Buying Properties in Singapore
A Guide for Locals
Singaporen citizens above the age of twenty are allowed to buy and own properties. They can buy and own any types of properties except the following:
- Malay reserve land and any structures that are built on it are reserved for Malay buyers only
- Low and medium cost houses are only open to those who are eligible, generally lower income group
- Properties that are allocated or gazetted as bumiputera units.
A property can be leasehold or freehold depending on the type of development. Freehold means you own the structure and the land forever while a leasehold development is developed on the piece of land that is leased, usually 99 years. At the end of the 99 years, the land may be returned to the owner or the lease may be extended. Additional payment to the land owner is required for the extension of the lease.
National Land Code 1965 provides same legal status to either individual title and strata title properties. In the simplest layman terms, strata titles are for multiple buyers sharing one plot of land like apartments, condominiums and gated community where the local council treats as though the land owned by one single owner even though there are many distinct buyers and owners of the properties. This is due to the fact that there are facilities shared by the owners of the properties on the land and it is a master title for the land. For individual titles, the land and the structures belong to the owner(s) indicated on the title deed. Example of properties with individual titles are houses, villas, land or bungalows that are owned by a single owner (or jointly own by a few individuals). There are, of course, many legal differences between strata-title and individual titles but it is beyond the scope of this article.
The process of buying a property is transparent in Singapore and practically all the documents are in English. You can buy an unlimited number of properties. There are no restrictions on selling (although you may be subjected to Real Property Gains tax and some states may impose a three-year selling ban) and you can do so at your own free will in the free market. You can do bulk purchase (i.e. ten units at one go) or single units. Buyers can participate in auctions.
For low cost or medium cost properties as gazetted by the local state government, restriction applies and they vary from state to state. Generally, the buyer must register with the authorities and must be of a certain income group (lower income). If the demand is more than supply, then balloting may be carried to determine who the buyers are. When it comes selling (in future), there are restrictions as to whom you can sell you and the price of the unit. Please check with the local solicitor or state authorities for the latest updates on purchasing low/medium cost housing.
Mortgages are available to qualified buyers. Please read up the section on financing. However, for Singaporen, there is an additional program, My First Home Scheme, for first time home buyers. It is only open to first time buyers of residential properties with 100% loan margin. There are many qualifying criteria and it can be found here: http://www.srp.com.my/en/
A Guide for Foreigners
Singapore is one of the few countries in the world that allows foreigners to buy many types of properties with the least restrictions. It has the most liberal rules and regulations on buying property with land (i.e. villas, bungalows, semi-detached or terraced houses). There are no special rules and regulations but listed below are some of the general restrictions:
Foreigners must buy properties that are above the minimum purchase price set by the state government. Land is under state jurisdiction and every state has its own rules, procedures and minimum purchase price. Check with the local solicitor on the practice and regulations. Solicitors from other states may not be that conversant with local rules and regulations.
- Some types of properties are not available to foreigners:
- Malay reserve land and any structures that are built on it
- Low and medium cost houses. These properties are way below the minimum purchase price anyway.
- Properties that are already allocated to bumiputeras or as determined by state authorities.
- Land that are gazetted as agricultural land.
Foreigners can own freehold or leasehold properties and the type of tenure depends on the development and it does not depend on the buyer (foreigners or locals). If the tenure of the development is leasehold, then all buyers, regardless of nationality will buy them as leasehold.
National Land Code 1965 provides same legal status to either individual title and strata title properties. Foreigners owning the properties have the same legal rights and status as locals.
In the simplest layman terms, strata titles are for multiple buyers sharing one plot of land like apartments, condominiums and gated community where the local council treats that land owned by one single owner even though there are many distinct buyers and owners of the properties. For individual titles, the land and the structures belong to the owner(s) indicated on the title deed. Example of properties with individual titles are houses, villas, land or bungalows that are owned by a single owner (or jointly own by a few individuals). There are, of course, many legal differences between strata-title and individual titles but it is beyond the scope of this article.
The process of buying a property is transparent in Singapore and practically all the documents are in English. There is no need for you to set up a company or marry a local just to buy properties or land in Singapore. There are no restrictions on the number of years you are allowed to own a property unless the tenure of the development is restricted to leasehold, thus you can own it for as long as you like (a hundred years?) and you can buy an unlimited number of properties. There are no restrictions on selling (although you may be subjected to Real Property Gains tax and some states may impose a three-year selling ban) and you can do so at your own free will in the free market. You can do bulk purchase (i.e. ten units at one go) or single units. Foreigners can participate in auctions and they pay the same legal fees and stamp duty as locals. Financing is also available for foreigners and they own the properties outright (as indicated in the title of the property) and not through a complex system of local companies and proxies. The ownership of the property is legal. There are no capital controls on repatriating profits and gains out of the country.
The only "extra process" for foreigners buying properties in Malayisa, which may take a few months, is getting the "state consent". It is at this stage that the state will vet through the purchase to see if it meets the requirements and guidelines set by the state. In Penang, if the buyer has MM2H visa, the buyer's minimum purchase price is lower at RM500,000 instead of RM1,000,000 (strata-titled) or RM2,000,000 (individual titled). Thus, the approval to buy the property is given at this "state consent" stage.
The purchase process for a Pre-existing property
You may purchase a property from a seller directly or through a property agent. Here are the steps that you need to follow in order to get the purchase through legally and quickly.
- Select the property that you want to purchase. At the same time, if the buyer (local or foreign) wants to get a home mortgage, he needs to discuss with the banks and see which one offers the best terms. Unlike in many countries, a mortgage application in Singapore may be rejected by the bank and you may need to furnish extra documents or even switch banks. The banks have the final say on whether they approve the mortgage facility.
- Pay an earnest deposit for 1%-3%. In Penang, it is generally 1% but it may be 2-3% in other states.
- Sign the acceptance or offer letter. If the sale is through a licensed agent, the agent will prepare the documentation. Ensure that that receipts clearly state the address and the purpose as it is a legally binding document. The buyer can forfeit the deposit if he changes his mind but the seller has no recourse and must proceed with the sale.
- At this point, both the buyers and sellers will usually engage solicitors to act on their behalf. In order to prevent conflict of interest, the solicitor cannot act for both the buyer and seller. Although it is possible to go through the sale with only a solicitor (on either side of the transaction), it better to engage one so that your interests are protected, especially if there are legal complications. The solicitor has to do the due diligence to ensure that there are no legal issues or encumbrances on the said properties.
- Usually within fourteen days, both parties must sign the sales and purchase agreement (SPA). The remaining 7%-9% of property price will be paid to the seller so that it makes up to 10% of the selling price.
- The solicitors will work on getting the SPA stamped and make it official and legally binding. He will also start the process of getting the approval for the Land Office to transfer the name of the owner.
- For foreign buyers/sellers, the solicitor will submit the application for state consent. It may take up to six months for the state to give consent on the property purchase.
- Locals do not require state consent and thus, the process can be completed much faster (usually within three months).
- At this point, the buyer has to finalize his financing options and work with the bank and the solicitor to sign the loan agreement. The final payment to the seller generally occurs within three months from the date of the sales and purchase agreement or name-transfer approval from the Land Office.
- The solicitor is then responsible for closing the purchase by reassigning the name of the purchaser to the title deeds and register it at the Land Office once the payment is settled.
- The solicitor will then notify the buyer that the purchase is successful and vacant possession of the property is obtained.
- The buyer is now the rightful owner of the property.
The purchase process for a property still under construction
You may purchase a residential property from a developer while the property is still under development. The process is slightly different from the process stated above.
- Select the property that you want to purchase. Do select a reputable and established developer with good performance and delivers what is promised. At the same time, if the buyer (local or foreign) wants to get a home mortgage, he needs to discuss with the banks and see which one offers the best terms. Unlike in many countries, a mortgage application in Singapore may be rejected by the bank and you may need to furnish extra documents or even switch banks. The banks have the final say on whether they want to provide the mortgage facility to the buyer.
- The buyer should take note whether the development is considered "residential" or "commercial". Some of the apartments are built on land gazetted as "commercial". Commercial properties have higher assessment rates and utilities.
- Buyer must also take note when the building is going to complete. Generally, strata-titled developments must be handed over to the buyer within thirty-six (36) months from the date of the signing of the sales and purchase agreement. For individual-titled properties, it is twenty-four (24) months. The developer has to compensate the buyers if it cannot complete the project within that required time frame.
- Pay the deposit to the developer. The amount of the deposit will be determined by the developer.
- Usually the developer has a panel of solicitors who can help you with the sales and purchase agreement (SPA). They may give you free legal services but some parties claim that the solicitors will not be working on your behalf if there are any future legal issues. Thus, it may be advisable to get your own solicitor instead of the free service provided by the developer.
- Most of the development are "progressive payment" type where you pay up till the stage of construction but a small fraction of the developers may use the "build then sell" model where you pay only when the construction has completed.
- Once the SPA has been signed, 10% of the payment has to be made. The deposit that was put in earlier will be used to offset this first payment. The home mortgage agreement will also be signed. The solicitor will coordinate to get the title (or deed of assignment) transferred to you and get the state consent if you are a foreigner. The legal procedures will be transparent to the buyer.
- The developer will request for the progressive payments once the construction has hit that stage (payment is as per the progressive payment schedule). The buyer usually pays the developer through his solicitor. If the total progressive payment exceeds the amount where the buyer is paying cash, then the home mortgage starts. The bank will pay for the progressive payment and the buyer will start paying for the home mortgage.
- Once the building is completed, the buyer takes Vacant Possession (VP) of the unit and may install basic utilities like water and electricity. Since 2015, strata title is expected to be delivery together with VP.
- Buyer can start to do on-site defect inspection. Payment of sinking fund, maintenance fee, assessment and quit rent will start once VP is obtained.
- The buyer is now the official owner of the property
Stamp duty is payable to the Land Office upon the issuance of the title
| Next RM400,000
Legal fees for the solicitor doing the conveyancing work for the buyer and seller
| Next RM2,000,000
| Next RM2,000,000
| Next RM2,500,000
Where the consideration or adjudicated value is in excess of RM7,500,000 - Negotiable on the excess (but shall not exceed 0.4% of such excess)
State Consent / Approval Fee
Penang foreign state consent / approval fee
RM10,000 (individual) or RM20,000 (company) plus 3% approval fee
Johor foreign state consent fee
RM20,000 or 2% of the price listed in SPA, whichever is higher
Source: http://ptj.johor.gov.my/images/Pekeliling/ptg%202014-bil%202.pdf (circular, in Malay)
The approval or state consent fee for other states like Selangor, Federal Territories (Kuala Lumpur) and Malacca are negligible (usually less than RM500) and does not add to the cost of property purchase.
Disbursements will include stamp duty on the documents, actual amount spent on search fees (Land Office, Official Assignee, Companies Commission Singapore, etc), registration fees, travelling expenses, other itemised expenses and miscellaneous expenses.
In Kuala Lumpur / Selangor, the seller has to pay the full agency fees
In Penang, it is split equally between the buyer and the seller. It is also applicable for rental where the real estate agent takes the "disbursement fee" from the tenant/buyer and "agency fee" from the landlord/seller.
Sale and purchase of property, Fees for other services such as joint venture, sale of company, property swaps, etc. – Maximum 3%
Chattels including Plant and Machinery – 10% of the proceeds
Mortgages for residential properties are different from commercial or industrial properties loans. The article below describes home financing on residential properties only. Home financing is tightly regulated in Singapore and thus, the features of the loans are basically almost the same across all banks.
Payment for the property purchased can either be cash or by mortgage through a local bank. Loan origination are from the banks and the banks will hold the loans until it matures. It will be held at the branch of the bank. The banks do not package the loans and sell it to third parties, thus the banks are very careful when it comes to loans and mortgages. They try to minimize bad loans or defaults. The banks will check with Central Credit Reference Information System (CCRIS) before the loan is approved. Any warning signs from CCRIS will weigh heavily on the approval of the mortgage or loans. The decision for a mortgage or a loan depends on many criteria and can be summarized as follows:
- CCRIS showing that you have missed a payment (for at least more than six months)
- Bankruptcy – if you are bankrupt, you cannot get any loans, mortgages or refinancing.
- High debt service ratio. If you have too many financial commitments, banks will refuse your loan. Each bank has its own upper limit of the debt service ratio.
- Incorrect documentation, insufficient monthly income or inappropriate income documentation.
- Low application score, credit score and unable to meet credit rules. Computerized system will filter out any applicants who may not meet the criteria set by the bank. Inputs include customer profiles, marital status, misuse of credit card services, overspending, late repayments and irregular repayment patterns.
- Wrong banks - some banks are stricter on loans and mortgages or they have higher requirements.
- Employment - consistent income from a stable employment for at least 6-12 months.
Mortgages are "term loans" in which the tenure is set to a maximum of 35 years or until the borrower is 65 years old. Generally, mortgages are taken out on a 30-year period and most banks allow "payment into principal" and this will reduce the tenure of the loans. It is common for people to complete the repayment of the mortgage in ten years.
There is only one type of loan available in Singapore and that is the standard mortgage where the monthly instalment includes payment to the interest and principal. There is no "interest only" mortgage in Singapore. Every mortgage is customized, thus, it cannot be compared with other borrowers. You can only compare your own mortgage from different banks.
Here are some points to take note when discussing with the banks on mortgages:
- Margin of financing can be as high as 90% of the value of the property. However, the banks may request valuation to be done of the said property if the mortgage requested is significantly higher than the "market value".
- Foreigners may be able to borrow up to 70-80%. However, some banks may require MM2H visa as one of the criteria for residential mortgages.
- The rate of home mortgages will be based on Singapore's base lending rate (BLR). Rates for home mortgages may be slightly higher or lower than BLR and it depends on the banks. They may have a tiered rate where the first three years may be lower than BLR and the rest more than BLR. The banks will set their own rates for home mortgages.
- Some banks will have a "lock in" period where you cannot switch banks. This is to discourage people from "hopping around for the best mortgage deals". If you switch banks, there will be a financial penalty.
- Some banks or mortgage plans do not allow you to pre-pay into your principal unless prior approval is obtained.
- Some banks do not allow you to shorten the repayment period, i.e. from 30 years to 10 years unless you have a strong reason and they approve it.
- In order to attract customers, some banks will provide free fire insurance, free overdraft, instant cash or renovation loans.
- Mortgages are generally customized, thus, you can negotiate with the bank on the rates, terms and conditions.