For HDB upgraders, new launch condos seem to have the best balance of affordability and potential capital appreciation.

But if you’re hoping to buy the new launch before selling your flat, you may run into cashflow issues given the higher cash outlay and Additional Buyer Stamp Duty (ABSD).

Is there a way to avoid ABSD entirely? And how do you maximise your loan for the 2nd property?

Enter Deferred Payment Schemes.

 

What is the Deferred Payment Scheme (DPS)?

The Deferred Payment Scheme allows you to make a downpayment, and then pay the balance much later on (sometimes up to two years). It’s available only with new launches that have already TOP’ed.

In other words: book now, pay later.

This is attractive to HDB upgraders who want to secure a new launch before they sell their existing property. It gives them much more time to sell, with the assurance that they already have their next home prepared.

Read also: From HDB to Condo – Can You Get a Dual Key Condo At a Discount?

On the developer’s end, the scheme benefits them because it allows them to sell balance units more easily. 

 

The Benefits of an Enhanced Deferred Payment Scheme

1. Don’t have to pay 17% ABSD upfront, as long as the buyer of your HDB (or existing property) exercises the option before you exercise the option for the new launch condo.
2. If you’re financially savvy, you can invest and earn returns on the funds you would have otherwise needed to pay in a standard Progressive Payment Scheme.
3. You have more time to sell your existing home, receive the sale proceeds, and move into your new place.
4. Once you’ve sold your flat, you can take a larger loan since you’ll no longer need to service the mortgage for your HDB. Otherwise, your LTV ratio for the second property will be capped at 45%.
5. Depending on the terms of the purchase agreement, you may get a fixed monthly return for the new launch. That means you can collect income to offset the downpayment for the condo.

The Cons of This Approach

1. Since you’re essentially buying time, you’ll pay higher prices. There’s usually a 10% markup from the original pricing.
2. The MAS considers the Deferred Payment Scheme a benefit, so banks will deduct this “benefit” from the purchase price when calculating the loan they offer you. That means your home loan may be slightly smaller than the 75% LTV ratio you would’ve gotten without the deferred payments.
3. If 2021 and 2022 were any indication, central banks are raising their interest rates – and home loan interest rates are following suit. Two years later when you apply for the loan, you may find very different rates.
4. And along the same lines as #4, your financial circumstances could also change in that time. You’ll need an iron rice bowl for the Deferred Payment Scheme.
5. Very few developers offer a Deferred Payment Scheme – and even fewer will defer the balance payment for two years. It also tends to be for the “leftover” units that haven’t been snapped up (and there may be good reason for this). This limits the available condos you can buy.

 

What to Look Out For with the Deferred Payment Scheme

If you still have your heart set on the DPS, look at newly-TOP’ed condos (including in the last few years) with unsold units as a starting point. Many of these developers won’t publish the DPS online, so you’ll have to talk to the agents to find out if they offer it.

You’ll then have to check out the terms of the agreement. Here are a few things to ask about:

1. How Extended Is the Option Period?

Most Deferred Payment Schemes only push the option period to 8 or 9 weeks.

But there’s a rare version of the DPS (sometimes known as the Enhanced Deferred Payment Scheme) that allows you to exercise the option up to two years later.

This is ideal for those looking to escape ABSD and maximise their home loans. 8 weeks doesn’t give you much of a runway to sell your existing property and move to the new place.

2. Who Pays the Property Taxes and Maintenance Fees?

Developers have been known to offer very favourable terms in this area. Look out for an Enhanced DPS that requires 0% property tax and no maintenance fees until you exercise the OTP.

Of course, you’ll need to balance this with the other terms and conditions. For example, some developers may require a larger down payment in return.

3. Is Subletting Allowed – Or Are There Fixed Monthly Returns?

And in the same train of thought, are you allowed to rent out the unit in the interim? Alternatively, does the developer provide fixed monthly returns on your downpayment? You may have to negotiate with the representative agent on this.

 

Condos with an Enhanced Deferred Payment Scheme in 2022

As of the time of writing, these were a few of the possible condos that offered an Enhanced Deferred Payment Scheme:

1. Lloyd SixtyFive

• TOP: 2017
• 30% down payment for OTP
• Exercise and complete 24 months later
• Pay no stamp duty, maintenance, or property taxes during this time.

2. The Line @ Tanjong Rhu

• TOP: 2016
• 20% down payment for OTP
• Exercise and complete 24 months later
• Master tenancy agreement issued under the buyer’s name so you can rent out the unit.

Following the continuing TOP delays across the country, there’s been a lot of uncertainty.

In HDB’s case, they’ve been upfront about their communication and new timelines. Buyers can also claim reimbursement by submitting proof of out-of-pocket costs they incurred during the delay.

But what do you do if your condo TOP is delayed and you haven’t heard from the developer? Do you have a right to compensation – and if so, how do you get it?

Today, we’ll cover the most common questions on the topic:

1. What causes condo construction delays?
2. Can developers change the condo TOP dates?
3. Can I claim compensation if my condo TOP is delayed?
4. How do I claim compensation?
5. What if developers have cash flow issues?
6. Can I back out of the purchase?
7. What if I have a tenant lined up?
8. Can I extend my extension of stay?

What Causes Condo Construction Delays?

Anything from bad planning, improper site management, and inaccurate engineering estimates to conflicts with subcontractors and manpower shortages.

During the COVID-19 pandemic, construction delays across Singapore were mainly because of manpower and material shortages.

Entire worker dormitories were in quarantine. Migrant workers rushed home to see their families and then found themselves unable to return. Movement control orders in Malaysia led to widespread component shortages. Safe distancing meant the number of workers who could be on site was drastically cut.

Today, the pandemic has eased somewhat (though the threat of monkeypox is looming). Most construction workers have returned to Singapore. But supply chain disruptions still remain and are causing continued BTO HDB and condo TOP delays.

 

Can the Developer Change Condo TOP Dates?

Yes, though this is rare.

Note, though, that TOP dates are not legally binding. The term stands for Temporary Occupation Permit after all: it’s meant as a form of goodwill so buyers can move in if the construction is done earlier.

What you should be looking at instead is the Vacant Possession Date in your Sale & Purchase Agreement (S&PA). This is the legal deadline by which developers must deliver a freshly-completed unit to you, failing which they’ll have to pay you liquidated damages. 

You may also notice an “Expected Date of Vacant Possession” or “Expected Date of Completion” in the marketing materials for the condo. These are estimates, not hard deadlines. Your S&PA is the best reference for when you’ll get your condo and how much compensation you’re entitled to if it’s late.

Here’s a sample contract detailing the Vacant Possession Date:

“The Vacant Possession Date is the legal deadline by which developers must deliver a freshly-completed unit to you, failing which they’ll have to pay you liquidated damages.”

Communication with the Developer is Key

It can be shocking to receive news that your condo’s TOP date has been delayed. It could be a small issue and the actual Date of Vacant Possession hasn’t changed. Or it could be a bigger issue, like the developer struggling with cash flow.

When your condo seems to be delayed, your first step is to get in touch with other buyers. You’re unlikely to be the only one affected, and coordinating responses with other condo buyers can put pressure on the developers to deliver timely updates.

Next, reach out to the developer’s Customer Care Team through their website or social media. Your property agent might also be able to help here.

Be sure to document all communication to and from the developer. Hopefully it doesn’t go as far as collective legal action, but if things get really bad, having everything in black and white will help with the legal proceedings.

 

Can I Claim Compensation If My Condo TOP Is Delayed?

Not usually. As we mentioned earlier, TOP dates are merely estimates and meant as goodwill if construction finishes earlier. Legally, you’re only entitled to compensation if the developer goes past the Vacant Possession Date and it’s solely their fault. There’s usually a buffer between the TOP and Vacant Possession Date, so developers have some leeway to delay the TOP.

But in the event the developer does go over the Vacant Possession Date…

 

How Do I Claim Compensation?

In most cases, developers who can’t meet the Vacant Possession Date will contact you first. Claiming compensation is a simple matter of filling out the form that they give you.

If they’re not as forthcoming, you may have to take the first step as we’ve outlined in the communication measures above.

If you’ve already reached out to the developer and haven’t gotten a response, it’s best to contact your conveyancing lawyer early on. In the worst-case scenario, you’ll need your lawyer’s help to claim compensation.

Most S&PA contracts in Singapore have similar terms since it’s a standardised form set by the government. In most cases, developers who delay the Date of Vacant Possession are liable to pay you liquidated damages on a daily basis at a rate of 8-10% per annum on the total amount you’ve already paid to the developers.

During the COVID19 pandemic, there was an exception to this. If a buyer entered into the S&PA before 25 March 2020 and the Vacant Possession Date was on or after 1 February 2020, the developers could seek an extension of up to 122 days. (The COVID19 relief measures have since ended.)

 

What If Developers Have Cash Flow Issues?

If the nightmarish cases of Laurel Tree and Sycamore Tree are any indication, the law still offers you some protection. Both condo developments were supposed to get their TOP in 2016, but even in 2019 the condos still weren’t complete.

That’s a risk with boutique condos from smaller, less-reputable developers. Despite the safeguards in place, somehow the developers had managed to empty the project accounts. There was no money to pay the contractor, let alone compensate the buyers for liquidated damages.

In the end – and after going through property agents, the Controller of Housing (COH), lawyers, and even the media – the court ruled that the condo buyers had priority claims to their uncompleted homes. UOB offered to bear the extra costs to complete the project, provided the buyers waived their rights to claim liquidated damages.

Lesson learned:

Make sure you look into the reputation of the developers before you put down any money for a new launch.

 

What Measures Are In Place to Prevent Condo Delays From Cash Flow Issues?

When you buy a new launch condo, the funds that the developers get from you go directly into a Project Account. If the developer takes out any loans for the project, those funds also go into the same account.

There are strict rules in place about how and when licensed housing developers can withdraw any money from the Project Account. For example, they can take money out to pay the architect and contractors, or cover the property taxes for the land. (Source: Housing Developers (Project Account) Rules)

The bank holding the funds isn’t allowed to release any money unless the developer can provide proof that the money will go toward developing the condo.

That’s why it’s rare – and shocking – for developers in Singapore to not be able to finish building a condo because of cash flow issues.

 

Can I Back Out of the Purchase If It’s Delayed?

Given that HDB allowed BTO buyers to back out of the purchase if their flats had been delayed, you may be wondering if you can do the same with your uncompleted condo. For the most part, that’s a no – you’ll have to follow what’s in the Sale & Purchase Agreement.

In Singapore, the S&PA terms are set by the Housing Developers (Control and Licensing) Act, with every developer largely following the same format. That means that barring any exogenous event, you’re stuck with the developer you’ve chosen until the end.

For more context: HDB did refund the option fee and downpayment if BTO buyers wanted to back out, but only on an appeal basis for those with urgent housing needs. In most other cases, HDB chose to compensate buyers instead (though many complained that the compensation wasn’t at all enough to cover rental costs for the period of delay).

 

What If I Have a Tenant Lined Up?

This is where both a Delay of Commencement and a Delay of Possession clause in the Tenancy Agreement is important:

• The Delay of Commencement clause allows the tenant the option to terminate the Tenancy Agreement in the case of delays.
• The Delay of Possession clause protects the landlord from being liable for any damages sought after by the tenant. However, the landlord agrees to forego rental payment until the tenant can move in.

But if the delay on your TOP is undefined or far longer than expected, we recommend communicating with your tenant as soon as possible. Give them the option to terminate the Tenancy Agreement and refund the security deposit, if you’ve collected it. If you don’t, the tenant has justifiable cause to take the case to court.

For the avoidance of doubt, the reimbursement you can claim from the developer does not include opportunity costs – like the loss of rental income due to a failed tenancy.

 

Can I Extend My Extension of Stay If My Condo TOP Is Delayed?

If you’ve sold your HDB and arranged for a Temporary Extension of Stay, your extension terminates automatically at the end of 3 months. You’ll need to make other arrangements if you expect your TOP delay to continue. (Read also: Extension of Stay HDB – Traps to Avoid to Protect Both Sides)

However, if you have an extension of stay or leaseback arrangement with the buyer of your private property, you’ll have to abide by those terms. And since it’s a private arrangement, you have the option of asking your buyer for more time. They may be more than happy to continue renting you the unit.

Given its stability and foreigner-friendly tax policies, Singapore has always held an appeal for those looking to buy property.

But with the surging domestic demand for property during the pandemic, the government saw fit to put in place cooling measures in December 2021 – including a higher ABSD for foreigners.

So what are the rates now, and what implications has ABSD historically had on property prices?

We’ll explore that today, covering:

1. What is Additional Buyer Stamp Duty (ABSD)?
2. Who has to pay ABSD?
3. What are Singapore’s current ABSD rates?
4. How do I get an ABSD remission or exemption?
5. Do ABSD hikes affect property price appreciation?

1. What is Additional Buyer Stamp Duty (ABSD)?

The Singapore government first introduced ABSD in 2011 as part of a broader set of property cooling measures to reduce speculative purchases. ABSD is a tool meant not to depress housing prices, but to encourage price stability and sustainability.

Since its introduction in 2011, ABSD for foreigners has increased three times – in 2013, 2018, and at the end of 2021. It started at 10% and subsequently increased to 15%, 20%, and now 30% respectively.

2. Who Has To Pay ABSD?

As long as you’re either a foreigner or PR buying property in Singapore, you’ll have to pay ABSD on top of Buyer Stamp Duty (BSD). The tax also applies to locals buying more than one property.

There are two exceptions:

1. If your home country has a Free Trade Agreement (FTA) with Singapore. In that case, you’ll be treated the same as a citizen buying properties in Singapore: you’ll pay no ABSD on the first purchase, but ABSD applies on the second and subsequent properties.
2. If you’re a foreigner married to a Singapore citizen, you may be eligible to apply for an ABSD remission.

Must I Pay ABSD in Singapore Even If I Have No Property Overseas?

Yes. For foreigners buying property in Singapore, the same 30% ABSD rate applies regardless of whether you own zero or three properties (locally or overseas).

3. What are Singapore’s Current ABSD Rates?

For foreigners buying any residential property, the ABSD rate as of 16 December 2021 is 30%.

Here’s the full table of rates:

Profile of Buyer	ABSD Rates on or after 16 Dec 2021
Foreigners (FR) buying any residential property	30%
Singapore Citizen (SC) buying first residential property	Not Applicable
SC buying second residential property	17%
SC buying third and subsequent residential property	25%
Singapore Permanent Resident (SPR) buying first residential property	5%
SPR buying second residential property	25%
SPR buying third and subsequent residential property	30%

For most foreigners, 30% is the only rate you should be concerned with. It’s only if your home country has a Free Trade Agreement with Singapore that the other rates come into play. (More on that next.)

4. How Do I Get an ABSD Remission or Exemption?

You can apply for an ABSD remission if you fulfil either of two conditions:

1. Your Country Has a Free Trade Agreement (FTA) with Singapore.

The following countries have FTAs with Singapore:

• Iceland
• Liechtenstein
• Norway
• Switzerland
• United States of America

For tax purposes, Nationals or Permanent Residents of these countries are treated the same as Singapore Citizens. (See above table for the ABSD rate you’ll have to pay.)

2. You’re a Foreigner Married to a Singapore Citizen.

If the property in question is purchased only under both your names, you’re eligible to apply for a full ABSD remission as long as you both do not own any other residential property within Singapore. (ABSD only counts residential property within Singapore.)

If you’re planning to sell off your current property to buy another, you may also apply for an ABSD refund as long as you sell your current (and only) residence within 6 months of the date of purchase/TOP/CSC, whichever is applicable.

You can find a complete table for ABSD Rates and Remission for Married Couples at IRAS.

Can I Put Properties in a Living Trust to Escape ABSD?

Nope. Starting from 9 May 2022, transferring any residential property into a living trust will incur an ABSD rate of 35%. Likewise, purchasing one under a living trust will incur an ABSD rate of 35%.

Can I Buy Property Under a Company?

Sure, but you’ll still have to pay ABSD – at a higher rate than as an individual foreigner, even. If you buy a property as an individual, you’ll pay a 30% ABSD rate. But if you buy it under a company, the law thinks of the purchaser as an “entity” and subjects you to a 35% tax rate.

5. Do ABSD Hikes Affect Property Price Appreciation?

Remember that the intent of ABSD is to curb property speculation, not depress property prices. Historically, property prices have continued to rise in spite of ABSD, but there are several factors you need to consider alongside the stamp duty.

For context, here’s a chart depicting Singapore’s property price index. Grey lines mark the introduction of ABSD and the three subsequent hikes:

Three things to note here:

A. The frequency of ABSD hikes depends on the government’s view of speculative excess in the property market.

If the government believes that one round of cooling measures isn’t working, they may go with another round not long after – whatever it takes to reduce the speculative fervour.

That was what we saw in 2013. The introduction of ABSD in 2011 failed to slow the speculative flurry. Two years later, an ABSD hike followed.

B. ABSD hikes have coincided with property price stagnation for a period.

The 2013 ABSD hike was followed by four and a half years of little to no property price appreciation. The 2018 hike was followed by almost two years of suppressed property price growth.

C. ABSD is just a single element influencing the market.

There are other forces at play, such as interest rates and the overall money supply in the global system.

The introduction of ABSD in 2011 and subsequent hike in 2013 followed a property market boom that started in late 2008. Back then, the market was buoyed by tax concessions, quantitative easing, and government stimulus as the world recovered from the 2008 Global Financial Crisis.

Similarly, the ABSD hike in Dec 2021 followed surging property prices from high domestic demand, supply crunches, low interest rates, and a massive amount of liquidity flooding the system from economic stimulus during the pandemic.

In short:

It’s too early to tell if the ABSD hike in Dec 2021 will have a definitive effect on property prices, though we’re already seeing a slowdown in property purchases.

At the time of writing, the property price index has continued to increase for the first half of 2022. It’s hard to say what ABSD will do this year given that we’re still dealing with record levels of inflation, geopolitical tensions, and supply chain disruptions.

We’re also seeing the highest recorded net capital inflows into Singapore, which means many foreign investors still see the island-state as a safe haven.

Summary

Is property in Singapore still a good investment decision? It depends on your financial situation and your outlook on Singapore in the midst of all the market volatility. Ultimately, you need a holistic view of the global market and how it influences the local property market to make an informed decision.

As the world opens up again, more investors are looking towards the Asia-Pacific for diversification, yield, and growth.

It’s not surprising that Singapore, in particular, stands as an attractive hub for foreign investment. With its first-rate infrastructure, political stability, and favourable tax policies for both businesses and foreigners, the city-state is a safe haven for investors.

After all, Singapore has seen an unprecedented rise in property prices since 2006. Even with the 2008 Financial Crisis, COVID-19 epidemic, and several rounds of property cooling measures from the government, prices have continued their upward trend:

So it’s no wonder that both locals and foreigners alike see Singapore’s property market as a good hedge against inflation.

In this guide, we’ll cover:

1. Can foreigners buy property in Singapore?
   1. What kind of real estate can foreigners buy?
   2. What about land or landed property?
2. Rules for foreigners buying property in Singapore
   1. Home loans and LTV limits
   2. Taxes
3. Potential pitfalls
4. What to know about the Singapore property market in 2022

 

Can Foreigners Buy Property in Singapore?

In short: yes. Although the local government policies favour citizens, you don’t need to be a Singapore citizen or permanent resident to buy property in Singapore.

There are restrictions as to what you can buy as a foreigner, though. Eligibility also depends on whether you’re married to a Singaporean citizen or PR, and whether you’re seeking to buy private or public housing.

Public housing, which includes HDB flats and Executive Condominiums (ECs), have the most restrictions for foreigners.

What Kind of Real Estate Can Foreigners Buy?

Currently, the private residential property foreigners can buy include:

1. Private condominiums
2. Strata landed houses in an approved condo development
3. Leasehold estates in a landed residential property for a term of <7 years

Private condos tend to be the property of choice for foreigners because they have the fewest restrictions and are widely available.

Read also: How to Buy Resale Private Property in Singapore (Step-by-Step Guide)

Strata landed houses in condo developments are also rare and typically only seen in older estates.

Foreigners who become permanent residents in Singapore can also purchase public housing such as resale flats and Executive Condominiums (ECs). However, you’re subject to an income cap as well as stipulations on marital status and overseas property ownership. You can find detailed eligibility requirements on HDB’s website.

Can Foreigners Buy Land or Landed Property in Singapore?

Generally no – you’ll have to get approval from the Singapore Land Authority (SLA) if you wish to do so.

The SLA will assess your request on a case-by-case basis. Approval depends on factors like:

• The depth of your ties to Singapore (e.g. whether you’re a PR and how long you’ve been there)
• Whether you’ve made an exceptional economic contribution to the country

Sentosa Cove is the one exception. If you want to buy landed property there, you’re much more likely to get fast-tracked approval. Just note that the properties there are leaseholds and have a reputation of being hard to resell.

 

Rules for Foreigners Buying Property in Singapore

For the most part, Singapore property laws are favourable for foreigners with a longer-term view. For instance, it’s legal to give your property away (say, to your children) without any monetary compensation. You do have to pay stamp duty on the market valuation of the property though.

Also, any profit you make from selling property isn’t taxed under Singapore laws, unless your main business is trading real estate.

But there are a few other questions you may have, such as:

1. Can Foreigners Apply for Home Loans?

Yes, but you’re subject to the Loan-to-Value (LTV) limit just like the locals. This dictates how much you can borrow based on your current leverage. If you don’t have an existing bank loan, you can borrow up to 75% of the purchase price. If you have one or more loans, you can borrow up to 45% or 35% respectively.

2. What Taxes Do Foreigners Have to Pay?

There are 3 main stamp duties of note to foreigners buying property:

1. Buyer Stamp Duty (BSD). This is based on the purchase price or market value of the property, whichever is higher. You can calculate the taxes payable on your purchase with the IRAS Stamp Duty Calculator.
2. Additional Buyer Stamp Duty (ABSD). Like the BSD, this is calculated based on the purchase price or market value of the property. Foreigners must pay a 30% ABSD rate unless their home country happens to be one of the few with a Free Trade Agreement with Singapore.
3. Seller Stamp Duty (SSD). This only applies if you sell the property within three years of acquiring it, and only if you’re not forced to sell it under the Residential Properties Act. The latter happens if you buy land or landed property without getting SLA approval. As long as you hold the real estate for at least three years, you won’t have to pay SSD.

Read also: 7 Things to Know About ABSD for Your 2nd Property

 

Potential Pitfalls

As with any investment, property purchases in Singapore have their own risks. This is especially true considering Singapore is one of the most expensive places in the world for private property.

Risk #1: Little to No Capital Appreciation

Pick the wrong development and you could be stuck with an asset with low capital appreciation and low liquidity.

One such development was Wing Tai’s The Crest, which had only 18% of units sold years after its launch. From 2017 to 2022 the price per square foot has fluctuated between S$1,628 – S$2,323, with the high of S$2,323 transacted in Feb 2018.

Risk #2: Limited Leases

Then there’s also the fact that most properties in Singapore have a leasehold tenure. That means you’re technically not buying the property – you’re renting it for the duration of the remaining lease (or until you sell it). When that lease is up, the land returns to the government.

While it’s true that older properties have the potential to go en bloc (meaning developers buy up the land in hopes of redeveloping and selling it for higher), it’s also possible for those 99-year leases to go to zero.

Risk #3: Poor Rentability

If you’re banking on the property as a source of rental income, be mindful of this risk. The rental market in Singapore has been thriving as of late, but the data shows that there are always peaks and troughs in the cycle:

When supply outstrips demand, prices tend to drop and there may be more vacant units on the market.

Read also: How to Determine Market Rental Rates for Private Property (2022 Guide)

 

What to Know About the Singapore Property Market in 2022

If you’re still weighing whether to purchase real estate in Singapore, here’s our take on where the market currently stands:

Property Prices Continue to Rise

At the end of 2021, the Singapore government introduced a new round of property cooling measures in a bid to stem the steep sales and rental price growth. Foreign buyers must now pay an ABSD rate of 30% (up from 20%).

In spite of these cooling measures, prices have continued to rise. Analysts have identified several potential drivers:

1. Lower-than-average new launches of private condos are expected throughout 2022. There will be a projected 7000 to 8000 new launches this year, which is a 25.5% drop from the average of 10,750. Reduced supply with increasing demand may lead to higher prices. (Source: The Business Times)

2. An increase in foreign buyers. 59 private condos were sold to foreigners in April 2022 – up from the average of 40 per month in 2021. (Source: The Straits Times) Even with the rise in ABSD, Singapore property remains an attractive investment.

3. Global geopolitical tensions may be driving a capital flight to safety. In Q1 of 2022, Singapore saw a record-high capital and financial surplus of S$76 billion. This is the highest account balance on record:

4. Property is still a popular hedge against inflation, based on the widespread belief that land scarcity leads to property values keeping pace with consumer price increases. (We should add that this isn’t always true – it still depends on the price and quality of the real estate you’re buying.)

Headwinds May Be Coming; Price Increases Could Reverse Suddenly

If inflation remains high amid record commodity prices (especially oil), household spending will decrease along with demand for property. Some may even be forced to sell to rein in their spending.

“We’re already seeing a drop in viewing enquiries since interest rates went up,” notes Bluenest CEO Jeff Lim. “Buyers seem to be on hold right now.”

And interest rates continue to climb. The US, UK, Australia, and South Korea are among the many countries that have raised their rates, with the US expecting four more rate hikes in 2022. 

This will increase the cost of financing for new purchasers as well as funding costs for those with floating mortgages. In the 3rd quarter of last year, household debt in Singapore rose to a high of 70% of GDP – up from 67.1% a year prior.

Analysts also predict a global recession in the next two years. Historically, GDP contractions have led to depressed housing prices.

16 Dec 2021 marked a fresh round of property cooling measures, including an ABSD hike. And with the higher taxes deterring homebuyers, it’s understandable that condos with dual key units started getting more attention.

Who wouldn’t be enticed by ad copy like “two for the price of one!” or the prospect of renting out part of your home while retaining your privacy as a live-in landlord?

Still, dual key condos tend to be expensive. After all, there aren’t many on the market and demand tends to outstrip supply.

But what if we told you there’s a way to get a dual key condo at the same monthly instalments as an HDB flat?

No scams – read on to find out.

 

What Are Dual Key Condos?

Condos with a dual key concept share the same main door but branch off into separate entrances for their individual units. They usually come in 3- or 4-bedroom configurations, with one segment turned into a studio apartment on its own.

This allows multigenerational families to stay close to each other in separate units – or the owner to rent out one unit while staying in the other. Because of the premium Singaporeans place on privacy, dual key units purportedly fetch a higher rental yield than their regular counterparts.

They’re also considered the same property in the eyes of tax authorities, so buyers don’t have to pay ABSD.

Here’s an example of a 4-bedroom dual key unit at Parc Olympia:

Still, dual key condos tend to be a niche investment. Part of the reason developers don’t make many of them is that they appeal to a smaller subset of the market.

And because most dual key units are in newer developments, they come with a higher $psf and possibly fewer amenities.

But what if you could have the larger square footage and amenities of an older condo and the perks of a dual key condo?

 

The Idea: Create Your Own Dual Key Condo

Since the idea is to have a segment of the unit split off into a standalone apartment, it’s possible to convert a regular 3- or 4-bedroom condo into your own dual key.

At Bluenest, we’ve done this for our clients over the past year to great effect.

Here’s how.

Converted Dual Key Condo: Sample Floor Plan

The floor plan above depicts a 3-bedroom condo that would work for the conversion. Only certain types of layouts make this a feasible renovation, like:

1. At least 1,200 sqft. Older condos are more suitable, as their units tend to be larger.
2. At least 3 baths. This allows you to create a studio with its own bathroom while the main unit retains a 3 bed / 2 bath configuration.
3. A large living & dining area. Since you’ll be converting the original kitchen into the studio apartment, you’ll need to make sure there’s enough space for a new open-concept kitchen in the main unit.
4. A common bath that’s adjacent to the new kitchen. This will resolve issues with plumbing (drainage and water supply for the sink, for example).
5. A helper’s room (or storeroom) or bathroom that’s accessible from the kitchen. These will form part of the studio layout.

After converting your new place into a dual key unit, you’ll have about 800-900 sqft for the main unit and 400 sqft for the studio apartment. This makes the main unit about the same size as a 3-bedroom in a new development.

If you’re unsure about units that would work for the conversion, it’s best to work with an agent who has experience in dual key conversions. This will help ensure the desired outcome and keep your renovation costs in check.

Drop us a note about how to get your own dual key conversion.

 

How Much Would It Cost Relative to an HDB?

As a helpful comparison, here are the costs of:

1. A 3-bedroom HDB flat (5-room flat)
2. A ready-made dual key with a 3-bedroom unit attached to a 1-bedroom studio
3. Our converted unit of a 3-bedroom condo with attached studio.

All the units in this comparison are from listings in the same district (D25).

	3-bed Converted Dual Key EC (1,200sqft)	3-bed HDB 5-Room Flat (1,300sqft)	Ready-Made Dual Key (1,399sqft)
Size (sqft) of 3-bedder	800 sqft	1,300 sqft	900 sqft
Size (Attached Studio)	400 sqft	–	499 sqft
Total Cost of Property	999,000	580,000	1,700,000
5% Cash Down Payment	49,950	29,000	85,000
20% CPF Down Payment	199,800	116,000	340,000
Loan (75% LTV)	749,250	435,000	1,275,000
Est. Monthly Repayment	~$3,150	~$1,684	~$4,710
Est. Monthly Rental from Studio	~$1,600	–	~$1,800
Est. Nett Monthly Repayment	~$1,550	~$1,684	~$2,910

 

In terms of upfront costs, a 1,300 sqft 5-room HDB flat with 3 bedrooms and 2 baths would cost S$580,000. This is just over half the cost of a 1,200 sqft Executive Condominium at S$999,000. 

That’s where the dual key rental income comes in.

One of the main benefits of a dual key unit is that you can rent out some of your square footage while at the same time still enjoying the privacy of a 3-bedroom property. The rental income is like an offset to your monthly mortgage payments, so you’ll find yourself paying a similar amount – if not lower – than someone who bought a 5-rm HDB. 

You’ll eventually own a property with a much higher market value and a higher likelihood of capital appreciation.

The renovation costs of converting the unit into a dual key can be minimal provided you select the right unit layout. In our experience, clients kept their renovation costs within the same budget they’d set aside to do up a 5-room HDB.

Talk to us to find out if a converted dual key would work with your finances.

 

What Are the Benefits to This?

1. Convertible. If and when you decide to sell the unit, you can either sell it as a dual key – which may fetch a higher price in certain markets – or convert it back to a regular condo.
2. Better resale value. Most of the time, dual key units are a niche investment: people still prefer a traditional 3-bedroom condo with more space. Buying a regular 3-bedroom condo and converting it is less risky than buying a ready-made dual key unit.
3. Flexibility. Digital nomad? You can stay in the studio and rent out the main unit for more income. Elderly parents? They can stay in the studio. That way, they’re close enough that you’re around if they need help, but separate enough that you and your family still have your own space.
4. Lower taxes. Since you’ll likely be staying in one of the units while renting out the other, you’ll pay the much lower owner-occupied tax rate.
5. Higher income. Stand-alone studio apartments attract higher rents than renting out one of the rooms in your unit.

 

Are There Any Risks With This Approach?

We’d be remiss if we didn’t lay out some of the possible pitfalls:

1. Not Being Able to Offset Your Monthly Repayments With Rental Income

This is especially relevant if you’re counting on rentals to be able to afford the place. It will take time to renovate, and you likely won’t get a tenant immediately after putting your place up on the market. Be prepared to have a financial buffer of at least 3-6 months.

That said, the rental market is healthy right now, owing to the lower supply of newly completed homes and the relaxed restrictions on travel. Rental prices have gone up every month for almost two years now:

2. Expecting Capital Appreciation that Never Materializes

Many Singaporeans aspire to own a condo partially because property is seen as an ever-profitable asset. But as with any investment, condos aren’t guaranteed to have capital appreciation: it still takes a discerning eye to pick a good development. That’s why we recommend engaging someone you trust to help with the purchase of a new property.

 

Would you be interested in a converted dual key condo? Let us know in the comments!

Close to midnight on 15 December 2021, the Singapore government announced cooling measures to soften the heated property market. Below is an infographic summarizing all the changes!

Source: Ministry of National Development

Such cooling measures are not new. The last implementation was in July 2018. Private residential prices increased by 9.1% within one year after declining gradually for almost 4 years, prompting the implementation in 2018. 

So what is the difference this time around?

Previously, the government announced the cooling measures earlier in the evening. This gave Singaporeans time to make last-minute purchases. Long queues and crowded show flats were reported, such as those at Park Colonial and Riverfront Residences. 

Source: Channel News Asia

This time, the measures were announced close to midnight before the effective date of the cooling measures. Experts believe that the timing was a carefully considered move by the government. It prevented a reoccurrence of the long queues and crowds in 2018. With the current pandemic situation, this also reduces the chance of clusters that may lead to another wave of infections. 

The latest implementation is the government’s reaction to a buoyant private residential and HDB resale market. Since the first quarter of 2020, prices for private housing saw an increase of 9%, while HDB resale value saw a 15% increase. Private home sales also rose 69.8% month-on-month in November.

What are the reasons for the hike in property prices? 

1. High demand for housing

There has been an increase in demand for Built-To-Order (BTO) HDB flats. Some of the reasons cited by HDB include an increase in marriages and families formed, and changing social norms. Multigenerational families are now more interested in living on their own. 

Demand for private properties has also been increasing. The improving economy and increasing demand for upgrading are some of the causes. Experts also say that the private property market may also enjoy a boost from an increase in foreign demand due to relaxations of pandemic measures. 

2. Low supply

The construction sector in Singapore saw major disruptions during the pandemic.  Construction companies faced difficulties sourcing affordable materials. Travel restrictions for foreign workers also caused labour shortages. This has affected the supply of housing in Singapore. With a low supply but high demand, property prices in Singapore have thus seen astounding increases. 

Price hikes can be seen in the record number of HDB resale flats transacted at $1 million amid the pandemic. There were 261 million-dollar flats sold in 2021. In 2020, there were only 82 such flats. Do you know that Bluenest also sold a few resale HDB units at more than $1 million? It was even featured on Mothership! You can read more about it here!

So What’s the Impact of These Latest Cooling Measures on Homeowners in Singapore?

Increase in ABSD rates

What is ABSD? Introduced back in 2013, it is an additional tax that buyers would have to pay if they were to purchase another property.

The latest implementation would deter investors and foreigners from buying. Those who are unable to pay the additional tax for another property will contribute to the drop in demand. This will keep housing prices affordable.

Residential property developers will also feel a negative impact from this increase. The increased ABSD can only be remitted if the new development is completed and sold out in five years.

The impact is already showing in the en bloc market. Shun Tak Holdings, a Hong Kong-listed company, backed out of their en bloc purchase of High Point. They won the tender on December 9 for $556.7 million. Experts have attributed this move to the cooling measures. The revised ABSD rate would not have affected the developer. However, the increase of ABSD for property buyers will affect the demand for the development. 

Source: Edgeprop

Prior to the announcement, the momentum for en bloc saw the highest number of successful cases since 2018.

Property developers will be more cautious now on where they purchase residential land. Demand for land will also be uneven as larger plots will have a lower demand as more units have to be sold. 

Tighter TDSR threshold 

Total Debt Servicing Ratio (TDSR) determines the maximum amount of loan one can take on. It is dependent on the borrower’s gross monthly income. With the new regulation, one can only have debt obligations of up to 55% of their gross monthly income. 

Introduced back in 2013, the purpose was to encourage borrowers to be prudent when taking up property loans.  It is only applicable to property loans granted by financial institutions. 

The government hoped that the possibility of individuals going into debt will be lower. There have been reports that mortgage loans have caused a high percentage of households to be in debt.

Tightening TDSR will force households to make careful decisions when planning to upgrade or even purchase a property. This measure may also be helpful with an expected increase in interest rates.

Reduced LTV limits (for HDB-granted loans)

The loan-to-value (LTV) limit is a percentage of the property’s value that can be paid off by taking a loan. This is the maximum amount that an individual can borrow from a financial institution for a housing loan.

The recent change is only applicable to those taking up loans from the Housing Development Board (HDB). In 2017, the change affected loans granted by financial institutions only. 

Experts believe that this change has a limited impact on property buyers. Financial institutions are usually the preferred option to secure a loan. They usually offer lower interest rates, although only 75% of the price or home value can be financed by these loans.

What Can We Expect in 2022?

In response to the low supply, the government has plans to increase the supply of private housing and ensure a stable private property market. 13 sites were released under the Government Land Sales Programme for the first half of 2022 after the cooling measures were announced. This comes after the government has been seeing strong demand for private housing which has caused rising transaction volumes and prices. 

The government will also be increasing the supply of public housing. About 23,000 Built-to-Order (BTO) flats are expected to launch in 2022, 35% more than in 2021. Depending on the demand, the government has plans to launch 100,000 flats between 2021 to 2025. 

Source: The Business Times

Our Final Take

The purpose of these cooling measures is to keep housing affordable for Singaporeans and Permanent Residents to stay. With these new measures coupled with low supply, 2022 would be a rather interesting year for the property market here in Singapore.

If you have any questions, please feel free to reach out and schedule a non-obligatory consultation with our Bluenest advisor.

At Bluenest, we sell our properties faster, better and more efficient than the other agents in the market. This is the result of our AI tools, personalized marketing strategy & top-notch agents. At only 1% commission fees, you get to enjoy best-in-class service and expertise!

Also read the 5 Lessons We Learned from Record-Breaking Flat Sales.

Speak to us at +65 3138 2553 or simply drop us a mail at hello@bluenest.sg