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SOME
USEFUL INFORMATION REGARDING PROPERTY INVESTMENT IN SINGAPORE
1. Government Measures to Curb Property Speculation
2. Conveyancing Process
3. Mortgage Terms
4. Eligibility of Foreigner Purchasing Private Property in Singapore
5. Power of Attorney
6. Stamp Duty
1.
Government Measures To Curb Anti-Speculation
On 15th May 1996, the Singapore government moved to curb property speculation
by introducing measures affecting the sale of properties within 3 years of
their purchases.
Stamp
Duty
Prior to the measures, stamp duty need only be paid upon transfer of the ownership
of a property. This means that if the property is sub-sold during the conveyance
period, no stamp fee is payable by the parties in-between. The government
amended the Stamp Duties Act to make stamp duty payable on every contract
for sale of property. After the changes, the final purchaser and every sub-purchaser
in between must pay stamp duty of approximately 3% of the purchase or sub-purchase
price whether or not the property is actually registered in his name. Initially,
a stamp duty is also payable by a seller of a property if the sale occurs
within 3 years from its purchase. This seller's stamp duty has since been
suspended.
Capital
Gains Tax
As part of the measures, all profits from the sale of properties sold within
3 years from its purchase are subject to tax. If the property is sold within
the first year of its purchase, all of the profits gain will be taxable as
part of the seller's income tax. If the property is sold within the 2nd year,
then 2/3 of the gains is taxable and if it is sold within the 3rd year, then
1/3 of the gains is taxable.
2.
Conveyancing Process
Before shopping around for a property, a prospective purchaser should enquire
from his bank about the loan quantum which he is eligible to take up based
on his income. Most banks offer this service of pre-qualifying a prospective
housing loan customer.
Once a purchaser buys a property which he likes, he should consult his lawyer as to his eligibility to purchase such a property. Certain properties cannot be bought by foreigners (without the government's prior consent) and certain HDB dwellers are also barred from owning private properties.
Re-sale
Properties
The common method for purchasing a re-sale property, whether the property
is already fully constructed or not, is by way of an Option to Purchase. An
intending purchaser should request for a draft Option to be sent to his lawyer
for vetting before parting with the option money (usually 1% of the purchase
price). Upon his approval, the purchaser may then release the option money
to the seller's agent to be forwarded to the vendor.
The purchaser should then approach his lawyer who will immediately conduct a title search on the property and bankruptcy searches on the vendors. The purchaser has to decide if he wishes to continue with the purchase. To do so, he has to sign an acceptance form annexed to the option and pay the balance of the deposit amount (usually 10% of the purchase price) and deliver it to the vendor's lawyer within the option period (usually 2 weeks). Upon doing so, the option is deemed to be exercised and a contract is formed.
Most property purchases are subject to the purchaser's lawyer getting satisfactory replies to his questions known as legal requisitions to the various government departments. These requisitions are intended to ensure that the property is free of any government proposals which may adversely affect the value of the property. The approved use of the property will also be determined at this stage. In the event that any of the replies are unsatisfactory, then the purchaser may withdraw from the purchase and his deposit will be refunded to him.
Completion of the purchase usually takes 12 weeks from the date of the exercise of the option. On that day, the purchaser will obtain his funds from the bank and his CPF account (if CPF money is used) and hand them to the vendor in exchange for the title documents and the keys to the property.
Properties
Bought Directly From Developers
The rules governing developers' sale of properties to the public make the
conveyancing process different from that of re-sale properties.
An intending purchaser will have to pay a minimum of 5% of the purchase price
to the developer to obtain an Option to Purchase. Copies of the title deeds
and a Sale and Purchase Agreement will be sent to him within 2 weeks of the
Option. The purchaser has 3 weeks from his receipt of these documents to confirm
his desire to proceed with the purchase. To do so, he must sign and return
the Sale and Purchase Agreement to the developer's lawyer within the 3-week
option period. If he chooses not to proceed, he stands to lose a quarter of
the option money. Should he choose to proceed, his lawyer will conduct searches
on the property and send out legal requisitions. Again the purchase is subject
to the purchaser's lawyer receiving satisfactory legal requisition replies.
On the 8th week from the Option, the purchaser must pay to the developer the
balance of 20% of the purchase price as a deposit for the property. From then
on, the purchaser will be required to make progress payments to the developer
depending on the stage of construction.
When the property is fit for occupation, the authorities will issue a Temporary Occupation Permit (TOP) to the developer after inspecting the property. The purchaser will be given the keys to the property and at that stage he would have paid up to 85% of the purchase price. The balance 15% will be paid only upon the developer obtaining the Certificate of Statutory Completion (CSC), separate title deeds for each unit in the development and upon resolving all defect issues with the purchaser.
3.
Mortgage Terms
Banks in Singapore usually finance purchases of properties through mortgage
loans. In determining the amount of loans to be extended, the bank will look
into the financial background of the intending borrower as well as the value
of the property to be mortgaged. Existing guidelines from the Monetary Authority
of Singapore restrict the maximum financing of a property to 80% of the purchase
price or the valuation price, whichever is lower. Also, non-Singaporeans may
not obtain Singapore-dollar denominated loans.
Before committing to a property purchase, a prospective purchaser should check with his bank about the amount of loans he will be offered as well as the terms of the intending loan. Some common terms he should consider are:
1.
The interest rates of the loan, whether they are fixed, based on prime rate
or on the bank's housing loan rates published from time-to-time.
2. The maximum quantum of financing.
3. The use of his CPF funds in the initial as well as subsequent monthly payments
for the property.
4. The minimum period that he must maintain the housing loan for (frequently
called the "early redemption period").
5. Whether he may make partial repayments of the loans and the penalties involved.
6. The lengths of the various penalty periods and when such periods start.
7. Most banks offer promotional interest rates for the initial period. For
these, when do these periods start and end.
Banks usually take between 3 days to a week to approve a loan (all income documents requested of the borrower having been fully provided) and a further 3 weeks to complete its documentation.
4.
Foreigner Purchasing Private Property in Singapore
Foreigners are not allowed to purchase "landed" residential properties
in Singapore. "Land" properties are those properties which are less
than 6 stories high or apartments within a building which are 5 stories or
less. Properties accorded with "condominium" status are exempted
from this provision.
This does not mean that a foreigner cannot purchase a landed property at all. A foreigner interested to purchase a landed property may still do so if his application to the Land Dealings (Approval) Unit ("LDU") is granted. Approval is given only if the foreigner is a permanent resident of Singapore and is deemed to be of economic value to Singapore. An option for the purchase of a landed property a foreigner must contain a provision that the purchase is conditional upon the purchaser obtaining LDU's approval.
Besides the restriction on purchase of landed residential properties, foreigners and non-permanent residents may only obtain foreign currency denominated loans and the maximum financing quantum is restricted to 70%. A permanent resident may obtain Singapore-dollar housing loan for only one property.
5.
Power of Attorney
It is common that a purchaser may not be available to sign conveyancing documents.
If such documents are signed in Singapore, then it must be done before a lawyer.
If they are signed outside Singapore, then these must be witnessed by a Notary
Public or a consular officer at the Singapore embassy of that country. For
those who wish to authorize someone else to sign these documents on their
behalf, then they must first prepare a Power of Attorney through their lawyers.
A Power of Attorney is a legal document which has first to be lodged with
the High Court in Singapore before it may be used.
6.
Stamp Duty
Stamp duty is payable for all property purchases in Singapore. It is payable
based on the value stated in the Option to Purchase or the Sale and Purchase
Agreement. For resale properties, it is payable upon completion. For properties
purchased directly from a developer, it is payable upon TOP. However, if a
bank loan is used, the bank usually requires that the stamp duty is deposited
with its lawyer earlier.
The
amount of stamp duty depends on the sale price of the property. For the 1st
S$180,000.00, the stamp duty payable is 1%. For the next S$180,000.00, 2%
is payable and for the amount above S$360,000.00, 3% is payable. For convenience
of computation, it is easier to remember that for properties above the value
of S$360,000.00, the stamp duty payable is 3% of the purchase price less S$5,400.00.
As from October 2001 onwards, the government will give a 30% rebate of the
stamp duty.