According to Mordor Intelligence, Singapore’s real estate market is valued at US$27,600,000,000 and is expected to grow by 8% in 2028 amidst a global slump. It’s not surprising for one of the world’s richest countries to achieve this, given its scarcity of land and constant foreign demand.
This is why the country is attracting investors and speculators left and right. With favourable interest rates and good rental yields, lots of people are considering investing in property to grow their wealth.
However, learning the ins and outs of property investment in Singapore is not a walk in the park. You have to understand the property market, related laws and regulations, taxes and your investment goals.
And the million-dollar question is: How much capital do you need to get started as an investor without putting yourself in debt?
In this guide, we’ll explore everything you need to know about properties in Singapore and how to climb the property ladder. Continue reading below to learn more!
The Basics: An Overview of Property Investment in Singapore
Did you know that before Singapore became one of the leading economies, the country was just a malarial swampland? It can be hard to imagine that when you’ve been there yourself, with its skyscrapers and pristine sidewalks welcoming you.
Thanks to its immense economic leap, real estate prices continue to skyrocket across all property types despite the global pandemic. In 2021 alone, it registered sales of US$2,000,000,000 from a total of 28,734 non-landed residential transactions. This was a 57% increase from 2020.
The rise of work-from-home arrangements also increased the demand for bigger homes. Meanwhile, the office sector is finding its way outside the city centre to find more professionals, with large technology firms driving office demand for property recovery.
Moreover, the Singaporean government has implemented preemptive measures to cool down the housing market in December 2021. This includes decreasing the loan-to-value (LTV) ratio, increasing the additional buyer’s stamp duty (ABSD) and improving the total debt servicing ratio (TDSR).
Despite these market-cooling measures, the country’s property market will attract foreign buyers, higher prices for residential condos and stronger demand from its citizens, according to real estate professional Kiwi Lim.
Lots of new launches for the first quarter of 2023 are also expected to do well in the market, such as Terra Hill (District 5) and The Arden (District 23), among others.
The Ever-Rising Property Prices in Singapore: Its Factors
We know that figuring out how to buy a house in Singapore without getting yourself into debt can feel hopeless. Each year, the property for-sale market somehow finds a way to drive up the prices which are almost impossible to negotiate.
But have you ever wondered about the reason behind the ever-rising property prices in the country? Well, the answer is simple: Singapore is on the leaderboard of several global indexes, including housing prices.
The Knight Frank Wealth Report 2022 even reported that it has the fifth most expensive property market globally, almost narrowing the gap with New York. The prices are only going up.
What are the factors that contribute to property prices? Let’s discuss them in detail below:
Increasing Local and Foreign Demand
One of the biggest reasons why real estate prices in Singapore are incredibly high is because of the country’s small land area. Meaning, housing will always be in limited supply. And with its consistently rising population density, housing prices will certainly skyrocket even more.
Let’s give you an example: Build-To-Order (BTO) flats. In 2020 alone, it garnered over 70% demand and is still expected to grow in the coming years. Unfortunately, the supply could not catch up. Only 16,800 BTO flats were successfully launched out of 87,800 applications in the same year.
Source: The Straits Times
The reason behind this delay can be blamed on supply shortages and movement restrictions, to name a few.
Additionally, since Singapore is known for its pro-business environment, attractive inventor schemes and political stability, it’s a popular destination for foreigners. Under the Singapore Land Authority (SLA), here is the list of property types foreigners can buy without approval from the Land Dealings Approval Unit:
- HDB flat
- Condominium unit
- Flat unit
- Shophouse (for commercial use)
- Strata land house in a condominium development
- Industrial and commercial properties.
Property Location
The price of properties in Singapore can be hugely influenced by its location. Buyers also take into consideration a property’s proximity to public transportation, quality schools as well as shopping and recreational centres.
The closeness to employment opportunities and workplaces is also a factor, which is why properties in the central business district have higher prices.
For example, a condo unit in Paterson Suites by Bukit Sembawang Estates—which is located four minutes away by foot from Orchard MRT station—is priced at S$2,773 to S$ 3,142 per square foot (PSF).
The same unit at 3 Orchard-By-The-Park by YTL Westwood Properties which is only a two-minute walk from Orchard Boulevard MRT station is listed up to S$4,752 PSF.
To recognise the popularity and demand for properties in central locations, the Government of Singapore launched the Prime Location Housing (PLH) model. This ensures that future housing projects in such locations can still be inclusive, affordable and accessible for Singapore residents.
The measures included in the model are an income ceiling for potential buyers, an increased Minimum Occupancy Period (MOP) for ten years and subsidy recovery.
Rising Interest Rates
Due to the global pandemic and other geopolitical concerns, the country welcomed low-interest rates which resulted in low mortgage rates. This significantly reduced the amount of monthly mortgage a buyer should pay. Housing loan rates in Singapore have also been attractive in the past couple of years.
Unfortunately, the low-interest rate phase is coming to an end, with Singapore’s interest rates being tied to the United States’. In fact, the US Federal Reserve has introduced its largest rate hike in 16 years. Singapore’s interest rate will likely increase as well.
This means that it will be harder to buy a home and take on more debt.
As a result, the government lowered the Loan To Value limit and introduced the Total Debt Servicing Ratio (TDSR) to make sure individuals borrow money responsibly.
Economic Climate
There’s no denying that the state of an economy affects consumers’ ability to afford housing. Keep in mind that the price of a property for sale will depend on demographic and economic factors such as income growth, GDP and unemployment.
Do you remember the Global Financial Crisis in 2008? Since the Great Depression which lasted for about ten years, it was considered to be the most extreme worldwide economic crisis.
It had a severe impact on the Singapore property market, with the Producer Price Index (PPI) declining by 25% and transaction activity plummeting.
That’s why it’s important to keep yourself updated with the latest world events that can affect property investment in Singapore. Plan your investments accordingly!
Starting As an Investor: Ways to Make Money From Properties
If you’re curious about the many ways you can invest in the real estate market in Singapore, you’ve come to the right place. To get started, let’s discuss the ways you can grow your wealth from property investing:
Flipping Properties
Also called wholesale real estate investing, flipping is when someone purchases a property for sale and resells it in a matter of weeks or months to earn a profit.
How does ‘flipping’ a house or a building work? Like other kinds of investments, the strategy is to buy low and sell high. However, instead of following a buy-and-hold tactic, you finish the transaction as quickly as possible to prevent putting your capital on the line for a long time.
Flipping properties focuses more on speed rather than the biggest amount of money you can potentially earn. This is because each day the property is still in your hands will cost you more—in terms of insurance, property taxes, utilities and more.
The problem, however, is flipping houses isn’t as easy as it was in the 80s or 90s. Even the lowest price you can find in the market may be larger than your paycheck. The interest rates can also be disheartening to look at.
It mainly depends on capital appreciation, which is something investors have no control over.
New government regulations have also been implemented. Several measures were put into place to discourage investors from flipping homes. This includes the Sellers Stamp Duty (SSD)—a tax imposed on property owners if they sell their newly bought property within a certain year.
For example, if you sell the house within a year of buying, you incur a 12% tax. Within the second year, an 8% tax will be implemented and a 4% tax within the third year.
This isn’t to say that this strategy has become a loss-making scheme. You can still earn money from it, but you have to manage your expectations. Here are some tips and tricks you may consider:
- If you’re a young, first-time homeowner and don’t earn that much money yet, having a low income can make you eligible for higher HDB housing grants.
- To maximise your profit, buy as cheaply as possible. Watch out for fire sales where you can buy properties below their valuation rate.
- Pick your investments carefully. You can try researching homes in Homeplified and bookmark the ones that suit your budget.
- If you purchase properties in Singapore, wait for three years before flipping it so you don’t incur so much SSD tax. On the other hand, you need to live out your Minimum Occupation Period (MOP) if it’s an HDB flat before selling.
Buy And Rent
In this strategy, you will become a landlord. Your main goal is to hold your property and rent it out for income. For you to earn a satisfactory profit, you have to set a rental income that’s higher than your mortgage payments and the total costs of repairs or maintenance.
This involves a long-term view, which is the complete opposite of flipping properties.
What you earn from buy-and-rent can dramatically increase once you’ve paid for everything. Every rent you collect from then on is considered pure profit. It’s one of the best ways to earn passive income every month!
However, there are downsides to it that you need to consider. Remember that rental income isn’t always stable, and there are limits to what you can do if your tenant fails to pay the rent.
You may also encounter difficult tenants who cause damage to furnishings and property due to neglect and recklessness. Arguments can quickly escalate, which can be costly to deal with.
The buy-and-rent property investing doesn’t suit everyone. You have to make sure your rental income is bigger than your monthly mortgage payments before you can say you’ve earned something. You also need spare cash in case renovations and repairs are required.
Last but not least, your goal is to gain a gross rental yield ranging from two to three per cent. You may also be obliged to pay an ABSD of 12% if this isn’t your first property.
If you’re starting to consider this strategy, here are the tips you can follow:
- Visit Homeplified to find attractive investment opportunities in desirable locations (proximity to MRT stations, amenities, quality schools, etc.).
- Hire a reliable lettings agent that can advertise your property and help you find a good tenant.
- To calculate the potential gross yield, add up expected rental income and convert it to a percentage of property value.
Investing in Real Estate Investment Trust (REIT)
Buying a property for sale comes at a hefty price. Not every Singaporean can afford to spend hundreds of thousands of dollars just so they can start renting it out and earning huge profits in months.
So, when you don’t have pockets deep enough to buy a house you can flip or rent out, can you still join the property investment scene in Singapore?
Yes—and the answer is real estate investment trust (REIT). Just like any other mutual fund or unit trust, your money is pooled with other investors which will be used in property investment in Singapore or around the world.
Since these properties earn their rental income, you will receive a share of dividends based on how well the market performs.
Typically, REIT investors can expect an annual rental yield ranging from 5 to 8 per cent. The reason for this high percentage is because of the government’s cooling measures, requiring REITs to distribute 90% of their taxable income each year.
What makes REITs an ideal form of property investment in Singapore is that no hands-on work is required. You can enjoy passive returns, regular rental yields for a certain period of time, and buy & sell any time you prefer.
But the thing with REIT investing is that you have no control over market performance. REIT share prices can also be highly volatile and influenced by global events (the global pandemic, for example). If the market experiences a decline, you might want to sell your shares promptly, but finding buyers who are willing to purchase may be challenging.
Before you start investing, make sure you fully understand the following terms:
- Property yield refers to the amount of profit property investors can earn every month
- A lower price-to-book ratio offers more significant potential for growth, while a higher ratio indicates a bigger value.
- Understand which certain REIT products can withstand market fluctuations.
- When you start investing, property investors should aim for a debt-to-equity ratio below 60%.
How to Spot a Good Investment Property
Real estate investment is a lot tricky to master and navigate, especially if you have little to no experience. Out of all the properties listed in the market, how do you find a good investment property and maximise your returns?
With enough research and the help of a reliable real estate agent, property investment in Singapore can be highly rewarding. Take a closer look at these factors to help you get started:
Find a Good Entry Price
For a shortlisted property to have a good entry price, it should sell at a price much lower than its present value per square foot. For example, if a property’s transaction price is at an average of S$1,000 PSF and it’s being sold for S$800 PSF, then it has a good entry price.
Be careful not to buy a property that has a higher price than its current value hoping that future transactions will eventually make up for it when the price appreciates. You’re just increasing the risk of loss while greatly reducing your overall profit at the same time.
Here’s another tip: visit the Urban Redevelopment Authority (URA) website to gauge a property’s transaction trends over the last six months.
Don’t Always Go For Cheap
We understand that it may be ideal to go for extremely affordable properties to maximise your profit in the long run. However, just because it’s cheap doesn’t automatically mean that it’s a good investment.
Once you come across a property that’s way below its market value, ask yourself: ‘Why is this property so unbelievably cheap?’ There might be something wrong with it like the roofing or HVAC slowly deteriorating.
Another thing you should look out for is its location. If a property for sale is located in an underdeveloped area without public transportation or amenities in its vicinity, its value won’t appreciate.
That’s why you should keep an eye out for the development of parks, malls, business centres and quality institutions in the area. This will drive up the rental prices and demand for properties in the process.
Look At The Vacancy Rates
Singapore has very limited options for widening its space, given that the country only has 720 square kilometres of land. Consequently, affordable housing is rare to secure since they’re always in short supply.
This is why it can be challenging to tell if a neighbourhood is a worthwhile investment by simply looking at the number of HDB flat transactions in the area. Instead, look at the sales performance of new launch projects to gain a more accurate picture.
So, if you’re eyeing an estate that has an abnormally high number of property listings, it could be a red flag. It’s a sign that a huge number of tenants are leaving and homeowners are selling their properties altogether.
It might feel tempting to make a purchase, assuming that it’s a fire sale.
But if you don’t tread lightly, the high vacancy rates may reduce your potential rental income. The oversupply of available units will drive rent prices down due to the basic principle of supply and demand.
Kickstarting Property Investment in Singapore: Tips to Consider
Excited to start your property investment journey in Singapore? Check out these helpful tips you should consider to maximise your investment:
Know The Costs
Being a property investor in Singapore means you have to know the acronyms like the back of your hand, including:
- Seller’s Stamp Duty (SSD)
- Buyer’s Stamp Duty (BSD)
- Additional Buyer’s Stamp Duty (ABSD)
- Total Debt Servicing Ratio (TDSR)
- Loan to Value (LTV).
Generally speaking, stamp duties are cooling measures to discourage flipping by increasing the cost of buying, holding or selling multiple properties.
Meanwhile, the Total Debt Servicing Ratio (TDSR) and Loan-to-Value (LTV) ratios are designed to help buyers make wise financial decisions and prevent them from taking on too much debt.
Although some people may find these rules to be a bit overwhelming, being aware of the tax obligations, stamp obligations and loan restrictions gives you the upper hand. They can help you decide whether you will be able to manage an investment property over the long term.
Some additional costs will also include home insurance, maintenance fees, property fees and income taxes, among others.
Figure Out The Capital You Need
To find out the capital you need before you can start property investment, let’s start with an example.
Say a one-bedroom apartment in Le Regal in Geylang is priced at S$600,000. Mr Lee—a buyer who’s Singaporean—does not have any outstanding debt. This is also their second residential property with the first one being fully paid.
Take a look at the breakdown:
| Property Price | S$600,000 |
| ABSD | 12% |
| LTV Ratio | 75% since this is Mr Lee’s only mortgage |
| Downpayment | S$168,000 which is payable via CPF-OA, cash or a mix of both |
| Renovation | S$10,000 |
| Agent Fee | S$1,000 |
With this, Mr Lee needs initial capital of S$179,000.
Research, Research, Research
Reading a couple of articles from The Straits Times and watching YouTube videos alone are not enough to make you a good property investor. You have to do a lot of research that teaches you how to read properties in Singapore.
You should be well-acquainted with the URA’s master plan, learn rental yields and observe historical price movements and how this affects your long-term plan.
So, if you’re truly interested in this kind of investment, look for hidden opportunities before anyone else finds them. This can involve considering unexpected places, like the rundown Geylang properties with expiring leases that have significant potential.
Determine If The Property Will Make Money
When it comes to buying properties, letting your emotions get the best of you can do more harm than good. Merely looking at its architecture, interior design and landscaping to see if it suits your preferences won’t cut it.
Instead, you have to objectively assess if the property you’re planning to purchase will attract tenants. Will it make money at all?
If you want to follow the buy-and-rent model, you need to pay attention to a metric called rental yield. Just always take these figures with a grain of salt!
The advertised rental yield is generally the gross rental yield, which does not provide an accurate reflection of your returns. It is recommended that you calculate the nett rental yield instead.
This is because the nett rental yield includes your fees, mortgage interest and costs, and cash outlay. Since it takes into account all expenses related to your investment, you will get a more precise picture of the returns you can expect.
However, if the net rental yield is too low or becomes negative, re-evaluate whether the property will be a sound investment.
Be Financially Prepared At All Times
You’re likely going to make a mistake in your property investment journey, especially when you’re just starting. Even the most seasoned investors in Singapore occasionally make the poorest of choices, so don’t be too hard on yourself.
However, make sure that you’re financially capable of dealing with any challenges hurled at your way. Don’t treat property investment in Singapore like you’re inside a casino—willing to risk everything, up to the last cent in your pocket.
If something goes wrong, you need to ensure you have stable income sources to avoid getting bankrupt and in debt.
Final Thoughts
A country like Singapore with good governance, political stability and a strong currency is a safe bet for property investments. The real estate market will continue to appreciate in value over time, attracting long-term investors from all over the world.
But your success in property investment will depend on your dedication to doing ample homework and truly learning how everything works. Whether it’s about stamp duties, property cycles, taxes or locations, you have to learn how to make sound decisions.
We also understand that things may get overwhelming. With the amount of information you have to consume about the Singapore real estate market, taking that first step can feel like a burden.
You don’t have to fret anymore. Our team of professional real estate agents here at Homeplified can assist you and guide you in the right direction. Our diverse listings of properties in Singapore can also be a great start to help you gauge what kind of properties you’re willing to invest in!
Contact us today, and together, let’s start your property investment journey here in Singapore.
