When looking for the best way to make money in Singapore, property investment should be top on your list. However, it is a risky market that is full of nuances and legalities. Do not worry! With the right advice and great ideas, you will be on your way to building the best portfolio. So, how should you start?
First, learn the basics
Learn the basics surrounding the pricing – the basic cost of buying a property will determine the entry price point. On average, prices per every square foot lie at $2,500 and such properties can yield around 2.83%. But this may differ if you are looking at resale HDB price.
The rental yield is an important consideration as it forms a major part of the investment’s returns. A property with higher rental yield will have greater value in the long term. Even though the average price per square meter provides you with an idea of the amount to pay for a property, it does not mean that you must pay the amount for your next property. Also, it does not mean that you will get the percentage profit.
You should also know that property prices are always changing in Singapore.The current metrics have placed the prices of average investments at -3.67% in one year. That sounds bad but considering the mid-term future, your investment will generally increase by 1.72%. You can choose to wait for five more years and if your property is in the right condition, the value will increase by over 67.57% – that is the best time to consider a sale.
The URA price index shows a steadier decline in prices since the year 2013. That means that getting a sale in the developing market can be hard. However, Singapore has more pro-landlord votes. There are no specifics; therefore, your contract will determine the tenant-landlord relationship.
Know how property ownership works in Singapore
Forget about your powers as the property owner. Ownership in Singapore is manifold in definition and meaning. Freehold means that the owner has permanent rights to residence, while leasehold will make you the owner for a limited period – the lease period. Learning the difference is important even before you start thinking about buying a property.
Learn about the tax system
Talking about taxes, Singapore is among the attractive countries for financial investments from individuals and foreign entities.
Progressive taxes on annual value of a residential property highly depend on whether the owner is living on it or not. When living on the property, the owner expects an addition 4% and every property will cost an additional 10% tax rate for the non-Singaporeans. After that, the tax changes depending on the increase in property value. The government exempts rental properties, industrial properties, and commercial properties – they all get a 10% flat rate.
Know the location
Where should you invest? It might be the final but an important question. Singapore is a small country, and the value of properties highly varies depending on the location. The HDB apartment, a state-sponsored subsidized housing program, is the primary form of housing in the country and most Singaporeans utilize it. The four known neighbourhoods with the most expensive housings in Singapore are Tao Payoh; Bishan; Queenstown and East Coast considering each of them ooze a sense of centralization. You can find out more from here.
Although the rental yield remains at one of the lowest levels in a decade, there are still a handful of properties that offer a handsome rental yield. These kind of properties are mostly 99-year leasehold and located in the mass market districts, where capital values are lower. A research done by SquareFoot will give you a better sense of it.
The best property investment depends on your particular circumstances and your objectives. You may want to sell the property after a five-year period or keep it as a rental property or keep it for the coming generation.
Consider the types of property investment in Singapore
Individuals and companies can opt for residential, office and industrial properties. However, you should understand the nature of the three types of properties in Singapore considering that you will be making a long-term investment.
– Residential properties
The housing type differentiates residential properties in the country – you can choose either a landed or a non-landed property. The non-landed properties include the HDB flats, condominiums, and apartments. On the other hand, non-landed properties include semi-detached, bungalows, strata and terrace landed housing.
Singapore has efficiently optimized space through great urban planning. Around 82% of the country population lives in the public housing, this is under the management of Housing and Development Board.
The housing options are situated in areas with schools, hospitals, supermarkets, recreation and sports centers. Studies show that the number of flats in Singapore will have increased to around 1.4 million by the year 2018. If the estimates are correct, that will be an 11% increase.
– Industrial properties
Singapore is a business center within Asia. Therefore, the government caters for all enterprises regardless of the size. What’s more, Singapore has a healthier market for leasing industrial properties. Commitments and renewals of companies that aim to expand their business contribute highly to the growth of industrial properties.
Companies will mostly buy commercial properties for warehouses, manufacturing, workshops, and storage and business parks. A large percentage of industrial properties have a 30-60 years lease period. Even though it is rare, some have a 99-year freehold or lease.
Industrial properties are categorized depending on the use. Therefore, they are properties intended for industry, utilities, warehouse and telecommunication usage. The available property includes Business 1 (B1), which represent industries with nuisance buffer below 50m.
The other is Business 2 (B2), which represents industries with nuisance buffer over 50m and in the health and safety buffers. Some special industries like industrial machinery manufacture, repairing and shipbuilding are approved on an individual by the relevant authorities. Business Park is the third type. It involves the non-pollutant businesses engaging in research and development, high technology, high value-added activities and knowledge-intensive activities. They include science parks and business parks.
– Commercial properties
Commercial properties are more promising in the country, particularly due to the ever-increasing businesses. The primary difference between commercial properties and industrial properties is that commercial properties do not cause any disturbances to the bordering environment. That might include loud noises, air pollution and safety hazards.
Some commercial developments examples in the country include shop houses, and office blocks. The others include development buildings, residential buildings, and mixed commercial buildings, which feature shops on the first floor.
The government labels locations as Grade A or Grade B. in most parts of Singapore, the occupancy rate is more than 80% – that applies to premiums, Grade A and Grade B locations. Office properties rental yield in the country increased with around 6.1%, in the year 2014. By the end of the year, yield of properties on Grade A locations was $11.9 per square foot per month in the New Downtown Area. The cheapest rent in Grade B locations was $4.38 per every square meter per month.
With the numerous restrictions governing the sale of residential properties and HDB property ownership, Singaporeans are excluded from the market. Industrial properties are a better alternative because the ABSD rules do not apply. If you opt for an industrial property, you should use it for the activities that the government classifies as industrial – such as warehousing or manufacturing.
The main problem is that many Singaporeans do not know what rental yields are and are not familiar with industrial projects. What’s more, you will face problems when renting a warehouse in Tuas. That is contrary to what you expect with a condo. Rental yields for industrial properties are higher than the residential property rental yields.