Want to elevate your property investing knowledge? Here are 7 terms you should know

From enjoying food to queuing, Singaporeans have many common love interests. At the very top of Singaporeans’ love interests is our love affair with property. If given a chance, every Singaporean wants to own a property, be it as a roof over the head or as an investment property.

While most Singaporeans have that aspiration, not everyone is equipped with the right knowledge to be a good property investor.

If you want to be better prepared as a property investor, you need to elevate your property investing knowledge and up your property investing game.

Get started as a property investor by learning about these seven key property terminologies first.

7 key terminologies to know if you want to elevate your property investing game

1. Mortgage Servicing Ratio

Mortgage Servicing Ratio, or MSR, is the ratio of your monthly income that can be used for repaying your mortgage.

Key features of MSR

• MSR is currently capped at a rate of 30 per cent.
• MSR applies to home loan for HDB flats or executive condominiums (ECs).

The 30 per cent cap for MSR means that the monthly repayment instalment for your mortgage cannot exceed this value. This in turn affects the maximum home loan you can apply for.

Formula

• MSR = (Monthly repayment instalments for all property loans / Gross monthly Income) x 100 per cent
• MSR ≤ 30 per cent (cap)

2. Total Debt Servicing Ratio

MSR is meant to cap the home loan amount for HDBs and ECs. What about private properties? Do they have a cap as well? Well, they do and this cap is determined by the Total Debt Servicing Ratio (TDSR).

Key features of TDSR

• TDSR is capped at 60 per cent.
• TDSR takes into account all forms of loans, including credit card, car, and any secured or unsecured loans.

When you add together your monthly debt repayment obligations for all your loans, it cannot exceed 60 per cent. Otherwise, banks will only lend you up to 60 per cent of your monthly income when calculating your home loan.

How to be smart about TDSR?

Though you cannot avoid TDSR, there are ways to be smart about it. Since TDSR takes into account all forms of loans, be sure to put your home loan as a priority. Don’t get yourself ridden with credit card or car debt before you get your home loan. Once you secure your home loan, then you can start thinking about getting other (depreciating) assets like your dream car.

3. Buyer Stamp Duty

Buyer Stamp Duty (BSD) is a kind of tax that is levied on every homebuyer when buying a property.

Key features of BSD

• BSD is payable to IRAS as a form of property tax when buying a property.
• BSD is payable on both residential and non-residential (e.g. commercial) property.
• BSD is dependent on the purchase price or market price of the property, whichever is higher.

For example, you bought a property that is priced at $400,000. The amount of BSD that you need to pay is:

Purchase Price Or Market Value (Whichever Is Higher) Of The Property	BSD Rates For Residential Properties	BSD Payable
First $180,000	1 per cent	1 per cent x $180,000 = $1,800
Next $180,000	2 per cent	2 per cent x $180,000 = $3,600
Remaining $40,000	3 per cent	3 per cent x $40,000 = $1,200
Total BSD Payable		$6,600

How To Avoid BSD?

Unfortunately, BSD is unavoidable. Every homeowner will need to pay their due BSD to IRAS without fail.

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4. Additional Buyer Stamp Duty

While BSD is applicable for all homebuyers, there is a tier of tax for a special group of homebuyers. The Additional Buyer Stamp Duty (ABSD) is applicable for homebuyers who:

• Are Singapore citizens buying their second or more residential properties;
• Are PRs buying their first residential property onwards;
• Are foreigners buying their first residential property onwards;
• Are entities buying their first residential property onwards.

Key features of ABSD

• ABSD is payable on top of the BSD.
• It was first introduced in 2011 as a cooling measure to discourage ownership of multiple properties to avoid Singapore’s real estate market from overheating.
• The amount you need to pay for ABSD is dependent on your buyer profile.

Additional Buyer Stamp Duty (ABSD)
From Dec 8, 2011 to Jan 11, 2013	From Jan 12, 2013 to July 5, 2018	From July 6, 2018 to Dec15, 2021	From Dec 15, 2021 onwards
Singapore Citizens (SC)
SC buying first residential property	Not applicable	Not applicable	Not applicable	Not applicable
SC buying second residential property	Not applicable	7 per cent	12 per cent	17 per cent
SC buying third and subsequent residential property	3 per cent	10 per cent	15 per cent	25 per cent
Singapore Permanent Resident (SPR)
SPR buying first residential property	Not applicable	5 per cent	5 per cent	5 per cent
SPR buying second residential property	3 per cent	10 per cent	15 per cent	25 per cent
SPR buying third and subsequent residential property	3 per cent	10 per cent	15 per cent	30 per cent
Foreigners
Foreigners buying any residential property	10 per cent	15 per cent	20 per cent	30 per cent
Entities
Entities buying any residential property	10 per cent	15 per cent	25 per cent plus additional 5 per cent for housing developers (non-remittable)	35 per cent plus additional 5 per cent for housing developers (non-remittable)

How to avoid ABSD?

Unlike BSD, there is a way to avoid ABSD. Since ABSD is dependent on the profile of the buyer, you can avoid it by changing your profile to a Singapore Citizen first-time homebuyer. One way to do this is through de-coupling.

De-coupling means that, instead of having joint ownership of both properties, you have single ownership of the property. As a couple, each of you will own one property as a single property owner. The only caveat is that both of you need to have income high enough to be able to apply for a home loan.

5. Seller Stamp Duty

Since there’s BSD and ABSD, naturally there will also be Seller Stamp Duty (SSD). SSD was also introduced to discourage property flipping in the real estate market. According to the latest regulations on SSD, it is payable if you were to sell your property within three years from purchase.

Key features of SSD

• SSD is charged on the seller, unlike ABSD and BSD which are charged to the buyer.
• SSD applies to residential property and residential lands acquired since Feb 20, 2010.
• The longer you hold your property before selling, the less SSD you need to pay.

Holding period	SSD Rate (On Actual Selling Price or Market Value, whichever is higher)
Within one year	12 per cent
> One year and ≤ Two years	8 per cent
> Two years and ≤ Three years	4 per cent
> Three years	0 per cent

How to avoid SSD?

Avoiding SSD is pretty simple. You just have to be patient and hold your property past the holding period. As long as you sell it only after three years, you won’t have to pay any SSD.

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6. Rental yield

If you are planning to buy a property as an investment, then make sure to measure its rental yield. Rental yield is the percentage return on your rental measured against the cost of financing the investment property.

Formula

• Gross Rental Yield = Total collectable annual rent / property market value
• Net Rental Yield = (Total collectable annual rent – yearly mortgage repayments – insurance – maintenance costs) / property market value
• To be more aggressive, you can also replace property market value with downpayment when calculating the rental yield.

How to use rental yield?

Rental yield provides a quick glimpse into whether the property you are investing in is going to be an income generating asset.

For instance, you might find some properties selling at a cheap price. However, these properties might have a hard time renting it out because of its location, which can result in a low net rental yield.

7. Refinancing

When it comes to buying big ticket items like property, financing is a key step that needs to be taken with care. After all, few homebuyers can afford to pay off the home loan in one shot. Thus, financing is needed to help you purchase your property.

Key things to know about refinancing

• Did you know that you can switch to a different home loan package once you are no longer in the lock-in period (typically two-three years)? This is known as refinancing.
• Interest rates on home loans change every day. This impacts the interest rate on home loan packages. By doing refinancing, you have the opportunity to reduce the cost of home ownership by reducing your cost outlay to interest charges on your home loan.

How to do smart refinancing?

As mentioned above, refinancing allows you to lower interest rate on your existing home loan. To get the most optimal savings when doing refinancing, you should compare across home loans from all the banks to get the best (i.e. lowest) interest rates and/or perks. Reaching out to all 11 banks in Singapore can be time consuming, thus we recommend engaging a mortgage broker like Mortgage Master to do the leg work for you.

With a mortgage broker as your partner, you can have all the market information about various home loan packages made available to you. This gives you a comprehensive overview of what deals are offered and lets you make the smart refinancing choice.

This article was first published in Mortgage Master.