Frequently Asked Questions

If you are thinking of investing in Singapore properties, below are some frequently asked questions (FAQs) relating to the purchase of property in Singapore.

As each property investor has different needs and every property is unique, these FAQs can only give a general overview. If you are considering a property transaction, it is recommended that you obtain specialist legal advice.

Commercial

What is Commercial Property?
Commercial property covers Retail, Office, HDB Shophouse, Strata Title Shops, Conservation Shophouses, Hotels, Commercial Industrial Buildings and Mixed Development. Commercial Industrial property is typically not an option considered by most Singaporeans unless you are an investor or business owner.  Buying a commercial property can be complex and will also  requires a significant investment, both in terms of time and cost.
How is Commercial Industrial Property held in Singapore?

The type of ownership and the legal rights over a property can significantly affect its value. Property will usually be either freehold or leasehold property.

What is meant by Freehold?

For properties built on freehold land, the land belongs to the leasehold owner indefinitely so there’s no need to worry about the lease running out.   The owner of a freehold generally controls and owns all the property: the land itself, any buildings/structures on it, the subsoil below and the airspace above it.

What is meant by Leasehold?

With leasehold property, the interest is contractually time limited to the length of the lease.  Commercial & Industrial properties in Singapore are typically leasehold e.g. 30-, 60-, 99-, or 999-year lease. Freehold commercial property command a premium and are mostly in suburb areas.  A 30-year leasehold means the property reverts to the government after 30 years.

What are the costs of owning a Commercial Industrial Property?

Generally, a deposit is required when contracts are exchanged to buy a commercial industrial property. The remainder is then paid when the deal completes.

However, there are several other costs to take into account when it comes to buying commercial property. These can include:

  • Professional Advice: Legal fees, Agent fees and fees associated with arranging a commercial mortgage
  • GST: the sale and rental are subject to GST if the owner is GST-registered
  • Property Tax: property tax equivalent to 10 percent of the property’s annual value is levied for commercial and industrial property
  • Maintenance Fee: while property purchases can be excellent investments, purchasers should know how much they would have to pay in taxes and for the upkeep of the property
  • Decorating and refurbishingthe commercial property
  • Other Cost:buying and fitting out the space with furniture and equipment; hiring a firm to help transport furniture and equipment; setting up facilities, including establishing IT, etc.

And the bills don’t end there. You should consider the ongoing costs of maintaining commercial property too. If you plan to let out the commercial property, you will likely want to share some of these bills with your tenant.

The costs of owning a commercial property might include:

  • Insurance
  • Repairs and maintenance
  • Services, including security and cleaning
  • Local authority charges, including waste collection
  • Retaining a commercial property estate agent to manage the building
  • Commercial mortgage repayments, if applicable
What are the factors to consider before buying a Commercial Property?

If you already understand the risks involved when you buy commercial property, then several important factors should be taken into account when investing either you or your company’s money into a commercial property.

The following sections cover some of the more important items to consider before you buy commercial real estate. A professional commercial real estate agent can provide you with further advice.

  1. Tenure

Most properties in Singapore are leasehold due to land scarcity although there are some which are freehold. Leasehold properties are naturally cheaper than freehold but if the rental income can cover your mortgage, the tenure should not really be a concern.

The tenure of the remaining lease on a property being considered for purchase will affect not only how much an investor has to pay upfront, but how soon he or she will need to sell the property to turn a healthy profit.

It is, therefore, important to think about how long the investor intends to hold on to the property. An investor who intends to hold on to the property in the long and medium term should be careful not to purchase properties with few years of lease remaining.

  1. Location

Pay as much attention to the location of your commercial premises as you would when buying your own home.

Those who buy commercial property regularly know that location is a key determinant of whether or not the purchase will ultimately turn out to be successful.

Most renters and corporate owners of commercial real estate want to be located as close as possible to their clients, employees, suppliers and vendors in order to minimize transport costs and maximize exposure to customers.

If you plan on renting to a business, make sure the commercial property is either attractive to potential renters or can be economically improved to be attractive.

  1. Condition

Take the time to assess carefully how much repair the property requires before it can be effectively used or rented out, how much those repairs are likely to cost and how long they should take to be completed.

As with most investments, time is money in commercial real estate, and if the property will not be ready to be occupied soon for some reason, then investing in it as a rental property or as an alternative to your current commercial location could turn out to be a costly mistake.

  1. Flexibility is key

Look for a property that is flexible. If all goes well, your business is likely to expand and change during the time that you own the property. So find a commercial premises that can be adapted to your business as it grows.

  1. Can you sub-let? 

Retain the option of sub-letting part of your premises. This can be an excellent way of managing any cash-flow challenges, and retaining commercial flexibility. But you will need to make sure that your mortgage-lender permits sub-letting part of your premises. Similarly, read the lease carefully for any clauses that may restrict sub-letting.

  1. Access and Parking Issues

You need to make sure that any commercial property you are considering buying offers easy access to customers and sufficient parking to accommodate them, as well as enough parking spaces for staff that might be employed on site.

  1. Zoning and Improvement Limitations

Not all commercial properties are zoned for the same uses or are able to be permitted for certain improvements. You will want to check with the local planning department to find out what the zoning of the commercial property you are interested in purchasing is and what it permits.

For example, some commercial properties are located in industrial use zones, while others might be zoned for commercial office space or retailing purposes. Still other commercial properties may be located in a historical preservation area and hence substantial changes to their façade would not be permitted.

  1. Budget ahead

Remember to budget for the maintenance of the property. As the owner of commercial property, you will incur long-term upkeep and any ongoing costs – just as you would as the owner of a private home. Budget ahead to avoid any surprises later on down the line.

  1. Secure a business loan

You may require a loan to help boost your buying position. A commercial mortgage is widely considered one of the most common forms of finance used to buy a commercial property. You should look across the market to compare mortgages and secure the best deal.

Lenders require a significant amount of information before agreeing a commercial mortgage. They will typically ask you for a range of details, which might include a business plan, commercial mortgage repayment proposal and business bank statements and accounts.

What is the procedure to buy Commercial Industrial Property?

When you have found a commercial industrial property you want to buy, you will need to make a written offer – usually to the Property Owner’s commercial Property Agent.

1) Option To Purchase (OTP)

After the sale / purchase price of a Commercial Industrial property has been agreed between Property Owner and Potential Buyer:

The Realtor will prepare the OTP form, stating the agreed price, option fee, option period and completion date.
Buyer will issue a cheque in favour of the Legal Owner for the option fee (normally 1% of the Purchase price).
Seller will sign on the Option To Purchase form upon receipt of Option Fee.
Buyer will retain the original signed Option To Purchase while the Seller will keep a copy.
2) Exercise Option

Buyer of a Commercial Industrial property will be required to exercise the received Option within 14 days (this option period can be varied subject to agreement between the Seller and Buyer in the OTP) from the date of issue. To do this, Buyer has to:

Engage a Lawyer as Buyer’s Solicitor in acting for the interest of Buyer.
Present another cheque of 5% of Purchase Price after less previously paid Option Fee to Seller’s Solicitor via Buyer’s Lawyer.
Acquire Letter of Offer from Financial Institution if the Buyer is applying for mortgage loan for the property purchase.
It is important that both original signed OTP and the cheque for balance (4%) are to reach Seller’s Solicitor before the expiry of the OTP. Seller will have the legal right to retain the entire amount of the Option Fee (1%) if Buyer fails to exercise the Option before the expiry date.

3) Stamp Duty Fee

Buyer of a Commercial Industrial property will be required to pay Stamp Duty to IRAS within 14 days upon exercise of Option. The amount payable will be based on the Purchase Price or Market Valuation, whichever is higher.

4) Sale Completion

After the exercise of Option, responsibility for the legal procedure for the sale completion lies between the Solicitors of both parties.

Generally, the sale transaction will be completed in 8-12 weeks duration, depending on what was agreed and stated on the OTP. For further questions about the sale / purchase procedure for Commercial Industrial property, kindly contact us.

What is the Role of a Property Agent?

Owners wishing to sell or let their property typically engage a property agent to market their property. They advertise the property in a variety of online and offline publications and media and contact parties who have registered with them. Buyers can register with these agents and ask for details of available properties. Alternatively, a buyer can appoint their own agent to find a suitable property investment (an agent’s fee is usually payable and is often linked to the rental value or purchase price for the property).

Agents also negotiate the key terms of the transaction. Once these terms are settled between the parties, they are documented in the OTP which are then used by the parties’ legal advisors to draw up the legal documentation for the transaction.

Residential

What is Residential Property?

It means all residential landed properties, including vacant land, detached houses, semi-detached houses, terrace houses; and any land or building zoned or gazetted for residential purposes.

Approval will have to be obtained from the Minister for Law to purchase any of the above.

How is Residential Property held in Singapore?

The type of ownership and the legal rights over a property can significantly affect its value. Property will usually be either freehold or leasehold property.

What is meant by Freehold?

For properties built on freehold land, the land belongs to the leasehold owner indefinitely so there’s no need to worry about the lease running out.  The owner of a freehold generally controls and owns all the property: the land itself, any buildings/structures on it, the subsoil below and the airspace above it.

What is meant by Leasehold?

With leasehold property, the interest is contractually time limited to the length of the lease. Residential properties in Singapore are typically leasehold e.g. 60-, 99-, or 999-year lease. Freehold residential property command a premium and are mostly in suburb areas.

What are the costs of owning a Residential Property?

The cost of buying a property is more than just the purchase price negotiated with the seller. There are SSD, BSD, ABSD, Conveyancing Fees, Property Agent Commission & Valuation Fees involved. Hence, it is important that you plan your finance based on these “extra” costs before heading out to buy your property.

What are the factors to consider before buying a Residential Property?
  1. Reason for purchase

First and foremost, buying a property for investment or owner-occupation makes a difference.

Naturally, if it for investment, the chief factor in consideration will be the capital gain. On the other hand, buying for owner-occupation makes capital gain a secondary concern. In this case, more important factors will be the current or future size of the household. A retiree or single may opt for a smaller flat. While a young, married couple may also choose a small flat if their financial means are limited, or a large flat if they are planning to have children and provided if they are rich enough to afford it.

  1. Type of Housing

The next consideration is the housing type. With the many types available, buyers are often spoil for choice. The below two tables compare the private and public housing segments.

Table 1: Available Housing Types in Singapore

HDB (99-year lease) Private Housing (60-*, 99-, 999- year lease; freehold)
Build-to-Order (BTO)

·         Studio Apartment (30-year lease)

·         2-room Flat

·         3-room Flat

·         4-room Flat

·         5-room Flat

Executive Condominium**

Design and Build (DBSS)

Executive Flat (No longer built)

Executive Maisonette (No longer built)

HUDC (No longer built)

 

Walk-up ApartmentHigh-rise ApartmentCondominiumShoebox ApartmentSohoStrata Titled Cluster Housing

·         Inter Terraces

·         Semi Detaches

·         Bungalows

Landed Housing

·         Inter terraces (Type 1 and 2)

·         Corner terraces

·         Semi Detaches

·         Bungalows

·         Good Class Bungalows

·         Sentosa Landed Housing (the only landed properties in Singapore for which foreigners can buy with express approval)

** Executive Condominium becomes private after 10 years.

Table 2: Comparison of HDB and Private Housing

HDB Private Housing
Eligibility:Direct Purchase from HDB –

·         Singaporeans

·         Gross Monthly Household Income

$10,000 (For Executive Condominium $12,000)

Resale –

·         Singaporeans and Permanent Residents

99-year Lease

Most Affordable Type of Housing

For Owner-occupation

Lower Maintenance Cost (Conservancy Charges)

Stringent Restriction for Leasing Out

Minimum Occupation Period

Eligibility:Non-landed –

·         Foreigners, Singaporeans and Permanent Residents

Landed –

·         Singaporeans

60-*, 99-, 999- year Lease; Freehold

Tend to be More Expensive

For Owner-occupation and Investment

Higher Maintenance Cost (Property Taxes, Monthly Maintenance Charges, etc.)

No Restriction for Leasing Out

No Minimum Occupation Period

  1. HDB flats’ investment potential

From the Government’s standpoint, HDB flats are meant for living purposes and not for speculation. Hence HDB flats are subjected to a Minimum Occupation Period (MOP) of 5 years whether for a resale or direct purchase from HDB. This curbs house flipping of HDB flats.

Nevertheless after MOP, owners of larger HDB flats can make a profit by downgrading to a smaller unit. Those who are tempted to sell for a profit during a booming property market may not be better off as they will have to pay a high price for another flat. Moreover, if their current flat was bought with a housing grant, they will have to incur a resale levy when they buy a second subsidised HDB flat.

However, some Singaporeans are still profiteering from renting out their HDB flats.

Under current regulations, owners of subsidised or non-subsidised HDB flats have to meet the requirement of a 5-year MOP before they are allowed to rent out their flats. Exceptions are made for owners who live overseas.

Furthermore, there are restrictions on the rental periods. For Singaporean owners they could rent out their flats for a period of 3 years after which they could request for extensions with no cap on the number of requests. For PRs, however, it is a different story. They are only allowed to rent out for a period of a year, subject to discretionary extensions, with a limit of 5 years on the total rental years allowed.

  1. Private housing’s investment potential

In contrast, the rental rules for private properties are less stringent. Of note is that Singaporeans are not allowed to own HDB flats and private homes concurrently within the MOP. After the MOP, Singaporeans often make a profit by living in HDB flats while renting out their private properties.

However, for adventurous homeowners who are looking at flipping private properties to increase their wealth, they are restricted by the string of anti-speculative measures instituted by the Government since 2009.

Properties acquired after 20 February 2010, are subjected to a Sellers’ Stamp Duty of 4% to 16% of the selling price or market value, whichever is higher , if they are disposed of within 1 to 4 years after purchase.

In addition, for property purchases after 8 December 2011, an additional Buyer’s Stamp Duty of 3% is imposed on Singapore citizens buying their third and subsequent properties. For PRs, the 3% will be imposed on their second and subsequent purchases, instead.

What is the procedure to buy/ rent a Private Residential Property?

1. Purchasing of Private Residential property

When buying a private residential property, there are many factors to consider and look into. You should familiarise yourself with these considerations which may affect your purchase.

If you own a HDB flat, a DBSS flat or an Executive Condominium, you have to fulfil the minimum occupation period set by HDB before you can purchase any private residential properties. Visit their website to find out more.

If you are not a Singapore citizen, you have to obtain approval from the Controller of Residential Property in Singapore Land Authority (SLA), before you can buy landed houses including but not limited to strata landed houses.

2. Renting of Private Residential Property

Private properties approved for residential use may not be used for short-term rentals on a daily or weekly basis. Private residential properties must be rented out for at least three consecutive months. If you own a private property and wish to rent it out, you have to adhere to the following rules.

With effect from 15 May 2017, the maximum number of unrelated occupants that may be accommodated in a property is six.

This applies to all persons residing within your home. Unrelated occupants refer to any persons who are not part of the same family unit.

Domestic caregivers hired by a family are considered part of the same family unit.

If you have already signed a tenancy for seven or eight persons before 15 May 2017, it may run its course until the cut-off date of 15 May 2019. This will apply to all tenancies regardless of their contracted end-date.

Any internal partitioning works carried out on the property must not compromise the nature of the property as a single self-sufficient residential unit with essential features such as a living/dining area and kitchen.

What is the procedure to sell a Private Residential Property?
  1. Option To Purchase (OTP)

If you are selling an HDB flat, you must have submitted the Resale Checklist for Seller at least 7 days prior to issuing the OTP.

When you have agreed on a price with a buyer, the most common practice is to issue an Option to Purchase agreement to the buyer. If you have hired an agent, he/she should take care of this for you. If you have not, you may ask your solicitor who should be able to provide a template. You may also refer to the Option to purchase template provided by the HDB. If you are selling an HDB flat, you must use the official Option to Purchase form available from the HDB branches.

After validating the document with your solicitor, you may now submit it to the buyer who will need to pay 1% of the agreed price (max $1,000 for HDB flats) in order to be granted this OTP. The buyer should submit the document to his/her solicitor before committing.

  1. Exercising the OTP / Legal completion

Once a buyer has signed the Option to Purchase, you must stop advertising your property. The buyer has 14 calendar days to decide if he/she wants to proceed or not with the transaction. If he/she does not, you will keep the option fee and you may start advertising your property again. If he/she does proceed, then the process varies depending if you are selling a private property or a HDB flat:

  • Private property: the buyer will return the OTP and pay an additional 4 or 9% (depending on the conditions defined in the OTP). Your solicitor should take it from here and liaise with your bank and the CPF board (if applicable) in order to deliver the property title to the buyer on completion date and make sure you get your money. The whole process should take from 8 to 10 weeks.

HDB flat: the buyer will return the OTP to you or your solicitor and pay an additional deposit of max $5,000 (including the option fee). Then depending on the agreed time frame, both buyer and seller should submit the Resale Application to the HDB.

What is the procedure to buy a resale HDB flat?

When you have found a resale HDB flat you want to buy, be sure to understand the resale procedures as stated below.

1) Register Intent to Buy

From 1 January 2018, resale flat buyers and sellers will need to login to the HDB Resale Portal using their SingPass, to start their buying or selling journey.

The portal will guide you through the following steps:-

  1. Register Intent to Buy
  2. Search for Suitable Flat and Get Option to Purchase (OTP)
  3. Choose Mode of Financing
  4. Submit Request for Value to HDB
  5. Submit Resale Application
  6. Acknowledge Resale Documents
  7. Pay Fees (Online Payment)
  8. Approval of Resale
  9. Completion of Resale

2) Option to Purchase (OTP)

After registering your Intent to Buy, you can proceed to look for a suitable flat within your budget and obtain an OTP from the sellers when you have agreed on a price for the flat. If you intend to get an HDB housing loan, you will need a valid HDB Loan Eligibility (HLE) letter from HDB before the sellers can grant you an OTP. If you intend to get a housing loan from a financial institution (FI), you must have a valid Letter of Offer (LO) before you exercise the OTP.

You and the sellers must use HDB’s Option to Purchase (OTP) as the form of contract in the transaction. Any other agreements and supplementary agreements relating to the sale or purchase of the flat are not valid under the Housing and Development Act.

3) Resale Application

After exercising the Option to Purchase (OTP), you and the sellers must submit your respective portions of the resale application via the HDB Resale Portal, together with the necessary documents. Salespersons can use the Estate Agent Toolkit to submit resale applications on behalf of their clients.

Upon receipt of the resale application and supporting documents, HDB will verify the information provided by the seller and yourself. You and the seller should make sure that both of you meet all the eligibility conditions and resale requirements when submitting your resale application. If the application is in order, we will notify you and the sellers of our acceptance of the application via SMS/ email. On average, it will take about 8 weeks from the date of our acceptance of the resale application, to process the application.

4) Appointment at HDB

With the streamlined resale process, buyers and sellers are required to attend only 1 resale appointment at HDB. You will need to be present for the resale completion appointment, if you have engaged HDB’s solicitor to act for you. If you have engaged your private solicitors to act for you, your solicitor representative can attend the resale completion appointment on your behalf.

5) Conditions after Buying

  1. Minimum Occupation Period (MOP)
  2. Disposal of Existing Flat
  3. Resale levy
  4. Refund of CPF Monies
  5. Further conditions for proximity housing grant
  6. Citizen top-up for grants received by sc/spr households

To find out more, read here.

What is the procedure to sell your HDB flat?

If you plan to sell your HDB flat, this is what you need to know and consider, for both your sale and the purchase of your next home.

1) Register Intent to Sell

From 1 January 2018, resale flat buyers and sellers have to log in to the HDB Resale Portal using their SingPass to start their buying or selling journey.

The portal will guide flat sellers through the following steps:

  1. Register Intent to Sell
  2. Submit Resale Application
  3. Acknowledge Resale Documents
  4. Pay Fees (Online Payment)
  5. Approval of Resale
  6. Completion of Resale

2) Option to Purchase

  1. Negotiate and agree on the resale priceYou and the buyers have to negotiate and agree on the resale price of the flat. You can make use of the Resale Flat Prices e-Service to check the resale transacted prices for the past 2 years to assist you in making an informed decision. The figures are updated daily based on HDB’s registration of the resale applications received.
  2. You can only grant an OTP to buyers at least 7 days after registering your Intent to Sell. You should use this cooling-off period wisely and consider the housing options available to you.If you decide to sell your flat, you may grant an Option to the buyers, to sell the resale flat at the agreed resale price.
  3. The Option period is 21 calendar days (including Saturdays, Sundays and Public Holidays), from the date of granting the OTP (refer to Step 2). It expires at 4pm on the 21st calendar day.If the flat buyers wish to purchase the flat, they have to exercise the Option within the Option Period. If the buyers do not wish to proceed with the purchase and exercise the OTP, you will need to wait for the Option Expiry Date to lapse. The buyers will forfeit the Option Fee previously paid in Step 2; you may keep the Option Fee.
  4. Decide when to submit the resale application

After the buyers have exercised the Option, you and the buyers have to decide on a date to submit the resale application to HDB. Both you and your buyer’s portion of the resale application must be submitted within 7 days of each other’s. Both portions must also be submitted within the previously agreed number of days on page 4 of the OTP.

3) Resale Application

After exercising the Option to Purchase (OTP), buyers and sellers must submit their respective portions of the resale application, together with the necessary documents, to HDB via the HDB Resale Portal. Salespersons can use the Estate Agent Toolkit to submit resale applications on behalf of their clients.

4) Appointment with HDB

With the streamlined resale process, buyers and sellers are required to attend only 1 resale appointment at HDB. You will need to be present for the resale completion appointment if you have engaged HDB solicitor to act for you. If you have engaged your private solicitors to act for you, your solicitor representative will attend the resale completion appointment on your behalf.

5) Temporary Extension of Stay for Sellers

You and your co-sellers need to move out of the flat after the sale of the flat is legally completed. The buyers, being the new owners of the flat, will start Minimum Occupation Period (MOP) from this legal completion date.

If you are not be able to move out immediately upon the legal completion of the sale, you can arrange with the flat buyers, to extend your stay temporarily in the flat, for a period of up to 3 months after the legal completion.

To find out more, visit here.

What is the Role of a Property Agent?

Owners wishing to sell or let their property typically engage a property agent to market their property. They advertise the property in a variety of online and offline publications and media and contact parties who have registered with them. Buyers can register with these agents and ask for details of available properties. Alternatively, a buyer can appoint their own agent to find a suitable property investment (an agent’s fee is usually payable and is often linked to the rental value or purchase price for the property).

Agents also negotiate the key terms of the transaction. Once these terms are settled between the parties, they are documented in the OTP which are then used by the parties’ legal advisors to draw up the legal documentation for the transaction.