Your own guide to investing in property in Singapore
Property investment is a great way to make a lot of money – if you know what you’re doing. Otherwise, it can be a very risky market, one fraught with legalities and nuances. But with the right guide and a good idea of the marketplace, you can well be on your way to building a proper portfolio. So let’s get you started!
The Basics
First of all, you have to understand the basics surrounding pricing – your entry price point is determined by the basic cost of purchasing a residence. On average, prices per square metre lie at SG$15,251, with a rental yield of 2.83 percent. Your rental yield is your rate of return on the cost of the home. To put it simply, it is how much more you’re making on an annual basis versus your initial investment.
This is important, because the tenant’s contribution constitutes a major part of your investment returns, the other being the sale of the residence at a higher value.
Now, bear in mind that while the average square metre price gives you an idea of what costs you’re looking at, that doesn’t mean that your first residence of choice will cost this much, or get you this much of a profit.
How Prices Change
Next, it’s important to know how value usually changes in Singapore. Current metrics place the average investment price change at -3.67 percent in a single year. That may sound bad, but looking into the mid-term future, five years from your purchase, your value typically increases by 1.72 percent. Wait another five years, and in the right conditions your home’s value could increase as much as 67.57 percent -- a perfect place to consider a sale.
If getting a sale is difficult in developing market conditions, especially as the URA residential price index has shown a steady decline in prices since 2013, then you’re still in luck. Singapore is very much pro-landlord in its laws, although there are no specifics, as your contract determines the tenant-landlord relationship.
How Ownership Works in Singapore
Your powers as a landlord aside, ownership here is manifold in its meaning and definitions. Freehold means that you, as the owner, have permanent rights to the residence. A leasehold, on the other hand, makes you owner for the period of the lease. It’s important to know the difference before you start making money, especially if you’re thinking of buying for inheritance purposes.
On Taxes
As far as tax rates go, Singapore is an attractive country for the financial investments from foreign entities and individuals. For those making their money through the country itself – like landlords – monthly incomes between US$1500 and US$12,000 have a flat rate of 15.1 percent.
The progressive tax on the annual value of your residence depends on whether you’re living in it or not. Owner-occupied residences get an additional concessional rate of 4 percent—and all properties cost you an extra 10 percent in taxes if you’re non-Singaporean. Then, it changes as per the increase in value. The exemptions are rental properties, commercial properties and industrial properties, which each get a flat rate of 10 percent.
In order to prevent tax exemption and money laundering, round tripping to inflate your portfolio, while not illegal, can cost you and your buyer (or seller) a significant amount in taxes – up to 37.45 percent for some transactions. This way, property investments are kept legitimate.
Location, Location, Location
The final and most important question is: where do you actually invest? Singapore isn’t a large country, but the value of property varies according to location. The primary form of housing here is the HDB apartment – a state-sponsored program for subsidized housing, utilized by most Singaporeans. The most expensive property sales are usually in Bukit Panjang.
However, when it comes to rental costs, properties in Bukit Panjang are outclassed by the costs of renting housing in most of the market’s biggest examples, including Choa Chu Kang, Tampines, Sengkang, Jurong West, and the most expensive rental region: Bedok.
Typically, the ideal property investment relies on the individual circumstances, and your goals. Do you want to flip the property after five years or keep it as a rental property, and eventually pass it on to the next generation?
