A random thought led to this random article. Though I am well aware that I cannot afford to purchase a second property at this point in time, I still decided to do my research out of curiosity to see if I can afford to be the home owner of a second property.
One cannot only look at the mere figures for property purchase decision, he must also consider the qualitative factors before making a commitment. For the numbers and cost calculation, please refer to my blog post on How much does it cost to buy a 2nd property in Singapore.
1. Intention with the Second Property
If the second property is solely for investment, you have to consider the kind of tenants you are targeting. This will impact your decision on the property location and size. For example, if you are targeting expats, then the location will ideally be located near office areas and property size should relatively small. Also do read an article published by Edgeprop on how Condo sizes impact rental yields. Insightful data on what size and location you can target should you wish to purchase a condo for investment. Also review the URA Masterplan to view the upcoming developments in the vicinity as they can have a direct effect on the rental yield. The land is reviewed every 5 to 10 years. In Singapore, key focus will be on development of housing nearby, transport, commercial spaces and educational institutions. I have found an article by moneysmart which explains how to use the URA Masterplan in a succinct manner, please read here for more.
2. Ensure Sufficient Cash flow (can you afford to maintain)
It is risky to depend on the housing tenants to make money from rentals. There is a concern of what if you are unable to find tenants to rent out the unit or what if the rental yield drops. Can you still keep up with the mortgage payments? or what if you lost your job or had to take a pay cut?
Taking into account the hidden costs such as agent commission for finding tenants (usually 1 month), rent free fitting out period (2 weeks to 1 month), upkeep cost, property tax and home insurance premiums.
According to the IRAS website, property tax for non-owner occupied residential properties can range from 10% to 20%.
3. Consider Resale Value
This is something that I did not consider when we bought our first property. As you know by now, the lease period for HDB is 99 years. With a finite lease time period, it means that the value of HDB will decay over time. Which is why some savvy investors who have the means will purchase a freehold property to retain their property value. For the rest of us, we don’t have much of a choice but to live with it. After all, we are much luckier than citizens of other countries where the property priced too high, pushing them out of home ownership.
For my case, I bought a resale flat which TOP about 20 years ago. Plus point is older flats are bigger and nearer to MRT station, con is the remaining lease being less than 79 years implying that our HDB flat may not fetch a good resale price. However, there are a few things that homeowner can do to ensure that their flat sells for a good price.
Also the Singapore Government has come up with housing policies to help mitigate the problem such as Selective En Bloc Redevelopment Scheme (SERS), Voluntary Early Redevelopment Scheme (VERS) and the Home Improvement Scheme (HIP).
The government earmarks an older HDB precinct for redevelopment. According to the HDB website, you will get the opportunity to move to a new home with a new 99 year lease and continue living close to your current neighbours. SERS flat owners will also be given a package comprising compensation and rehousing benefits.
Owners in flats aged 70 years or older can vote for the government to buy back their homes before their leases run out, if their precinct is selected for VERS.
They can use the proceeds to buy a new flat, while the government redevelops the precinct. If they vote against such a move, they can continue to live in their flat till the leases run out.
Helps to resolve common maintenance problems of ageing flats. Essential improvements are fully paid for by the government. Optional improvements and Enhancement for Active Seniors (EASE) are heavily subsidised (up to 95%). Full payment can be made using CPF and in monthly installments.
Source: HDB, Straits Times