Planning to buy a property in Singapore?
When purchasing a property in Singapore, there are more costs to consider other than the selling price of the property. These costs include legal fees, stamp duties, insurance, agent fees, bank loans and more.
As a result, while most would have saved up enough for the downpayment, they might be taken aback when they learn about the other expenses related to property purchases.
When purchasing a property in Singapore, you must consider these twelve additional costs and fees. These apply to both HDB and private properties.
1) Legal and Valuation Fees
These are fees above the property's purchase price. The cost of legal fees would depend on property prices and the choice of lawyer. Typically, the fees are about $2500 for every 1.5 million loans.
Every property purchased with a loan will have to be appraised by a professional ( valuation). Some banks may absorb this, while others will charge it.
The cost for valuation varies from $120 for HDB to $300 onwards for private properties.
2) Stamp Duties
Stamp duties include buyers stamp duty, additional buyers stamp duty, and sellers stamp duty ( if you choose to sell off the property earlier)
Buyer Stamp Duty
Buyer Stamp Duty is required regardless of purchasing a new launch, resale or HDB. The Stamp Duty is payable within 14 days from execution of sale (i.e. exercising Option To Purchase)
Tip: For a quick ballpark calculation of cash needed for property (based on max loan), use the following formula for properties above 1 million
29% of the purchase price -$10,000
Seller Stamp Duty
If you dispose of properties within 3 years of purchase, you must pay Seller's Stamp Duty. However, it will not be an issue for most new launches if you purchase on the launch day. This will not apply to HDB and new EC since you must fulfil the 5-year MOP.
A probable scenario will be that you purchased a resale, and there is an en-bloc within 3 years. Thus, SSD is required.
Additional Buyer Stamp Duty
This applies to individuals purchasing more than one property ABSD will be based on the higher purchase price or market value.
3) Cash Over Valuation (COV)
For HDB, if you are paying above the valuation rate, you would have to incur Cash Over Valuation (COV). COV can only be paid in Cash.
For private property, it will be similar if the sale price exceeds the bank valuation. Conversely, bank loans will not cover any excess if the valuation does not match. However, in most cases, banks would most likely match the valuations.
In a nutshell, if there is COV, more cash is needed to purchase the property.
For sellers, there is a misconception that COV will be returned to HDB. This is UNTRUE.
While the purchase funds will be channelled to HDB for processing, you will still receive the total amount in CPF. The cash proceeds will be determined after the housing loan payment and the accrued interest. Therefore, there could be a possibility that cash proceeds might be lesser than COV.
4) Agent Fee (Rental / Sale)
You would have to pay an agent commission for a rental closed through an agent. The usual practice is to pay a 1-month rental for every 2 years contract and a 1/2 month rental for every year contract. Additionally, when you sell your house in the future, you would also need to foot the agent fee.
For selling HDB and Private Properties, the rate is usually 2%. while there may be those offering lesser commission, it may come with a lower marketing budget. This may affect the quality of offers and the final price you get. Conversely, agents who budgeted extra for marketing (videography, FB ads) charge as high as 5%.
5) Renovation / Furnishing Cost
Most new properties come unfurnished, so usually, you would have to furnish the property. As a ballpark figure, an HDB 4 Rm BTO averages $30,000, while a landed property averages $150,000 for renovation. the actual figure would be dependent on personal preference.
Other than renovation, the cost of furnishing the property would have to be considered for property purchases.
6) MCST / Maintenance Fee
If you purchase a condo, there will be maintenance fee. This will include maintenance funds and sinking funds. Sinking funds may increase as the condo ages.
For HDB, there will be HDB service and conservancy charges.
For landed, while there is no fee, you would have to set aside funds in the event of repairs (e.g. airconditioning, autogate, etc ) and maintenance (painting of house interior and exterior)
Insurance tends to be overlooked when purchasing a property. here are 3 kinds of insurance to consider. Some are mandatory, while others are good to have.
Mortgage insurance covers the mortgage loan in the event of the owner's death or diagnosis of a terminal illness. It is imperative when the owner(s) relies on a sole breadwinner for the mortgage. Mortgage insurance is not compulsory for private properties, but if you buy an HDB with CPF, you will automatically sign up for Mortage insurance. However, this can be exempted if you hold one of the following.
Life riders attached to a basic policy
Mortgage reducing term insurance (MRTA) or a decreasing term rider
Term life insurance
Whole life insurance
For HDB, the mortgage insurance available is the Home Protection Scheme (HPS). The Mortgage Reducing Term Assurance (MRTA) will be commonly used for private property owners.
Fire Insurance is compulsory regardless if it is an HDB or private property. The cost will be dependent on the property.
8) Property Tax
Properties in Singapore are subjected to annual property tax. The tax rate will depend on the occupancy status (owner-occupied vs non-owner occupied) as well as the annual value of the property determined by IRAS.
There will be a new tax rate from 2023 onwards.
Owner Occupied Tax Rate
Non-Owner Occupied Tax Rate
9) Rental income tax
If you are buying a property for rental returns, do note that rental income will be taxed. The overall tax rate will be dependent on your tax bracket.
10) CPF accrued interest
If you are using CPF to service the loan, there will be CPF accrued interest to be refunded to CPF upon the sale of the property. While this is not a 'cost' as it is your own money, it will imply reduced cash proceeds you may need for the next home purchase.
If you are above 55 and have met your CPF full retirement sum, you can opt to withdraw the excess accrued interest proceeds in cash.
11) Bank / HDB loan interest
A bank or HBD loan is usually taken with each property purchase. The loan will consist of principal and interest payments. The interest payment will affect the profitability calculation when you sell your house.
Note that bank interest usually would be adjusted every 2-3 years. You might also end up servicing a higher loan payment in a rising interest environment.
12) Rental Cost
For upgraders to new launches, most would likely sell their existing properties to purchase the new launch if they could not afford to pay the ABSD. ABSD can be refunded for the only matrimony home, but at 17% of the purchase price for 2nd property, it is relatively high in cash outlay.
As a result, there will be those who would sell first, buy and rent before they move into the new properties. These rental costs will need to be factored in for those who intend to purchase new properties.
Can I make a loss even if the property price increase?
The short answer to that is a YES.
Here is an example
Condo purchased in 2017 and sold in 2022
Property Price : $1,500,000
Selling Price : $1,750,000
Paper Profit : $250,000
Stamp Duties: $44,600
Valuation / Lawyer Fee : $5,000
Renovation Cost : $50,000
Agent Fee for Selling House (2% commission) : $30,000
MSCT Maintenance ($300pm) : $18,000
Bank Loan Interest (Loan at 75%, Interest 2%) : $22500 * 5 =$112,500
Fire Insurance for 5 years= $1500
Property Tax over 5 years = $5000
Net Cost: $266,000
Net Returns : $250,000- $266,000 = - $ 16,000
As you can see, one may lose money, even though the property was sold at a profit. Nonetheless, it will be a new positive return, if you factor in opportunity costs such as rental over five years for similar properties.
For a more precise assessment of the profitability of your property, it will be best to engage a property consultant to work through the numbers with you. Contact us for a complimentary property financial planning session before you plan your property purchase or sales.