Singapore’s property market is so hot, the government had to impose seven rounds of cooling measures to (barely) contain prices. If you think it’s a gold mine, you’re wrong – because gold mines are less profitable, and with Singapore property you don’t even need to break a sweat with a pickaxe. But before you jump into it, there are a few crucial steps to take before buying property in Singapore:
1. Understand the URA master plan before you buy
The Urban Redevelopment Authority (URA) decides how different land spaces in Singapore are used. This is revealed in its decade long “master plan”, which is publicly available.
I’m not going to suggest you visit their website, because it’s about as user-friendly as a Navy SEALs obstacle course. Instead, head down to the URA building on Maxwell Road. The displays down to model replicas of the various districts, with concept sketches of what URA envisions for them.
Almost every property investor in Singapore considers the master plan to be a crucial investment guide. Recent interest in Jurong for example, can be chalked up to URA deciding to develop the area into a business hub (the Jurong gateway.)
The master plan can clue you in on non-mature (underdeveloped) districts that may soon undergo major developments. This is a good way to pick up on potentially undervalued properties. We will be placing the master plan under the metaphorical magnifying glass in the coming weeks, so keep tuned!
2. Speak to a mortgage broker if you are using a Singapore bank
Interest rates for property loans in Singapore have been at historical lows since 2008, ranging from 1.7 to 1.9 per cent. This is likely to rise soon however, with indexes such as the Singapore Interbank Offered Rate (SIBOR) on the rise.
While the low rates are attractive, there are certain things you should be clear on. These include the way loan rates have teaser years (the first three years are often significantly cheaper), and the nature of fixed rates (in Singapore, most fixed rates only last three to five years. There is no perpetual fixed rate loan.)
Because Singapore is a financial hub with over 100 operating banks and financial institutions, your grandchildren will graduate college by the time you’re done comparing loan options. You’ll need the help of a mortgage broker, but luckily many of them won’t charge you a cent (they’ll get paid by the bank you use.)
3. Understand how our property agents work
Always check that the property agents you’re dealing with are registered under the Council for Estate Agencies (CEA.) This is a statutory board; there is no alternative form of licensing for legitimate agents.
We have covered the agents commission fee more extensively in a previous post, what we’d like to stress here that commissions are always paid to the company (estate agency), not the agent him or herself.
Customarily, the agent is paid 1% to 2% of the selling price. So, if you are nearing double digits here you know where not to sign.
4. Visit the property in person
This should go without saying. But some people, you know; they’ll buy a landfill in New Jersey because the brochure showed a pony in a forest. So: always visit the property before buying.
One common trick used by marketers is to overstate the proximity of certain amenities, such as schools and train stations. There are developers that advertise a train station as being “less than five minutes away”, when that’s only theoretically true*.
It’s a good idea to visit the property at different times of the day if possible. This will
warn you of major nuisances, such as the sun turning your property into a giant microwave at noon.
(*i.e. in theory, an Olympic gold medallist could cover that distance in under five minutes.)
5. Check on the neighbours
This isn’t so much to see if they’re nice people (although that’s part of it), but to see if the neighbours are in any sort of debt trouble. In Singapore, loan sharks – and sometimes even legal debt collectors – cause problems for neighbouring units, not just their debtors.
Over-enthusiastic loan shark runners may let their vandalism spill over to your door, and debt collectors are known to pound on doors at ten to midnight. For signs of these problems, like us on Facebook. We’ll update you on how to spot them.
6. Don’t bother if you don’t have Approval in Principle
The three most dangerous things in life, in order of rising severity, are chainsaw juggling, sarcasm in court, and buying property in Singapore without AIP.
Approval in Principle (AIP) is a promise by a bank to loan you a certain sum, if you buy a house within the given time.
You can get AIP for free – just walk into a bank and ask for it. The bank will do a valuation of the property in question, and a check on your finances. They’ll then give you a clear answer on how much they’re willing to lend you. AIP is usually valid for 14 to 30 days.
If you sign the option to buy (see point 7) without AIP, you could end up losing a chunk of the required deposit.
7. Sign the Option to Purchase, if you are 100 per cent certain
Before purchasing the property, you will be asked to put down a deposit in the form of an Option to Purchase (OTP.) The OTP is typically 10 per cent of the sale price. Once the OTP is signed, the seller cannot accept another buyer until the OTP lapses.
The OTP will last three weeks. Within this time, you must exercise the option (come up with the rest of the money for the house.) If you cannot do so, or choose to back out of the deal, up to 25 per cent of the deposit will be forfeit
This is why you must have AIP before signing the option. Never sign the option first, and then hope a bank will lend you what you need.
Above all, remember to take your time.
Never rush into a property purchase, no matter how urgent the agent may claim it is (e.g. half the units are already sold! You need to buy now!) It is better to have missed an opportunity, than to buy a property that turns out to be a massive liability. This isn’t a stock, you can’t sell it off in five minutes if it underperforms.
Browse around, and let it all simmer in your head before making a decision. You can check out the best listings in Singapore on 99.co, and we can help you with any further questions.
If you found this article helpful, 99.co recommends Buying property in Singapore: How to ensure you can afford the home you want and Renting vs buying property in Singapore: Which is better for you?
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