Cooling measure changes and how you can benefit from it

Seller Stamp Duty SSD Changes

Changes to SDD, TDSR and Stamp Duty for Companies (PHEs)

On 11 March 2017, The MOF and MND released a joint statement regarding changes to the cooling measures currently in place when you purchase property in Singapore.

These are :

1) Reduced Sellers Stamp Duty (SSD)

Properties purchased after 11 March will be subjected to a reduced holding period that is subjected to the Sellers Stamp Duty. (i.e. 3 years instead of the 4 years currently in place) as well as a reduction of % points . See table below. 

2) Changes to the TDSR limit for those planning to take out an equity term loan using their current property.

The current TDSR framework has limited an owner's ability monetise their properties in their retirement years, i.e. to borrow against the value of their properties to obtain additional cash. Therefore MND will no longer apply the TDSR framework to mortgage equity withdrawal loans with LTV ratios of 50% and below.

3) A new Stamp Duty Treatment for 'Property Holding Entities' (PHEs)

Companies owning properties are now subjected to a higher stamp duty rate, in line with the stamp duty rate for individuals. 

Since changes 2 & 3 only applies to a select group, we shall talk about it in a separate blog post .

Seller stamp duty changes

The sellers stamp duty has been in place since Feb 20, 2010 to prevent investors from making a quick profit in a rising market.

When times were good previously,  there were instances a single property could change hands multiple times within a few days, earning the flippers a good deal of money and creating a runaway housing market that the government was later forced to control.

​To curb this, the Government introduced the Sellers Stamp Duty which forced the seller to pay a percentage of the property's selling price to the government, thus reducing the sellers profits. Although it was not one of the most effective tools of the entire cooling measures in the government's arsenal, it contributes to an investor's hesitation to purchase a property, since they will not be able to sell it off if quickly if he loses his holding power.

​The Government announced that for properties bought on or after 11th March 2017, there will be a reduction in the holding period as well as the amount of stamp duty/percentage points of the SSD as shown in the table below :

Holding Period

1 year or less 

Between 1-2 years

Between 2-3 years

Between 3-4 years

Between 4-5 years

From Feb 2010 to 
10 March 2017

16%

12% 

8%

4%

No SSD

From 11 March 2017

12%

8%

4%

No SSD

No SSD

How the changes can benefit you.

As of now, we believe that the changes in the SSD may have an impact on new launch properties or those that are still under construction. Smaller units that are meant for investment may experience the biggest impact.

[Analysts from the straits times seem to think so too. Click here for the article.]

The Seller stamp duty or the SSD starts from the day you exercise the Option To Purchase or sign the Sales & Purchase Agreement. This is regardless of if you purchase a new launch, a property under construction, one that has just TOP or a resale unit. 

[In contrast, the 5 year holding period of a HDB flat or the MOP, starts from the day you receive the keys, not while its under construction]

Therefore, the changes in the SDD can benefit you if you purchase a new launch, due to the following factors :

1) Reduced risk of not being able to rent the unit out in a slow market.

This means that the SSD period for buyers of new launches would be mostly during the construction period, taking away some risk from the owner, i.e. the risk of not being able to rent it out in a slow market.  Your profits would be through the capital appreciation that a development happens from launch to TOP, since not all buyers out there are willing to wait 3 years for a place to stay. 

To maximise your profits,  you should choose a property that is in an area that is either going through gentrification or one that MND has earmarked as a 'growth area'. Examples include Park Place Residences in Paya Lebar or Parc Riveria in the Jurong Lake District.  [ Other growth areas include Woodlands Regional Center and the Punggol Creative Cluster. ]

At the same time, we would advise against just purchasing a random property that under construction. Although this change cuts your risk, you should still stick to the fundamentals of purchasing a property at a good entry price and one that can easily be rented out. Not sure which properties to look at? Sms/ Whatsapp 96918885 so that we can give you proper advice. 

2) Lesser "Capital Outlay" via the progressive payment scheme if you purchase a property at a new launch.

Investors can also opt for the Progressive Payment Scheme when you purchase a new launch.

The progressive payment schedule for new condo launches are as follows: 

Progressive Payment Scheme for new condo launches

The monthly amount you pay depends on the stage of construction of the unit you purchased and monthly outlay can be as little as a few hundreds each month for the first few phases of construction. We've done up an example based on a $700 000 new launch unit. This can be via cash or CPF depending on your situation. 

Progressive payment schedule for new launches

3) Prices at launch are the usually the cheapest.

If you are wondering why there are still crowds at new launches, this is probably why. Buyers are willing to brave the crowd and wait in line to ballot for units during launch date because they are able to get their pick of the best units at a good price. Prices for good units tend to increase once supply decreases and the closer the development is to TOP.  

These are probably part of the reasons why, despite the cooling measures in place, new launches have experienced brisk sales at launch date. 

Thinking of benefiting from the changes? We suggest you take a look at new launch properties in growth areas, especially Park Residences at Paya Lebar. SMS us at 9691 8885 to book an appointment slot and a VIP pass to view the showflat before the official launch date.

Preview Period : 11th - 20th March 2017. Targeted Launch Date 25th March 2017.

Park Place Residences

Click here to find out more about the development or SMS/whatsapp us at 96918885.

Are developers becoming increasingly creative? OUE and the deferred payment scheme

Developer Discounts Property

1. Will creativity help the Singapore Property Market? 

Tough times call for creative measures and this exactly what this developer did.

UOE announced last week that they were offering 2 schemes to sell off the remaining units of the UOE Twin Peaks located on Leonie Hill Road in District 10. Rather than slash property prices to bring in buyers, the developers have decided to offer 2 creative payment methods to buyers in hopes of selling more units before they have to pay the ABSD and the extension QC charges for unsold units in 2018.

Straits times article : UOE Twin Peaks 

2. What is the OUE Twin Peaks selling scheme about?

a. Scheme 1

In the first scheme, the Buyer puts down a 20% downpayment for the unit he wants to purchase but he will only sign the Sales and Purchase (S&P) agreement ( $1000 ) at the end of the year (instead of completing the sale in about 2 weeks to 1 month i.e. the normal procedure. )

This scheme allows the buyer to lock in the purchase price, eventhough the sale will only be completed at the end of the year, where developers and experts predict the ABSD might be reduced or even removed. (Note: The various Stamp Duties is usually due upon the sale completion i.e. signing of the S&P)

PROS

CONS

  • You get to lock in the price and not be affected by price increases if the ABSD is removed/ reduced at the end of the year
  • (Analysts predict that removal of the ABSD will result in an increase in price, because of suppressed demand )
  • Instead of 5% cash deposit, you will need to pay a 20% cash deposit. 
  • If ABSD is not removed, its pretty much the status quo. You will still need to pay the ABSD if this is your second or third property and alternatively market forces might have allowed you to purchase a sub-sale unit at a cheaper price.

b. Scheme 2

Buyers will have to make a 20% downpayment first and sign the sales and purchase agreement (another $1000 ) as per normal but the loan payments/ balance payment can be deferred for another 3 years.

This is known as the deferred payment scheme.

However, since the S&P has been signed, buyers would have to make the payment for the various stamp duties as per IRAS’s timelines.

PROS

CONS

  • With no monthly mortgage payment, buyers who are purchasing a unit to rent out will not be pressured by the weak rental market.
  • These buyers can technically underbid all other landlords who are renting out their units in the same or neigbouring developments. The rent collected for the next 2-3 years adds directly to your profits.
  • If the overall property and rental market improves in 3 years time, owners would have bypassed the worst of times.
  • Instead of 5% cash deposit, you will need to pay a 20% cash deposit. 
  • The property price is increased by about 3-9 %
  • You will still need to make the ABSD payments.

What is the Deferred Payment Scheme (DPS) ?


The deferred payment scheme is basically a scheme which allowed buyers to put off a bulk of their mortgage payments until the building was ready for construction. This was popular in 2002 to 2006 but was removed in 2007 when the market started heating up. 

Currently the deferred payment is only available for Executive Condominiums.

Why is UOE able to do this? Will other developers follow suit?

UOE is able to do this because the property has received the CSC (Certificate of Statutory Completion) and is no longer subjected to the Housing Developers Rules. Other developers might follow suit or they might have other methods of overcoming the ABSD.

In this Business Times article, " Developers sanguine about selling out before stamp duty deadline, rather than giving hefty discounts to individual buyers and thus be accountable to their lenders and their shareholders, other options might include:

  • Buying the properties themselves (using a subsidiary) and rent the units out. 
  • Selling to a bulk buyer
  • Accepting a silent offer from a buyer without offering hefty discounts from the public. 

Our Thoughts? 

With plenty of supply and many buyers waiting on the sideline, developers would definitely come up with creative ways of selling off their units.  

However, its still quite clear that these developers have choices and it is not as simple as slashing their prices to get more sales. Their bottomlines and profit margins still matter especially where there are shareholders involved. These developers won't risk scaring off their shareholders or even reducing the shareholder's confidence because this affects the company's long term progress ( while selling off the units affects only their short term balance sheet). 

This is not to say that there aren't any developers who offer price discounts.

While 'waiting for prices' to drop may seem a reasonable strategy , we believe that taking a pro-active method and offering a lower but still reasonable price for a better unit can make all the difference for you, especially if the development is in a good location. 

Update: As of 5th May, The Straits Times reported that UOE Twin Peaks sold about 30 units over the past few weeks. Its not indicated if all the buyers opted for the DPS. 

Eyeing a condo at a particular development ? Let us find out for you the lowest price developers have accepted for similar unit types.  Email us at askus@propertyrocking.com today. 

Singapore Property Truths for 2016

Singapore Property Market Truths for 2016

Is it time to accept a new normal?

We’re already a few days into the start of a new year and the Singapore property market doesn’t show any signs of a quick recovery. Prices are inching down (though at a slower pace), and buyers are pretty much sitting on the sidelines waiting for either a further fall in prices or the removal of the ABSD (Additional Buyers Stamp Duty) before re-entering the market.

To add salt to the wound, a soft rental market and predictions of a financial downturn is further scaring off potential investors.

Is the property slowdown a good thing? 

Apart from forcing practicing agents to turn to other means of income (helloo Uber), the property slowdown has actually allowed prices to soften so that first time buyer or first time investors can actually get a good bargain if they play their cards right. Look at it this way, if you buy with contingency measures set in place for the worse case scenario, you are actually in a better position than someone who buys in a good market, and who is unprepared for a downturn.

That brings us back to the situation that we are in today. Rather than waiting for a single turning point and for things to return to the ’normal’ of the previous years, maybe it’s time to face facts, to welcome the new ‘normal’ and embrace the opportunities that 2016 will bring.

Singapore Property Market in 2016

1) It’s all about the Long Term

Gone are the days of property prices rising continuously and at such a fast rate that flipping properties becomes the norm. In fact, the Seller Stamp Duty (SSD) was introduced to stop this and with it still in force, property owners have to be doubly sure that they’ll have the holding power to weather dips in property prices and rental demand. The reality is that prices are slowly dipping and might dip further with the impending financial slowdown, so the rental potential of the investment property you buy is extremely important. In a good market, the rental yield or the passive income that you collect each month can be a determinant of a good investment property. However, in a bad market, getting clients just so that you can cover the monthly mortgage should be your focus. See point 2.

2) Lose the battle, Win the war.

In a situation where supply exceeds demand, you will definitely be faced with tenants asking for a lower rent or even demanding more furniture etc, which will come as a shock especially if you had the upper hand for the past few years.

If it is one of only a few offers that you receive, re-consider which of these situations would be worse; a slight loss in income (even if it means topping up a few hundred dollars of the mortgage for the duration of the lease) or paying the whole mortgage by yourself for a few months.

If you are still servicing a loan from a bank, the answer should be pretty apparent.

However, instead of feeling blue about having to suffer a loss, you need to think about the fact that the monthly rent the tenant is paying each month contributes to the capital build up of the property. When you sell the property, this would be part of your profit.

Accept small losses as part of the bigger picture. Even if it is a small loss for one or two years, the money that you are putting in can be considered a form of forced savings for your future.

3) Is your HDB still an investment?

Sorry HDB owners (especially those who bought their property between 2008 and 2014). If you were looking at a quick profit by selling your flat, you would be very disappointed. With prices stagnating, you probably would not have made much cash profits when you factor in the amount of CPF you would have to refund. However, should this be the only indicator of a ‘profitable’ transaction?

Even if most of the ‘profits’ or appreciation is in your CPF, this can still be utilized to offset your next mortgage if you are looking to upgrade to fit the needs of a growing family. If this move is beneficial to your family (and your pockets), you should still take advantage of the CPF appreciation because it’ll take a while for HDB prices to go up this high again. Wait any longer and you would probably run a deficit and end up owing CPF i.e. a negative sale.

Why will HDB prices not rise as high in the short term? 

  1. The massive BTO supply pumped in,
  2. The new method of calculating how much HDB loan you are entitled to i.e. the Mortgage Servicing Ration (MSR) limits the loan amount that can be taken for HDB flats.
  3. The new procedures where the valuation of the flat is “hidden” from the sellers.

Will my HDB ever be profitable? 

It depends on what you consider profits. For you to truly make a cash profit, the price appreciation of your flat will have to exceed the interest rate + the CPF accrued interest rate. If you have a HDB loan, this will mean that to get any cash out from your HDB flat, the prices need to rise at least  2.6% +2.5% = 5.1% each year.

4) Location matters more than ever.

If you are prepared to purchase an investment property, keep in mind its not just about the price of the property , it is also about how easy it will be to rent. A cheap property or low property prices does not necessarily mean that the investment would be profitable.

To determine this, put yourself in the tenant’s shoes. In a market where there’s a lot of choice, why would they go further when they can rent one near amenities and public transportation?

5) Opportunity fund VS using all your life savings

In an uncertain market, the worst thing you can do is to ‘gamble’ your life savings. Even though property investments theoretically can be a relatively safe form of investment, you do not want to add on to the added stress of an underperforming investment.

Set some money aside in an ‘opportunity fund’ that may come your way but make sure that this is money that you can afford to lose.

6) Find legal loopholes & use it to your benefit.

The Government’s Cooling Measure rules are pretty straightforward. 2nd property but you still have an existing housing loan? You’ll only qualify for a 50% loan and you’ll have to pay the ABSD. Buying a 2nd property but you’ve cleared your other housing loan? You’ll need to pay only the ABSD.

Consider decoupling . That way you’ll qualify for an 80% loan and won’t need to pay the ABSD.

7) Find someone who will tell you both sides of the coins.

Everyone hates salespeople. I hate them too. (I know, strange considering my choice of profession) But truthfully, I especially hate how I have to only share how the ‘grass on the greener’ when on duty at a showflat.

You have to understand that agents at showflats are representatives of the developers. They are not allowed to speak ill of a property or to even pitch other properties, even if we think they are more suited to your needs. (That’s natural don’t you think? Imagine walking into an apple store and having the salesperson tell you that you actually need a PC, strange right?)

Speak to us on a one to one basis, and let us understand your needs and requirements. Agents from reputable agencies have access to a whole list of properties as well as get the info first hand when developers give discounts. We’d be more open to giving you the whole story when we’re not in a tight position.

8) Always do a stress test

Remind your agent that you would like do a stress test to measure affordability. The stress test would give you a gauge of how much you will be paying if the interest rate reaches the support level of 3.5%. To add in an additional level of security, predict a scenario where rents fall to a level where you have to top up $200 – $500 to the monthly mortgage of your investment property. Are you still in a good place financially? If not, put off purchasing that property until the market or the rent demand stabilises.

Chicken Little or Warren Buffet?

Chicken little thinks that the sky is falling, while Warren Buffett knows that opportunities are present when times are bad. While we don’t deny the fact that the market is not stable right now, there are also gems out there for you to consider. If you are in a good position financially, consider entering the market when everyone else is skeptical.

After all, would it be better for you to enter the market and have the upper hand when no one is buying or would you prefer to wait for the floodgates to open when the cooling measures are removed?

Dual Key Condominium Units

Dual Key Condominiums in Singapore

What are dual key condominium units?

Dual Key condo units are apartments with 2 separate living spaces, typically a 2 or 3 bedder apartment and with an attached studio unit or one bedroom apartment.

They are found in private condominiums and executive condominiums (ECs).

[Note: As of end 2013, HDB revised its policies and would only allow multi-generational families to purchase Dual Key ECs.]

Dual Key Condominium Singapore

Sample 3 bedroom Dual Key Unit at the Santorini in Tampines

As you can see from the floor plan above, there is one main door but living space is quite clearly defined.

Some dual key units (like the one in the floorplan above) come with 2 kitchens spaces (i.e. the studio unit has an induction cooker) while others come with an oven / microwave oven for simple cooking and reheating.

Why are these types of units popular?

1) Passive income while enjoying condo living.

While many people enjoy the perks and facilities of a private development, be it a condominium or an apartment, they usually shudder at the thought of the hefty mortgage payments.

A dual key condominium unit ensures that you have some rental income coming in while you enjoy the luxuries associated with condo living.

2) More privacy than renting out a room

Some families, especially those with young children, do not like the option of renting out a room because of the loss of privacy associated with the sharing of a bathroom, kitchen etc.

With a dual key unit, the tenant has access to his own bathroom and kitchen, which means more privacy for the family.

3) Restrictions of the Cooling Measures

Currently, if you purchase a second property, there are several restrictions for example a lower loan amount (LTV), and an additional stamp duty (ABSD) imposed on the owner.

With a dual key unit, you technically own ‘two’ properties since you can rent one out.

However, we can also suggest other legal means of avoiding the ABSD if it is an issue for you.

Typical Use of dual key units

  1. Owners of dual key units usually stay in the main living space and rent out the one bedroom /studio
  2. There are also savvy singles or young couples who prefer to stay in the one bedder and rent out the 2 or 3 bedder for a higher monthly rent.
  3. Multigenerational families also remain close by using the space for their teenage or adult children, or even elderly parents.
  4.  Entrepreneurs who operate a home office might also prefer to use the unit as a study or as an office space. Please take note that you would still need to abide by URA's guidelines for operating a home office. 

Is it a wise investment to purchase a dual key apartment?

As with other investment properties, you need to remember that there are basic concepts to purchasing a good rental property.

    1) Proximity to amenities and transportation

If the attached apartment does not have any cooking facilities, proximity to eateries would definitely be an important factor.

Distance to public transportation is definitely an important factor since , if everything else is equal, tenants would definitely prefer accommodation closer to public transport.

2) Living space

Some dual key studio or 1 bedroom units come in loft style, which means that the bed is on a platform. You might want to survey the other developments in the area to see if this is a typical set up because tenants might not be too receptive to this set up, unless there are a lot more advantages to living in that development, for example, bigger living spaces, a condominium in the city center etc.

3) Lower Quantum because of total PSF

When buying a private property, the bigger the size of the unit, the lower the PSF (i.e. price per square foot).​

If you were to compare the cost of purchasing a 4-room dual key apartment to 2 separate apartments (i.e. a 3 bedder and a one bedroom apartment for rental), the cost of the dual key is definitely cheaper than that of the 2 separate units.

A list of condominium developments with dual key units?

Note: This is not a comprehensive list of developments. If you have any other development in mind and need more information, we will be glad to assist. 

Private Condominiums

  • Citygate - Beach Road
  • Sunnyvale Residences- Lorong K Telok Kurau
  • The Santorini - Tampines
  • Bartley Ridge - Bartley Rd
  • The Interlace - Depot Road
  • Waterfront at Faber
  • The Glades - Tanah Merah

Executive Condominiums (ECs)

  • Ecopolitan @ Punggol

Singapore Condos : Which one should I buy? New Launch, Recently TOP or a Resale Unit?

If you are looking to find out more information on executive condos, click here instead

Which Singapore condo development should i choose

 

It’s come to that point in your life where you know the time is right for you to get an investment property  to rent out in Singapore. ( For purposes of this article, we shall refer to properties that you rent out as rental properties).

You’ve been patiently monitoring the market and you are ready to swoop in. You’ve done your finances, reorganized your portfolio and know how to work around the cooling measures to avoid paying the absd.

[Read more…]