Are you thinking of upgrading to a new condo? Perhaps you are taken in by the design, facilities and location of that new property. If this sounds like you, we have outlined here the salient points to consider before taking that plunge.
1. The Additional Buyer’s Stamp Duty (ABSD)
In December 2021, the Singapore government introduced more property cooling measures. With this, the ABSD rates increased to 17 percent, and it is widely reviled by repeat homebuyers.
How can you “escape” this? Pay the ABSD upfront, but sell your old home within the allotted time frame to get your money back.
As of May 9, 2022, a new law will apply to transfer residential property into a living trust: an ABSD of 35%. When residential property is transferred into a trust, ABSD is still due even though there is no known beneficial owner.
Therefore, an opening has been closed by this revision. This ABSD (Trust) payment is subject to immediate transfer.
2. The Loan-To-Value (LTV) Ratio
Along with the new property cooling measures, the LTV rates have been reduced from 80% to 75% (if this is your first housing loan or you have paid off your existing housing loan). There is less leeway for homebuyers to borrow money from the bank to finance a house. Any decrease in the LTV rate necessitates a larger down payment, which can be paid in cash or via CPF.
3. Overall Cost of Servicing Debt Ratio
The objective of the TDSR is to protect homebuyers from taking on more debt than they can reasonably pay back. As a result, 55% of your monthly income is the maximum amount that can go towards paying off your loans.
4. Income Tax on Real Estate
The easiest way to determine your property’s tax rate is to check out IRAS’ e-Service. For Budget 2022, the Singapore government stated that both owner-occupied and non-owner-occupied residential properties would be subject to alterations in property tax rates in two stages.
For owner-occupied homes, the current tax rate is 4 – 16 per cent beyond the first $8,000 of a property’s annual value. Under the new changes, this will increase to 5 – 23 per cent and 6 – 32 per cent in 2023 and 2024 respectively beyond the first $30,000 valuation.
On the other hand, taxes on non-owner-occupied property investments and other homes will increase from the current 10 – 20% to a range of 11 – 27% in 2023, and subsequently, a whopping 12 – 36% in 2024.
5. Affordability
Know your budget constraints before you start looking at houses or even neighborhoods. By that, we mean the most you can afford to pay back every month and not the most significant amount you can borrow.
You will be more financially stressed when making mortgage payments and other homeownership expenses than when paying rent. Make sure to factor in your monthly home loan payment while calculating your budget and stick to it for at least three months. That way, your mortgage won’t weigh you down, and you may enjoy life to the fullest without worrying about making mortgage payments.
Always think of other up-front expenses, such as stamp duty, that must be paid when buying a home.
Subsequently, get pre-approval for a mortgage so you may start looking at homes with certainty rather than indulging in wishful thinking.
6. Research and familiarise yourself with the new neighborhood
You can never have too much information about real estate investments, so familiarise yourself thoroughly with the neighbourhoods you’ve determined to be promising.
Get the lowdown on the neighbourhood from real estate agents and mortgage bankers. It is essential to know the difference between a property’s actual value and its asking price.
7. Evaluate the property for problems
If you find a house you like, you should investigate it thoroughly to ensure it has no significant flaws. Take a whiff to check for musty smells and animal odours. Feel free to ask as many questions as you like.
8. Seek expert opinion
It is essential to talk to professionals before making an investment as substantial as buying a property. If you want to avoid unexpectedly high repair costs, it’s in your best interests to hire the most experienced, qualified house inspector you can locate.
Consult a mortgage broker to tailor your financing to your specific goals and a financial planner to evaluate the costs associated with buying a home. Take care that your attorney isn’t simultaneously representing the seller to avoid any potential conflicts of interest.
9. Use your mind, not your heart
If you follow your heart, you’ll achieve personal success. Rarely does this include being a property owner.
If the terms aren’t satisfactory, it’s okay to back out of the contract. There are other buildings planned. Remember that you are engaging in a business transaction and that its conditions must be adhered to.
Summary
While you are ready to upgrade to that new condo, it is essential to identify the most crucial factors to consider when purchasing a property. As we have stated, there are several aspects to consider, including your preparation, the local housing market, and your familiarity with the essential elements of the home-buying procedure. By giving some of these concerns significant attention, you will enter the domain of homeownership with awareness and mindfulness.
