Thinking Of Buying An Investment Property In Singapore, The Switzerland Of Asia? Here Are 4 Things To Consider

Investing In Singapore Property Home Ownership In Singapore

Despite seeing months of dwindling housing supply, and an influx of foreign buyers and investors, Singapore home sales climbed to a four-month high as new project developments and pent-up demand catapulted the city-nation forward, curbing increasing interest rates and inflationary pressure.

The country’s stable economy and socio-political infrastructure, powered by a strong labor force have made Singapore a hotspot for foreign property buyers.

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A 2020 Deloitte report highlighted some of the most attractive investment incentives offered by the government to investors, as local efforts to bring the country to the forefront of the globalized economy provide property developers with a multitude of new opportunities.

Despite rising interest rates, and several well-known local banks increasing the interest rate on fixed mortgage packages to 4.5%, the property market has remained resilient – held together by strong household income, strong labor performance, and low-level housing inventory.

Yet, the local property market has been met with headwinds in recent months, the same resilience factor – limited supply – which helped the country enjoy a booming market has meant that home sales volumes dropped 9.7% to 6,148 units in Q3 2022.

However, several projects have seen robust demand over the stretch of the last year, as some developments experience steady interest from domestic and foreign buyers.

Real estate sales advisor Jae Hei and spokesperson for the Grand Dunman project, an estimated 1,040-unit development project in the Tanjong Katong region of the city says buyers are more focused now on snatching up hot property deals, happily turning it into investment purchases for the long term.

As the market sees steady performance, a question remains whether you should buy in the current climate, and what are some things you need to consider before doing so?

Estimated Yield Income

Often buyers are optimistic that a strong property market could potentially offer them a higher yield return, and while this might be true to some extent, it could also be an indication of the cost of purchasing a new property or for resale purposes.

Although the local property market has been impacted by a confluence of factors, such as higher interest rates, inflation, and increasing cost of living, the rental yield remains a strong indicator of a growing and well-performing housing market.

While the Sale Demand Index fell 44% year-over-year (YoY) last year, the Sale Price Index jumped upward by 8.3% YoY. The support for ongoing price escalation is due to lower supply inventory and the well-performing employment rate in the country.

Buyer Stamp Duty And Additional Buyer Stamp Duty

With a higher number of investment dollars flowing directly from foreign investors, potential buyers will need to consider Buyer Stamp Duty (BSD) and Additional Buyer Stamp Duty (ABSD) that can drive up the purchasing price of investment property.

Following a 2023 budget review, the Singaporean government issued new legislation and BSD rates for both citizens and foreign investors.

For non-residents, a 4% BDS rate will apply to the value of property priced between $1 million and $1.5 million. For property valued in excess of $1.5 million, a 5% BDS rate will apply.

Following this is the ABSD rate which is an additional cost when purchasing a second property or subsequent property. Currently, for Singaporeans buying their second home, the ABSD is 17%; and this rate will only increase the more property is being acquired.

Aside from this, investors will need to keep in mind that taxes, rates, and legal fees are also part of the equation when purchasing property in Singapore.

Property Financing Options In Singapore

As with many other countries and foreign property markets in recent years the interest rate in Singapore has increased to keep inflationary pressure at bay. 

The most recent hike rate of 25 basis points, has brought the floating rate home loan up to 3.75% as of 1 March 2023. Banks across the country have been raising mortgage home loans based on interest hikes, with a 5-year fixed rate at 4.00% offered by DBS Banks.

Many are certain that further interest rates are expected only in the later part of the year, as the country already saw a series of aggressive rate hikes throughout 2022 and within the first few months of 2023.

Current predictions peg interest rates to peak at 4.5% to 4.75% this year, and from there on will steadily decline as global economic conditions start to improve.

Yet, even at the current pace at which property values have escalated and interest rates have been climbing, foreign investors remain highly interested, as Singapore continues to offer stable economic growth and a strong labor market. These conditions help to drive up property values while keeping the market active.

Cost Of Private Property

The Urban Redevelopment Authority (URA) Property Price Index, which tracks the average cost of private property and land in Singapore, measured an appreciation for 10 consecutive quarters. On average, private residential property prices increased 3.8% quarter-over-quarter (QoQ), while seeing a 13.6% increase YoY.

In a similar vein, property prices will vary across different areas and neighborhoods. The understanding is relatively straightforward, that properties in more affluent neighborhoods would enjoy greater price appreciation over the coming months, despite interest rate hikes.

Smaller and medium-sized homes in outlying areas could also see price increases but at more modest percentages.

As of Q3 2022, prices for three-bedroom condos and apartments largely varied based on their location. In places such as The Woodgrove, a 883 square foot, the three-bedroom apartment was priced at $800,000. At the same time, a larger 1,012 sq ft, three-bedroom condo in Evergreen Park was slightly more expensive, with the average price at $930,000.

Similar to Evergreen Park prices were Spottiswoode Park Road, Parc Rosewood, and Parkview Apartments, all well priced above the $900,000 threshold.

Foreign investors will need to consider how ongoing development in the surrounding areas will drive up prices in the coming years. Factors such as nearby schools, high-end amenities, accessible leisure facilities, and easy access to public transportation will be high determining factors.

Should You Buy Or Wait?

It’s hard to determine a conclusive answer, as outcomes are dependent on personal wealth, financial stability, and flexibility to undergo investment risk.

Singapore offers a thriving economy for investors that are willing to bridge the market, yet, in the same breath the domestic economy is undergoing a sudden shift as interest rates climb and the cost of living continues to rise.

Yet, unlike other developed nations, the Singapore property market remains supported by a strong labor market, high household income, and ongoing demand for high-yielding property. There are however economic headwinds that could derail potential investors, but a bottom-line outcome presents growing opportunities for foreign investors in a bustling booming property market.