Property is likely to be your most important asset in your adult life. While most of us would choose to buy a government subsidized HDB flat, there are some who have the means and preference to buy condominium properties.
For example, you've done your sums and decided on the famous The Sail Marina Bay condo listed for a cool $1.5 million. If you agreed on this price, we are going to tell you what are the other expenses that you would have to incur at different stages of purchase.
In the same spirit, we at GET.com are going to disclose the true cost of purchasing a $1.5 million condo with all the additional add-ons for 2 groups of people:
- HDB upgraders
- First time condo buyers
You should ask for a bank valuation before you consider your purchase.
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Is It The Right Time To Purchase A Condo?
Before we go into the details of buying a condo, prospective buyers should consider if this is the right time to purchase a condo.
You could consider if you are buying it for investment or residential purposes and check the foreseeable price trend for condos. Consider the fact that over 80% of Singaporeans stay in HDB estates.
HDB prices are generally more stable than condo prices as they are mainly purchased for residential purposes.
Condo prices are subjected to macroeconomic conditions. Condo demand would be higher when the economy is doing well, along with growing affluence of Singaporeans and with more foreign talents residing here.
If you are thinking of buying a condo for rental purposes, you should note that condo rentals (categorized under ‘non-landed private residential rental market') had fallen from the index price of 121.5 in January 2015 to 114.1 in November 2015 with a slight rebound to 114.2 in December 2015 according to SRX Research. It is too early to say if condo rentals have rebounded.
On the other hand, it is clear from the Globalpropertyguide chart that housing prices have slowed their rate of increase since 2011.
Private residence prices started to decline in 2013, which raises the question: Will this be the true bottom for condo prices? That is hard to say.
BNP Paribas had the view that private property prices would drop another 10% in 2 years. Any way you slice it, you are not purchasing at the most expensive time.
At the end of the day, nobody can really call a bottom accurately, it is more important to purchase a condo within your means.
The Total Debt Servicing Ratio (TDSR) regulation forbids you from spending more than 60% of your monthly income on total debt repayments.
For those looking to buy an Executive Condominium, do take note of the Mortgage Servicing Ratio (MSR) guidelines which means that the monthly mortgage repayment should not exceed 30% of your combined monthly income. As a recommended practice, the monthly installment for your private condo should similarly not exceed 30% of your combined monthly income (including CPF contributions).
If you have decided that this is the right time to purchase your condo, we will now look at the fees involved.
For the purpose of this illustration, we will assume that you are a Singapore Citizen that is purchasing a completed condo that is worth $1.5 million.
Stamp Duty - Compulsory
The first major fee that you will have to pay is the Buyer Stamp Duty (BSD). This is basically a tax paid to the government for your property purchase.
Source: Inland Revenue Authority of Singapore (IRAS)
The BSD for the $1.5 million condo would be as follows:
The additional buyer stamp duty would not be applicable if this is your first property purchase. It would be slightly more complicated if you are upgrading from your HDB flat.
If you already have a contract or agreement to sell your HDB flat and the buyer has exercised his right to purchase, then the HDB flat would not be counted as one of the properties owned by you.
This must be done before you sign the contract or agreement to purchase your condo, and it applies to both completed and uncompleted condos. Otherwise, once you have accepted the condo purchase, the condo would be counted as one of the properties owned by you.
A good property agent should advise you accordingly and ensure that the sequence is done properly.
For HDB upgraders, if you choose to hold onto your HDB for the purpose of getting rental income and wait for a better resale price, then you will have pay the Additional Buyer Stamp Duty (ABSD).
Please note that both the BSD and the ABSD are rounded down to the nearest dollar.
Seller stamp duty is applicable if you hold your property for less than 4 years. If you have never purchased a property before or you are selling your HDB (5 years holding period is required) then it would not apply.
Fees That Used to Be Absorbed By Banks (But Not Anymore)
There are also 3 types of fees that used to absorbed by the bank, especially when purchasing a $1.5 million property.
- Legal Fees
- Valuation Fee
- Fire Insurance
The market rate for legal fees are 0.4% of the property price and market price, at around $2500 per transaction which can be negotiated. When you borrow from the bank, the bank would appoint a lawyer from its panel.
This legal fee should include fees payable to Singapore Land Authority, $500 mortgage duty payable to IRAS and of course the professional legal fees for your lawyer.
As a rule of thumb, you should not pay more than $2500 in legal fees unless you have special and more complex requirements.
Banks are required to do a valuation of your property before they can provide you with the housing loans.
The fees depend on the complexity of your condo valuation. It can range from $200 to $500 per condo valuation. Landed property valuation would be higher.
Fire insurance is compulsory for all banks. Its purpose is to reimburse your items in the case of a fire.
The cost ranges from $100 to $300 per year, depending on your situation. Banks used to subsidize these fees before MAS stepped in on October 2012 and discouraged banks from doing so for new purchases (refinancing excluded).
One of the best things about being a buyer is that you can engage the service of a professional property agent without paying their fees.
The governing agency for property agents is the Council of Estate Agencies (CEA) and you can search for all property agents there.
CEA does not have a pre-set fees and allows you to negotiate with your agent. Generally, a condo seller would pay his agent 2% commission but he can pay more if he is happy with the service. The market practice is that the seller's agent will have to share half of their fees with the buyer agent.
Hence you should engage your own agent because the seller's property agent has a conflict of interests with you.
As the agent for the seller, he is motivated to push up the price. Without the guiding hand of an experienced agent on your side, you might overpay for your condo.
In order to engage a property agent, it is likely that you have to sign an Exclusive Estate Agency Agreement For Purchase Of Residential Property. This industry-standard agreement spells out his duties to you in black and white.
Some of the standard terms such as disclosure of conflict of interest are mandatory. Schedule 2 explicitly states their duties which include but is not limited to:
- Show you all condos that fit your budget and requirements
- Negotiate the best possible price for you
- Advise you on property matters including getting Approval In Principle (AIP)
You can also include additional details such as:
- Connect you to the best service providers (mortgage bankers, renovation companies, etc.)
- Protect your financial details if you have special needs.
This is valid for a period of 3 months and you cannot find another agent. You can choose to compensate the agent directly so that they will work extra hard for you. This is optional.
By engaging an agent, you can be sure that you will get professional treatment and find your ideal condo in an efficient manner.
The money paid in this category would then be used to pay for your actual $1.5 million condo. By law, you cannot borrow more than 80% for your first property and 50% for your second property. For the amount that you cannot borrow, you have to pay cash for it.
There are 3 types of fees that you pay:
- Option fee (1%)
- Option exercise fee (4%)
- Downpayment (remainder)
The option fee is paid when you are interested in the condo and want to exclude other buyers for a period of 2 weeks while you contact your bank to arrange its finances.
It is usually at 1% of the agreed price. Once you have secured your financing, you will pay the option exercise fee which is 4%. If you cannot find your financing, then you forfeit your 1% option fee.
This is why it is wise to get Approval In Principle (AIP) from your bank first. They'll normally get back to you in 3-5 working days and it will last for 1 month.
The remaining $1.2 million would be lent to you by the bank. Assuming that you are borrowing it for 30 years, this is your monthly repayment amount:
If this is your second property, then you can only borrow half of it and these are your options:
As you can see, you would have to pay more than just your agreed condo price. In the image below you can see all the fees that you will have to pay upfront before you can get your keys for your $1.5 million condo.
You can make your inquiries with GET.com's home loan genius to compare home loans and see which package would suit you the best.
Hence, if you are looking to purchase a $1.5 million condo, you will need to prepare at least $78,300 in cash and have at least $264,600 in your CPF. Therefore a $1.5 million condo would cost you at least $1,542,900 before renovation.
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