I had received an urgent call not long ago for a consultation and this gentleman was seeking my opinion about a particular property he wanted to invest in but wasn’t exactly sure about. He had also wanted to explore other viable options that he could consider and was open to hear my suggestions. So I met up with him to discuss what he had in mind and contributed my opinions as well and the chat went as a normal chat usually does. However, towards the end of our meet up session, he said two things that really resonated within me.
Firstly, he told me he was actually surprised that I didn’t try to sell him any particular property or tell him what he should buy. Instead, I shared with him my thoughts regarding his situation and my personal approach to property investment. I’m always looking for opportunities where I can exchange views with others and I believe there are many learning experiences to be gained and contributed with these sessions.
Not only that, he said something very interesting. He mentioned to me, “So this is how people play with property now.” While the word “play” implies something rather trivial, property investment is more than that but I understand the sentiment. Once you’ve owned more than one property in Singapore, you have probably developed a certain approach to property investment and learnt certain ways you can reap better profits at lower costs.
Here is one thing I’ve learnt that is really helpful in minimizing the costs of buying a second home in Singapore. If you’ve lived here long enough, you know that the property market today is completely different from the old days and likewise, strategies that worked in the past might not do so well in the current market. However, there is one very feasible method that will result in a higher profit and lower cost when you look to buy your second property in Singapore.
How is it done?
Due to the cooling measures introduced to moderate the property market, if you wish to buy a second property in Singapore, there are a few things that you have to be ready pay for:
- Buyer’s Stamp Duty (BSD)
- Additional Buyer’s Stamp Duty (ABSD): 7%
- Loan: 50%
- Set aside CPF minimum sum: ~ S$ 80,000
Breaking it down with an example, if you are buying a S$1 million property, you will need:
- BSD: S$ 25,000
- ABSD: S$ 70,000
- Down payment: S$ 500,000
Let’s take a look back in time, where buying a property only required S$200,000 and you were only required to pay S$25,000 on your BSD. Additionally, in their time, S$1 million could have bought you a much larger space in a better location as compared to now. Thus, they would have had more purchasing power than we do in our current times.
Many owners are having a hard enough time paying for their first house to even think about saving up for the S$600,000 total upfront that is needed to buy a second property worth S$1 million. How long does it take for a person to save up S$600,000? For most of us, S$600,000 is a highly improbably figure to reach for.
But there is another way. We can try making your second property purchase your first property purchase. This can be done by selling your 50% of your current property to your spouse. In most cases, the units we own are joint-ownerships where the Husband and Wife own 50% each. When you handover ownership of your current property to your partner by selling the 50% share over to them, you are able to enjoy first property purchaser benefits.
With no property under your name, you are able to purchase the S$1 million property without any ABSD thereby saving yourself the 7%. More significantly, you can also obtain the full leverage from the bank at maximum loan coverage of 80%. These are all good debts that will bring in more income for yourself and your family as time goes by.
It might sound a bit outrageous to handover full ownership and this method might not be suitable for everyone. However, it has been done before and this is simply one of the many strategies people adopt in order to minimize their expense and maximize the benefits of investing in another property. Depending on the individual’s circumstances, many different approaches are utilised to minimize cost, the trick is to find something that is suited for you and your current condition.
What are some of the cost minimizing methods that you’ve learnt and adopted in your property investment journey? Or are you keen to find out what else you can do to save up on additional costs from your property purchase? Feel free to drop me an email at firstname.lastname@example.org or contact me here.