Due to the success of Singapore’s public housing policy, which began in the 1960s, 80% of Singapore’s population today lives in HDB flats. Private housing is mainly for people with higher incomes. Those considering buying residential property in this island nation need to consider a variety of factors, we’ll take a closer look at them in this article.

reason for purchase

First of all, buying a property for investment or owner occupation makes all the difference.

Naturally, if it is an investment, the main factor to consider will be capital gains. On the other hand, buying for owner occupancy makes capital gain a secondary concern. In this case, the most important factors will be the current or future size of the home. A retiree or single can opt for a smaller flat. While a young married couple can also choose a small flat if their financial means are limited, or a large flat if they plan to have children and are wealthy enough to afford it.

housing type

The next consideration is the type of housing. With the many types available, buyers are often spoiled for choice. The two tables below compare the public and private housing segments.

Table 1: Types of housing available in Singapore

1.HDB (99 year rental)

• Build to Order (BTO)

1. Studio Apartment (30 year rental)
2. 2 bedroom apartment
3. 3 bedroom apartment
4. 4 bedroom apartment
5. 5 room apartment

• Executive Condo
• Design and Build (DBSS)
• Executive Floor (No longer built)
• Executive duplex (no longer built)
• HUDC (no longer built)

2. Private home (rental from 60-*, 99-, 999 years; freehold)

• apartment without elevator
• high rise apartment
• Condominium
• shoe box apartment
• soho
• Strata Titled Cluster Housing
• Inter-Terraces
• semi separated
• bungalows
• Terrestrial dwelling
• Interterraces (Type 1 and 2)
• corner terraces
• semi separated
• bungalows
• Good class bungalows
• Sentosa Landed Housing (the only real estate in Singapore that foreigners can purchase with express approval)

* Land at Jalan Jurong Kechil is the first 60-year lease land to be sold (as of November 15, 2012); therefore a 60 year old private property will be available in a few years.

** Executive Condo becomes private after 10 years.

Table 2: Comparison of HDB and Private Housing

1.HDB

• Eligibility:

1. HDB Direct Purchase – Gross Singaporean monthly household income ≤ $10,000 (for executive condo ≤ $12,000)
2. Resale: Singaporeans and permanent residents

• 99 year lease
• Most Affordable Type of Housing
• For owner occupancy
• Lower maintenance cost (conservation charges)
• Strict Restriction for Leasing
• Minimum occupancy period

2.Private housing

• Lease of 60, 99, 999 years; life estate
• They tend to be more expensive
• For owner occupancy and investment
• Higher Cost of Maintenance (Property Taxes, Monthly Maintenance Charges, etc.)
• No Leasing Restrictions
• No Minimum Occupancy Period
• Eligibility:

1. Not Landed – Foreigners, Singaporeans and Permanent Residents
2. Landed – Singaporeans

* Land at Jalan Jurong Kechil is the first 60-year lease land to be sold (as of November 15, 2012); therefore a 60 year old private property will be available in a few years.

To decide what type of home fits a buyer’s budget, a commonly used measure of home affordability is the debt-service ratio (DSR), defined as

DSR = Monthly Debt Service / Gross Monthly Household Income

The internationally recognized benchmark for housing affordability is a 30 percent DSR. For example, if a household with a monthly income of S$3,000 buys a 3-bedroom HDB apartment worth S$300,000, without housing assistance, the household can borrow up to 80% of the price (assuming have no outstanding balances). mortgage loan), or S$240,000. Given an annual interest rate of 2 per cent, based on a 30-year loan, the monthly fee incurred will be about S$887. This results in a DSR of about 30%, which is still within the affordable range.

Another widely used measure of affordability divides the price of a home by the annual income of the potential buyer.

However, these two measures are only short-term measures as the income of buyers can change over time.

To overcome this problem, Professor Abeysinghe of the National University of Singapore developed a long-term measure of housing affordability. For more information on this measure, click here.

When deciding between a HDB and private ownership, in addition to affordability, buyers may also want to consider the investment potential of the homes.

Investment potential of HDB flats

From the point of view of the Government, HDB flats are intended for living and not for speculation. Therefore, HDB apartments are subject to a Minimum Occupancy Period (MOP) of 5 years, whether for resale or direct purchase from HDB. This slows down the change of houses from HDB flats.

However, after the MOP, larger HDB flat owners can make a profit by downgrading to a smaller unit. Those who are tempted to sell for a profit during a booming real estate market may not be better off, as they will have to pay a high price for another flat. Also, if their current apartment was purchased with a housing grant, they will have to incur a resale tax when they purchase a second HDB subsidized apartment.

However, some Singaporeans continue to profit from renting out their HDB flats.

Under current regulations, owners of subsidized or non-subsidized HDB apartments must meet the 5-year MOP requirement before they are allowed to rent their apartments. Exceptions are made for owners living abroad.

Also, there are restrictions on rental periods. Singaporean landlords could rent their flats for a period of 3 years, after which they could request extensions with no limit on the number of requests. For public relations, however, it’s a different story. They are only allowed to rent for a period of one year, subject to discretionary extensions, with a limit of 5 years on the total years of rental allowed.

Investment potential of private housing

In contrast, the rental rules for private properties are less strict. It is noteworthy that Singaporeans cannot own HDB flats and private houses at the same time within the MOP. Post-MOP, Singaporeans often make a profit by living in HDB apartments while renting out their private properties.

However, for adventurous homeowners looking to sell private property to increase their wealth, they are restricted by the series of anti-speculative measures instituted by the government since 2009.

Property purchased after February 20, 2010 is subject to a seller’s stamp duty of 4% to 16% of the sale price or market value, whichever is greater, if disposed of within 1 to 4 years of the purchase.

In addition, for property purchases after 8 December 2011, an additional 3% Buyer’s Stamp Duty is imposed on Singapore citizens purchasing their third and subsequent properties. For PRs, 3% will be levied on your second and subsequent purchases, instead.