Here are three important considerations when buying an investment property.
Unless you have sufficient savings to fully finance your investment, you will likely take out a housing loan for your acquisition. Thus, it is imperative to determine how much a bank will lend you. In Singapore, only citizens can borrow with a loan-to-value (LTV) of 80 percent for their first home purchase, or subsequent purchases provided the properties purchased previously have been fully paid.
For those with existing mortgages, the maximum LTV is only 50 percent. Financial institutions are also required to ensure that a borrower’s monthly repayment for debts like credit card and car loans do not surpass 60 percent of his/her monthly income.
The golden rule for the real estate market is “location, location, location”. This is among the essential things to consider in property investment as this greatly influences the value, demand, price and prospects of the asset you’re considering spending your hard-earned money on.
In order to find a good location, do your research. Ask several property agents about different areas and get as much information as possible. Visit the websites of the Housing and Development Board and Urban Redevelopment Authority to view their price statistics for a particular area. This information can help you decide whether to invest there or not.
3. Property taxes
Homeowners in Singapore need to pay property taxes, and this will surely lessen your earnings from investment properties. This is applicable whether the property is owner-occupied, left vacant or rented out. Basically, property tax is equal to a home’s annual value multiplied by the applicable tax rate, wherein the annual value is the market rent of a unit for a year, excluding maintenance fees.
Take note that owner-occupied properties come with lower progressive tax rates of zero percent to 16 percent, while those for non-owner occupied dwellings range between 10 percent and 20 percent.