paid? If you have entered into an option to
purchase (OTP), then you must pay BSD within 14 days of
exercising the OTP. In any event, it must be paid prior to the
signing of the sale and purchase agreement.
Duty rates under this category can range from
nil to 15% on the market value of the property. Additional buyer’s
stamp duty (ABSD) can vary based on the residency status
of the buyer.
Singapore citizens pay the lowest rates of
ABSD. Permanent residents are in the next category, while
foreigners are liable for the highest rates.
Your ABSD rate can also vary if you purchase
multiple properties. For example, a Singapore citizen’s first
residential property does not attract any ABSD at all. The second
residential property that a Singapore citizen buys attracts 7%
ABSD, while the rate for third and subsequent properties is
10%.
Here is a summary of the ABSD rates
payable.
Type of buyer
ABSD rate as a percentage of the market
value of the property
Singapore citizen buying first
residential property
Nil
Singapore citizen buying second
residential property
7%
Singapore citizen buying third and
subsequent residential property
10%
Singapore permanent resident buying
first residential property
5%
Singapore permanent resident buying
second and subsequent residential property
10%
Rate for foreigners
15%
Singapore’s citizens are required to pay ABSD
only if they buy a second property. For their third property, they
pay an enhanced rate. How is the number of properties
calculated?
Say, a Singapore citizen owns a flat jointly
with his wife. Let us assume that he also owns a 20% share in
another property. For the purpose of calculation of ABSD, this will
count as two properties even though the ownership is partial.
As its name implies, seller’s
stamp duty (SSD) is payable by the seller and not the
buyer. Strictly speaking, it is not a buying cost at all. However,
it impacts buyers for two reasons.
What are SSD rates? A residential property
that is sold more than three years after it was purchased does not
attract SSD. Sales that are made within a three-year period attract
SSD at rates that range from 4% to 12% of the property’s market
value.
The highest rates are reserved for sales made within
one year (12%), while sales in a one to two year period attract a
lower rate (8%) and sales in the two to three-year period attract
the lowest rate (4%).
The government recently reduced SSD rates in an effort
to boost the property market. Till March 11, 2017, a seller was
required to hold on to a property for at least four years to avoid
paying SSD. The current minimum holding period if you want to avoid
paying SSD is three years.
There are two other costs that a property buyer has to
bear. You will need to pay legal fees to verify the ownership and
other details of the property that you intend to buy. In the normal
course, the bank that is financing your purchase will specify the
lawyer to be retained for this service. Fees can amount to about
S$3,000.
The mortgage document prepared by the bank that is
making the housing loan will attract a mortgage
duty of 0.4% of the loan amount. By signing this document,
you are transferring the interest in the property to your lender to
secure repayment. Mortgage duty is capped at S$500.
Property prices in Singapore are among the highest in
the world. Government levies can increase the amount that you have
to pay by as much as 18% for foreigners (BSD of 3% + ABSD of 15%).
Citizens and permanent residents will pay slightly less. It
is important to factor this component into your calculations.
If you are buying real estate with the intention of
selling it at a profit when prices rise, you need to build in the
SSD component as well. You also need to consider other costs like
the fees payable to a property agent.
In view of the large financial outlay involved, a
decision to buy real estate cannot be taken lightly, especially as
Singapore’s residential property market has been in decline for
several years.
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