Last month, Deborah Law wrote about buying landed properties and the restrictions that apply to foreigners living in Singapore. This month, she outlines the purchasing process itself.
The first step is to make sure your finances are in order. Speak to a financial advisor, decide how much you want to invest, and obtain basic approval for a mortgage from a bank. Government regulations set the maximum Loan to Value (LTV) at 80 percent, so you need to come up with the remaining 20 percent. Be aware of all the costs.
Get yourself a competent and reputable real estate agent – just one: they all have access to the same property data. The seller pays the agent’s commission of 2 percent. Decide on your wants and needs: size, location, price.
What and Where?
Freehold (FH) properties are yours for an indeterminate length of time and generally have better resale value. Leasehold (LH) property, whether on 99- or 999-year lease is generally cheaper, therefore producing a higher yield if rented out – there is no difference in rental values. The prime Districts 9, 10 and 11 command the highest rents, especially if the property is near to an MRT station and has good amenities. LH properties may rise faster in a boom, but also fall faster in a falling market. Look at how many years are left on the lease: Central Provident Fund savings cannot be used to repay a lease of less than 60 years, so the purchase pool shrinks and banks give lower valuations.
Location really is the most important consideration. You may not mind living in a noisy commercial area or a quiet but isolated spot, but when you want to sell, your potential buyers will.
You might not care a hoot about feng shui, but an auspicious number 8 on your door would attract more interest and demand and possibly a higher resale price than a number 4! Likewise, a strangely shaped plot or one that faces a T-junction (obstructing good flow into your life) is considered bad feng shui.
If you are looking to rebuild, check on the height restrictions for the area and check street block plans on the master plan. You can find these on the URA website. Pay attention to the property’s state of repair. Property sales here are not subject to the report of a structural engineer. If asked, however, sellers are legally obliged to reveal any structural issues, leaks and so on that they are aware of.
Once you find a property, your agent will make some checks, such as verifying the square footage and confirming that the seller is indeed the owner. For a condo, he or she should check whether monthly maintenance fees are being well managed by a good committee, that there is an adequate “sinking fund” for maintenance and renovation of the common property, and whether there are upgrading plans whose costs you may have to contribute to. If the other owners are not willing to invest in necessary maintenance and improvements, this will affect your unit’s resale value. Larger condos tend to have cheaper monthly maintenance fees than smaller ones.
Get at least three bank valuations as these can vary; especially for landed property, which is more heterogeneous and has fewer sales data. The bank does an on-site valuation only after you’ve paid the Option Fee. In Singapore, it is not unusual to pay more for a property than its bank valuation.
Once the price is agreed upon, the buyer may ask his or her agent or lawyer to draw up an Offer to Purchase, clarifying price, terms and conditions, but this is optional.
The seller will grant an Option (by signing an Option to Purchase (OTP) form drawn up by a lawyer or property agent) to the buyer to purchase the property at the agreed price. In exchange, the buyer pays the seller an option fee of 1 percent. The seller’s offer is for a stated period of 14 days, allowing the buyer time to think over the intended purchase and firm up the financing.
The buyer then signs the OTP, and his or her lawyer passes it to the seller’s lawyer, along with an Option Exercise Fee of between 4 and 9 percent. If the buyer decides against purchasing the property, it lapses on the date of expiry and he or she forfeits the option fee to the seller. Stamp Duty, about 3 percent of the sale price, is paid by the buyer upon signing the OTP; this then becomes known as the Sales and Purchase (S&P) agreement.
Completion takes from eight to ten weeks; the date can be slightly flexible. During this period, the buyer’s lawyer liaises with the financial institutions if necessary, and completes various legal requirements such as seeing that property taxes have been paid and checking for any road or MRT-building proposals, or fines owed to the authorities.
If the property is bought with tenancy, obtain a copy of the Tenancy Agreement and Inventory List. Most TAs of this type include the clause “sold subject to tenancy”. Upon completion, any security deposit held by the seller is transferred to the buyer (the new landlord), who now receives any rental paid. The tenant might be willing to move out earlier in return for compensation.
Clarify with the seller which fixtures and fittings will be left behind. Beautiful antique wooden doors have been swapped for ordinary doors, and the same has happened to high-quality light fittings, antique fans, water features and so on. If you wish, you can include in the OTP a request for a final viewing before completion, in order to check the furniture and fittings.
On completion date, the keys are handed over by the seller’s lawyer and all monies outstanding are settled by the buyer’s lawyer. All maintenance fees, property taxes and so on take effect from the date of completion.