Guide to Buying Your First Investment Property: Singapore or Overseas?

Guide to Buying Your First Investment Property: Singapore or Overseas?
Guide to Buying Your First Investment Property: Singapore or Overseas?

So you’ve been thinking about purchasing your first investment property. That’s great! Play your cards right and investing in property could potentially lead to immense gains. That’s why most Singaporeans tend to view owning property as a good investment move to financially secure themselves.

As an investor, you also have the option of investing in property overseas or in local markets. In this guide, we will have a detailed look at the pros and cons of purchasing properties in Singapore versus overseas markets.

If you’re buying your first investment property soon or just want to learn more about investment property opportunities, join our upcoming Property TourTalks Wealth Building tour, which kicks off in the second half of September 2023. Scroll to the end of the article for more details. But for now, let’s learn more about investment property in Singapore.

What Is the Point of an Investment Property?

When it comes to investment property, you can generate passive rental income by renting your unit to tenants. Or you can sell the property for a profit when it increases in value (also known as capital gains from capital appreciation, or ‘flipping’ property). The goal is to earn a profit when the property appreciates. For some investors, owning multiple properties, especially in Singapore, is seen as a way to park wealth in a ‘safe haven’.

But as compared to other types of investments, buying a property requires you to have a big capital outlay. Aside from having to fork out the down payment and relevant property taxes, you have to finance your property purchase with monthly mortgage instalments. Investing in property is considered to be a long-term investment and a property is considered to be a fixed asset.

What Is an Example of Investment Property?

Residential property

Landed properties such as bungalows, terrace houses, and semi-detached houses. Non-landed properties like condominiums which can be freehold or leasehold.

Commercial property

Offices, food centres, restaurants, shopping malls, and other commercial developments.

Industrial property

B1 (lighter activities) and B2 (heavier manufacturing and production) industrial properties in manufacturing, warehousing and Research and Development (R&D) industries

Typically, you have the option of purchasing either a commercial or residential property. In some aspects, commercial properties might be the better option as it means you won’t have to pay the Additional Buyer’s Stamp Duty (ABSD), and you may be able to obtain a bank loan at a higher Loan-to-Value (LTV) limit.

But in this article, we will focus on private residential property purchases as that is the most common type of property investment for those buying their first property.

Financing An Investment Property in Singapore: 3 Things to Note

Usually, an investment property will be your second or subsequent purchase (because most people own the home they live in and buy another for investment). This ‘complicates’ things and makes it slightly different from your first home purchase.

Firstly, even if you are Singaporean, if you are purchasing your second or third residential property, you would have to incur an ABSD tax of 20% and 30% of the property’s value respectively. This is on top of the BSD rates you have to pay. And depending on your circumstances, you may have to pay Seller’s Stamp Duty (SSD). Basically, if you sell your property before holding it for at least three years, you’d have to fork out up to 12%.

Next, you may be limited by how much you can borrow. Unless you have enough cash or you’ve already paid off the mortgage for your current home (that you’re living in), you would have to take up a second mortgage for the investment property. Instead of the 75% maximum LTV for your first mortgage, the LTV limit that you can obtain would be capped at 45% for your second property. This means a whopping minimum 55% downpayment, which is no easy feat – especially when private properties are in the millions.

In addition, having an existing housing loan on hand contributes to your Total Debt Servicing Ratio (TDSR), which makes it more difficult for you to obtain a subsequent loan for your investment property.

Is Buying Property in Singapore a Good Investment?

The short answer is yes, it can be! But regardless of your choice, do ensure you’re not financially stretched and have budgeted carefully before making your investment purchase.

Property prices in Singapore have been known to be higher compared to neighbouring countries in South East Asia. Rents have soared over the course of the pandemic, alongside HDB resale flat prices and private property prices. While there are signs of moderation in both sales and rental markets, prices have remained resilient and buyers are still snapping up properties.

To keep housing affordable for Singaporeans and weed out speculators, the Government has introduced various measures to curb rising home prices. The red-hot market spurred three rounds of property cooling measures in two years in December 2021, September 2022, and April 2023. These countermeasures are aimed at stabilising property sales cycles and also make it harder for investors to turn a profit.

If the above does not deter you and you still have the financial means for the property investment, go for it! We are unable to advise what properties to actually buy – you need a licensed financial advisor for such investment advice and management – but generally, properties in Singapore do well. Singapore is a popular market for property investments thanks to our political stability and good economic fundamentals.

In addition, you have the added advantage of being familiar with local property laws and regulations, which would minimise your legal risks when investing in Singapore properties. Furthermore, being in the same geographic location makes it so much easier for you to manage your properties and saves you the hassle of navigating through complex overseas paperwork and banking systems when you intend to sell your property or evict an unruly tenant.

Why Buy an Investment Property Overseas?

We don’t have to show you the math to convince you that you’ll be paying a lot to own multiple residential properties locally. That’s where the appeal of buying an overseas property comes in.

Aside from potentially serving as a retirement home and renting out in the interim, you could keep the property empty and have it be your holiday home. The relative ease of buying overseas property also makes it an attractive move.

If you are looking to purchase property overseas, it’s important to do your own research to first decide on an ideal country or region. Property investment ratings such as this one by the Global Property Guide give you an overview of the potential rental yield you can earn in property markets across various cities in the world. And then, you’ll want to understand the foreign market that you wish to enter.

Before you dive headlong into buying an overseas property, here are 5 important questions you have to ask yourself first.

1. Can Singaporeans Own Overseas Properties?

Yes, but there are some rules you have to adhere to. For example, if you own an HDB flat, you have to fulfil your Minimum Occupation Period (MOP) before you can buy an overseas residential property. However, if you’re intending to purchase an overseas residential property, you can do so anytime.

2. How to Finance Overseas Investment Property?

The good thing is that you don’t have to pay ABSD for your overseas property. But you cannot use your CPF OA monies to pay for your overseas property purchase. When it comes to financing your overseas property, you can take a bank loan from both foreign and local banks. But if you take a mortgage from a local bank, the loan will count towards your monthly debt obligations and you cannot exceed the 55% TDSR threshold.

Buying an overseas property is a big commitment you don’t want to rush into. Even for the most seasoned investors, you are advised to take caution.

3. What Are the Challenges of Real Estate Investment Overseas?

The main challenges stem from the fact you’re managing the investment from Singapore. You’ll probably need to fly over or engage help from an agent when you want to lease out or sell the property. Navigating paperwork and banking procedures may be more unfamiliar and difficult. You might also need an interpreter, should there be any language barriers.

And after the property is bought, you also need to consider who can help you manage your property and follow through with the purchase. This could be a property manager you hire or a friend/business associate in the city you’re intending to buy a property in.

4. Do I Need to Declare Overseas Property in Singapore?

Yes, you do have to declare your overseas property. For those who currently do not own an HDB flat and are thinking of buying an overseas property, beware: to be eligible to buy an HDB flat, you cannot own any other property and cannot have disposed of any within the last 30 months of buying said HDB flat.

5. Where Can Singaporeans Buy Property Overseas?

UK, Australia, and the US are the top choices for Singaporeans looking to invest in overseas property. Mainly because these countries are popular destinations for those who send their children abroad to study.

However, exploring properties in Southeast Asia can be an exciting possibility. Affordable prices, rapid urbanisation, and increasing demand make the region attractive for individuals looking for real estate investment opportunities. You could explore buying condominiums, which are situated in fast-growing cities, with good investment potential and locational attributes.

In a post-pandemic world where border restrictions are largely relaxed and remote work arrangements have become the norm, purchasing nearby holiday homes has become more attractive than ever. Thailand, Indonesia, and Malaysia are known to have a good mix of off-the-beaten-track and more popular tourist destinations. Regardless of your preference, you could pick a home you can ‘escape’ to which offers access to leisure and nature options.

Learn More about Buying Investment Property with PropertyGuru TourTalks

While there are many articles that can guide you towards making good investment property decisions, nothing beats meeting with experts and asking questions in person. This September, join our Wealth Building Property TourTalks – an exclusive tour where our seasoned experts will give you vital insights into legal procedures and financial deliberations on the ins and outs of owning residential and commercial investment properties.

If you’re interested in buying residential investment properties, there are two talks: one on 16 September and the other on 23 September from 10am to 12.30pm. For those looking at commercial properties, sign up for the 24 September tour from 2.30pm to 5pm.

Learn more about the other tours or sign up for the upcoming Property TourTalks 2023 now.

Property Investments in Singapore or Overseas, Which Should You Consider?

Overall, investing in real estate in Singapore remains a safe option if you are a more risk-averse investor looking to generate stable returns on your property investments. However, if you have adequate capital and don’t mind putting in the work to understand the real estate climates and foreign property laws, then overseas real estate investments might prove to be a profitable venture for you.

Regardless of whether you choose to invest in properties in Singapore or overseas, doing your prior research is paramount to ensuring that you make a good investment choice! For more personalised home financing recommendations and strategies, reach out to PropertyGuru Finance’s Mortgage Experts. They will be happy to speak to you and the best part, it’s at no cost!

Also, from now to 26 September 2023, you also will be rewarded with up to $700 worth of vouchers when you secure a mortgage for your new home or refinance with PropertyGuru Finance!

Reach out to PropertyGuru Finance today.

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