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Singaporean Investor’s Guide to Singapore Property VS Overseas Property Investment

Property is a hot topic in Singapore and there is great fervour for home ownership in the city state. Since the government’s implementation of the Additional Buyer Stamp Duty (ABSD) and TDSR (Total Debt Servicing Ratio), transactions for Singapore property have cooled and property prices softened, driving more Singaporeans to look at overseas property investment as an alternative. 

Read on about the changes in Singapore investor behaviour and comparison between Singapore property VS overseas property investment or foreign property investment


Contents:

1. Singapore Property Cooling Measures (Residential)
2. 3 Reasons for Cooling Measures in the Singapore Property Market
3. Implications: Growing Trend of Singaporeans Investing in Overseas Property
4. Why Is Overseas Property Investment A Growing Trend?
5. Which Market Presents the Best Investment Opportunity Today? 

Singapore Property Cooling Measures (Residential)

Since 2009, the Singapore property market has been subjected to stringent cooling measures, severely curtailing profit from capital gains, cash flow and rental yield for buy-to-let investors. The cooling measures, which applies only to residential property, ranged from lowering LTV (Loan-To-Value) and raising SSD (Sellers Stamp Duty) rates, capping mortgage tenure and raising ABSD (Additional Buyer Stamp Duty) rates. To date, the Singapore government has imposed 13 cooling measures in as many years! 

The introduction and increase of the notorious ABSD, and tightening of the TDSR (Total Debt Servicing Ratio)—the latest as recent as Dec 2021—has resulted in bruising upfront payments for Singaporeans of 17%-25% of the property price for subsequent properties, with even more crippling rates for Singapore PRs and foreigners at 25%-30% and 30%, respectively. Source: Singapore Business Times
The Singapore government imposed multiple cooling measures over the last decade to control the price of property. The latest raft of cooling measures in Dec 2021 saw more changes to the Additional Buyers Stamp Duty (ADSB), reduced Total Debt Servicing Ratio (TDSR) threshold from 60% to 55% and tightened Loan-to-Value (LTV) loan limits for HDB flat purchases from 90% to 85%. Source: Singapore Business Times

The introduction and increase of the notorious ABSD, and tightening of the TDSR (Total Debt Servicing Ratio)—the latest as recent as Dec 2021—has resulted in bruising upfront payments for Singaporeans of 17%-25% of the property price for subsequent properties, with even more crippling rates for Singapore PRs and foreigners at 25%-30% and 30%, respectively.

Undeniably, Singapore has one of the highest rates of home ownership in the world, thanks to the government’s effective policies, but this has come at a ‘price’ for investors.

Top 3 Reasons for Cooling Measures in the Singapore Property Market 

  1. Low Interest Rates: Singapore’s interest rates have remained low, thus keeping mortgage rates low. Low rates means cheaper home loans, making it easier for speculators and investors to borrow at low rates for high and quick returns.
  2. Prevent Property Bubble to Protect the Market: Low interest rates and high speculation could lead to a real estate bubble. In the event of a global economic downturn, the price of property will not drop as much, and the government is able to improve liquidity within the market.
  3. Ensures & Protects Genuine Buyers: The high rates and tight payment deadline of the ABSD filters a buyer’s profile and intention. TDSR helps identify if a buyer is able to pay back the loan. As a long-term investment vehicle, the property cooling measures are aimed at protecting genuine investors while discouraging speculators. 
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Implications: Growing Trend of Singaporeans Investing in Overseas Property

Despite good interest in Singapore property, the cooling measures have reduced residential transactions, softening residential property prices as a result. There is a growing trend of Singaporeans investing in overseas property as smart investors who understand that transaction costs can affect cash flow and capital growth, start looking at better investment opportunities overseas. What this shows is that Singaporeans think it is a good idea to buy a second home abroad as you get better returns on your investment. 

This is reflected in the recorded $5.2 billion in outbound real estate investment deals in Q3 2021: a 53.9% growth compared with the $3.4 billion transacted last year (despite or probably because of Covid-19!) According to Knight Frank’s The Wealth Report 2022, released in March, the top 3 overseas investment properties for Singaporeans are UK property, USA and Australia property. Cities such as ManchesterLondon, New York, Sydney, Perth and Melbourne continue to appeal to Singaporean families as their children flock there for university on a yearly basis, and high net worth individuals look for second homes and holiday homes.

Nonetheless, Singapore property is still a good investment, evidenced by sale transactions in the past year. However, if you are looking for better returns, an oft-repeated mantra at CSI PROP is that investors should never fight the referee—a reference to barriers to investment.

Here's how property investments in these global cities have performed in the last 20 years. Despite its stratospheric gains, the Hong Kong property market is no longer fundamentally viable for investment. New Zealand property has skyrocketed but it is closed to foreign investors except Singaporeans and Australians—such severe measures show that the government is working hard to cool the market, a move that will hamper future capital growth, similar to what has happened to the Singapore market. We advocate caution: don’t invest in New Zealand just because you can, or because of a fear of missing out. Source: CSIPROPResearch, Abelson & Chung, Australian Bureau of Statistics, Bank for International Settlements, Destatis, HM Land Registry, Malaysia National Property Information Centre, Quotable Value Ltd, Reserve Bank of New Zealand, HK Rating and Valuation Department, Singapore Urban Redevelopment Agency, US Federal Housing Finance Agency
Here’s how property investments in these global cities have performed in the last 20 years. Despite its stratospheric gains, the Hong Kong property market is no longer fundamentally viable for investment. New Zealand property has skyrocketed but it is closed to foreign investors except Singaporeans and Australians—such severe measures show that the government is working hard to cool the market, a move that will hamper future capital growth, similar to what has happened to the Singapore market. We advocate caution: don’t invest in New Zealand just because you can, or because of a fear of missing out. Source: CSIPROPResearch, Abelson & Chung, Australian Bureau of Statistics, Bank for International Settlements, Destatis, HM Land Registry, Malaysia National Property Information Centre, Quotable Value Ltd, Reserve Bank of New Zealand, HK Rating and Valuation Department, Singapore Urban Redevelopment Agency, US Federal Housing Finance Agency

Why Is Overseas Property Investment A Growing Trend?

  1. Lower down payment: Do you know that the ABSD paid on your subsequent Singapore properties can cover the full property price or down payment of an overseas property (depending on country and location)?
  2. Higher capital growth and rental returns and positive cash flow: if you invest in the right area, with lower duties and taxes and the right investment conditions. CSI PROP’s G.O.L.D.M.I.N.E. Strategy © and S.A.F.E.T.Y. 1st Criteria © have been an exceedingly helpful guide for our community members and is applicable to any property market.
  3. Hedge against your children’s education: the returns from your overseas property investment can help pay for your children’s education and/or serve as their lodging while studying abroad! 


PRO TIP: An area undergoing urban renewal is beneficial to landlords. Here’s a quick video:

Which Market Presents the Best Investment Opportunity Today? 

Housing supply and residential vacancy rates help identify capital and rental growth potential in an area. An undersupply ensures there is runway for capital and rental growth, whilst vacancy rates show the measure of properties potentially available for rent. The lower the number of vacant properties, the higher the demand and capital and rental growth.

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The lower your entry cost, the higher your returns. Stamp duty is an often overlooked expense that can jack up your entry cost and set you back for years. Some countries impose a surcharge on foreign buyers and/or investment properties (ie, second & subsequent properties), thus increasing the overall stamp duty cost. It might make more sense to buy 2 properties in a country that imposes lower stamp duties, for the price of 1 in a country with high stamp duties, to double your ROI! Singapore’s stamp duty charges of up to 30% a subsequent property purchase, is a significant upfront cost. With a down payment of 15% – 20%, this could work up to a hefty 50% just for one property. A good option would be to invest in property in, for example, the UK, where stamp duties for foreign investors is at about 5% for a property worth £500K. You could essentially buy 2 properties in the UK for the price of 1 in Singapore and increase your ROI.

An illustration of the increase in ROI with financing vs paying for your property in cash. Note assumptions. Credit: CSI PROP
An illustration of the increase in ROI with financing vs paying for your property in cash. Note assumptions. Credit: CSI PROP

Financing is an advantage. If you buy an investment property at the right price and finance it correctly, it can create cash flow for you almost immediately. Lenders typically charge more for investment property than they do for a primary residence. When investing in foreign property, consider the LTV offered by lenders in that particular country. The higher the LTV, the better your cash flow. 

UK property is the top location for property investment for Singaporeans because of the potential returns offered and low barrier to entry. It is important, however, to find the right area for investment to maximise returns.

Many factors contribute to ensuring you get the best returns. To guide your property investment decision, ask us about our G.O.L.D.M.I.N.E. Strategy © and S.A.F.E.T.Y. 1st Criteria ©. Source: SQM Research (AU), Department for Levelling Up, Housing and Communities and Ministry of Housing, Communities & Local Government (GB), Rating and Valuation Department (HK), Urban Redevelopment Authority (SG). Vacancy rates as of 2020 (except NZ as of 2018), CSI PROP Research, HomeTrack, CEIC, Corelogic. Note: As of Nov 2020.
Many factors contribute to ensuring you get the best returns. To guide your property investment decision, ask us about our G.O.L.D.M.I.N.E. Strategy © and S.A.F.E.T.Y. 1st Criteria ©. Source: SQM Research (AU), Department for Levelling Up, Housing and Communities and Ministry of Housing, Communities & Local Government (GB), Rating and Valuation Department (HK), Urban Redevelopment Authority (SG), CBRE-WTW Real Estate Market Outlook 2019 (MY). Vacancy rates as of 2020 (except NZ as of 2018), CSI PROP Research, HomeTrack, CEIC, Corelogic. Information accurate at time of creation, but may change subject to policies.

Ask us more about our G.O.L.D.M.I.N.E. Strategy © and S.A.F.E.T.Y. 1st Criteria © to invest safely and profit, or join our upcoming webinar to learn from actual case studies and ROI  this 23rd July! Click HERE to register. 

By Vivienne Pal

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