Is owning a second property in Singapore worth the cost?

owning a second property. It's especially appealing to couples, for example, who can choose to take advantage of two income streams and turn it into another income generator by owning two properties, right? But decoupling has also become a bit of a hot button issue, especially with the new A BS D. That's the additional buyer stamp duty and that was announced in April of 20% for Singaporeans buying a second property. Now, some of you might be wondering

what's decoupling. We'll get into that later. Trust me. So is two truly better than one, what should we consider before taking the plunge? And should we start thinking of a second property as a form of inheritance for kids. Let's take a look at some of our options. Now with Clive Cheng of Red Brick Advisory. Thank you for joining us on the Money Talks podcast. Clive, thank you for having me. So, Clive in your line of work. How many people have you encountered owning a

second property? Actually quite a few out of 10 inquiries. And with, I mean, private property owners, maybe you get 30 40% of them. Wow. Yeah, thinking about owning a second property. So whenever someone has a cash or they've gotten a windfall from, from their work through bonuses, I mean, the immediate thing they always think about is I want to own a

second property and be a land. Yeah, exactly. Ok. So what then become their biggest financial concerns when they are considering buying that second property, it's always a matter of getting the proper financing and trying to avoid as much tax as possible, you know, trying to make the purchase

as streamlined as possible. So when we're talking about buying a second property in Singapore today, obviously additional buyer stamp duty becomes a large topic because like you mentioned earlier, it was revised to 20%. So if you're purchasing a million dollar property and you have to pay $200,000 of additional buyer stamp

duty that really burns a hole in your pocket. So couples are always thinking of ways to try to make their purchases more efficient and that's when you mentioned, rightly where this thing called decoupling comes into the picture. Perhaps, let me explain a little bit more about that. So, decoupling is a process where for example, husband and wife owns a private property and now they want to own another one. So the husband purchases over the wife's share, right?

Or vice versa, leaving the wife property less. Right? So now that you don't own a property, you purchase your own private property, you won't have to pay for additional buyer stamp duty. Right? Yeah. So if you are Singaporean citizen and you're buying your first property, there's no additional buyer stamp duty. Ok. And do they tend to be married? Couples do singles do this or I guess, parent and child? Yeah, it can be in any form of configuration most commonly they usually

husband and wife. Yeah. But yeah, I've seen quite a few cases as well where it's a parent and a child or even between two friends, there are no restrictions to who can be couple. Ok. Before anything else, I believe there are questions that we need to ask ourselves as usual as part of our homework. When considering buying a second property, I think it's best to think about it in three ways. Ok. Intent and eligibility. So let's talk about the first one

and arguably it's the most important affordability, right? What aspects of our financial health do we need to look at to determine if we can in fact, afford a second home basically also what should our financial threshold be, for example. So mes and the banks have put in regulations to

prevent someone from over leveraging. Now on the topic of affordability commitments are usually the biggest thing that we think about, right, how much you spend on your credit cards, whether you own a car or multiple cars, whether you have personal loans, all these commitments greatly impact the amount of loan you can actually obtain from the banks when you're looking to

purchase a property. So affordability, if you're looking to purchase a property, you would want to always make sure that you keep your commitments to, you know, a low, right? Make sure that in check, make sure there are no late payments. You don't default on any, any payments because that's what you mean by low, not necessarily volume but just making sure you pay your bills

on time. Yeah, I mean volume does come into play as well because if I have a car and the monthly installments on the car is like $3000 a month, that is going to substantially bring down your loan eligibility, right? And if you also make late payments that would show up. So whenever the banks determine your loan eligibility, they would always run a credit bureau search that basically gives an

indication to the bank of your repayment history. So if you've been late on certain credit cards for like 30 or 60 days doesn't look too good. And because of that, they may impose some stricter conditions, like, instead of being able to grant you the maximum of 75% loan, they probably say I grant you 60%. What about thinking about time frames? I mean, I don't want to be servicing a home loan well into my seventies and my eighties as well. Right.

Isn't that something to consider as well? Yeah. Well, the cap today, I mean, if you're an investor, you would actually think a little bit differently. You won't mind serving the loan until you like at the age of 75 for example, and here's why. So when someone buys a property today, the banks would always grant you a loan tenure up to the age of 65. So for example, if I'm 50 years old, I'll get a 15 year loan tenure, right?

Some people get even imagine I'm 60 years old, for example, extreme case, my loan tenant is five years and because the loan tenant is five years, my monthly installments tend to be quite high, right? And that eats a lot into my cash flow. So some people will be like, hey, Clive, I actually want to get a longer loan tenant, you know, because if I can extend my loan tenant by 10 years from 5 to 15 years, the commitments drop by more than 50% and it doesn't

hurt your cash flow. Yeah, so it's better for me because the cash that I save can potentially be reinvested into something that gives me a better return. Exactly right. So, so there are a lot of considerations when you know, deciding on how much loan you want to take, how much CPF you want to use, how long of a loan tenure you would like to take really depends on

the requirements at that point of time. But the good thing is that, you know, you get to review your mortgage portfolio every two or three years, it's necessary and you can always make some changes along the way in terms of like your loan tenure. Or if you're looking to make a lump sum repayment, you can actually basically refinance the mortgage. You have a lot of flexibility when you refinance your mortgage. Ok? So there are also certain laws and regulations that we need to consider when

working out affordability. Of course, I'm going to bring into the picture. Now, the new A BS D and we have to think about that in mind. There's something in there about the A BS D involved in the transference of property into a living trust, ok? You need to average man this out for me like, ok, so now let me start off by saying, ok, recently the government has introduced this thing called an A BS

D trust. So if you're buying a trust, a property under trust, you would have to pay for the additional buyer of 35%. It's 35% now. So let's rewind this a little bit if I don't want to have to pay for additional buyer stamp duty. When I, you know, buy multiple properties, one of the ways of acquiring properties is through my sons and my daughters. Of course, being of legal adult age, you don't have to be, you don't necessarily, I can even set up a trust for my kid who is

three years old. Oh, wow. Ok. Now, here's the thing when you buy a property under trust for someone who is a minor. Uh, the property, number one, you can't take a loan on the property. The property has to be fully paid for in cash. Ok, let's assume a property purchase price of a million dollars. So you buy a million dollars in cash. On top of that, the government will charge you 35% additional buyer stamp duty. Now, is there a way to get this 35% back? Yes,

that a win. Now, why is there even a 35% additional? Let's, let's talk about that for a moment. Everyone likes to find loopholes when it comes to investing in the property market. Absolutely. And in the past, there have been people who have bought properties under the kids name under trust and when the property has appreciated in its value, they sell off the property

when it's actually meant for the kid. So they purchase a property for an investment under the disguise that I would like to buy this for my kid in future. And that's perfectly legal in the past. So of course, it's going to be a problem because, you know, you get a lot of rich Singaporeans or even pr or foreigners buying, stepping up properties because they have a lot of cash and then just flipping it when the time is right. So now this the government because of this

has imposed this 35%. Ok. If you want to do this, you pay an additional, I mean, if you can afford a million dollars in cash, you can't afford another 350 K. Yeah, you might be right. But I mean when it comes to that level, you know, do you think it's been effective though? It has so, so paying another 35% and we're not talking about, you know, a million dollar purchase, usually the purchases tend to be a bit larger of 234 million number paying 35% of that is going to

be painful, right? So they've put in place this additional bias and duty, but there is a way of getting it back provided that you fulfill certain requirements, right? So the requirements for example would be, oh, ok, you cannot sell the property, you cannot be the one selling of the property, the property has to be left for your kid, right? You cannot make and you cannot put it any additional clauses saying that, ok, I still have the power to sell away the property, for example, because it

is technically not yours. Yeah, exactly. So I won't go into the real technical details. I think that can be found online as well. But there are certain requirements have been set up to ensure that in the bid to ensure that you are just legitimately buying this property and leaving it for your kid and not any other funny business, but you can prove that that's the case. You will get your 35% back. Wow, talk to us also about the taxes involved and using

CPF for your second property. Yeah. Ok, great. So now assuming that I intend to hold the first property and continue to purchase the second property. So it's a second property that I'm going to own under my own name. Now, number one, if I have an existing mortgage on property, number one, and now I'm looking to get a mortgage on property. Number two, the maximum loan the banks will grant me is only 45% right? So we have to take note of that. Whereas when you buy a first property, you

can get a maximum loan of 75%. So that's additional cash that you have to come up with. That's number one, number two, if I intend to use CPF on the second property and I have already used CPF on the first property. That's a limitation as to how much CPF I can actually use. Right. I have to set aside to make sure that I have the basic retirement sum. That's right in the O A and the A combined and anything in excess of that I can then deploy in my

second property because it's technically seen as an investment. You would do the same with your investment money, right? In your CPF. Ok. Ok. So when it comes to buying a second property, you would realize because of the lower loan to valuation and the lower amount of CPF usage, you tend to have to come up with a lot of cash adding on to that. Besides your regular buyer stamp duty, you would have to pay for additional buyer, stamp duty as well. 20% if you are a Singapore

and it gets higher if you are apr Oh yeah, definitely. 20% is like the already in the second property. Yeah. So you would have to fork out quite a fair bit of cash you realize on the second property itself, right? So, and that's the reason why, you know, people are embarking on if they have an opportunity to decouple on the, on the right? Ok. That makes a whole lot of sense. Yeah. But if you are a single owner and you're looking

to purchase the second one, I'm sorry. I mean, those are the options either if you, if you're looking to you know, leverage at the maximum loan because sometimes if I own a condo under my sole name and let's say I've been owning it for a few years now, my outstanding loan might have come down quite a fair bit. Right. I may consider just paying off the loan on my first property. So that on property number two, I can leverage at 75%. Got it. Yeah, that's a smart move.

So another financial assessment that we need to think about is thresholds because I mean property here is notoriously expensive and all those really strict rules and regulations and limitations that you were just talking about. So second homes are not always attainable to many of us. So what should our financial threshold be in the first place? Ok, so let's talk about eligibility, right? Whenever you purchase a property, let's talk about a private property, you immediately get subjected

to this thing called the total debt servicing ratio. Sr right, simply put it, your total commitments cannot exceed 55% of your total income. So for instance, if I'm earning $10,000 a month, my entire liabilities including the property or whatever car loans or personal loans, I have cannot exceed $5500. Right? So if I'm looking to buy a second property and I already have an existing mortgage that eats into my 55% of course, and let's say I only have

$1000 left, right. To be able to obtain a mortgage. I would realize that I actually can't borrow much from

the bank. Yeah, a lot. Yeah. So either I have a lot of cash, you know, to throw into the property or because of my loan is small or I embark of maybe purchasing commercial properties instead because commercial properties, the regulations are a little bit different as compared to residential properties, you still can get 70 or 75% loan if you own a residential property and you're looking to buy a commercial property and commercial properties doesn't come with

additional buyer stamp duty. Yeah, so that's usually when you have an investor who has maximized their residential portfolio, then you would realize they start moving into the commercial space. Ok. So that brings us to our next consideration intent. So what questions do we need to ask ourselves with regard to the purpose, the objective, the goal of buying a second property is passive income. The only reason worth doing it. Well, that's usually the first thing that people think about, but

we always have to remember. Yes, you are a landlord. Your tenant is paying you, but you have to make your monthly mortgage payments. So if your monthly mortgage payments are $5000 and your tenant is paying you 5005, your passive income is $500 every month. And, and that is, and we haven't also considered property taxes, maintenance fees, for example. So you might end up with a negative cash flow even though you're a landlord. So that's not the only thing that one would consider

when purchasing a second property to get passive income. We are also looking at capital appreciation, right? You buy a property now or you buy a property when it's new after five years, most probably the property is appreciated in its value. And then you sell and then you realize the returns after that and if you get a positive cash flow on your tenancy, great, right. Good for you.

That's a bonus, but you're not just going to ride off how much you're getting in terms of your, your rental and just bank on that in making an investment decision, you always want a greater upside. So that's the other upside, you know, capital appreciation. And I mean, if you're owning a property in Singapore, chances are the property would retain its value. You wouldn't

see property prices just come crashing down. So to many people that is like a safe bet, you know, uh as compared to putting my money into the equities market and you know, the Cryptocurrency market. So, so that's a different thing altogether. But yeah, I think that's the consideration, the intent cannot just be purely ok. I just want to get passive income, but you're thinking longer term, fine. Five years, seven years. What are you gonna do with that? As if I'm going to dispose of that asset how

much am I going to get in return? Right. And if you analyze it, am I getting 2 3% per annum or am I able to get 6 7%? Because if I'm only gonna get 2 3% I may be better off also trying to diversify and put my money into different. Exactly. I mean, from what you're saying, it really feels as if we need to look at it as we look at any portfolio asset in there.

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at the reporting front lines. So if you want to know how the biggest global stories unfold, make sure you follow or subscribe to us wherever you get your podcasts. Ok. So here's what I understand. Some people say that you can afford to and want to leave your child with an inheritance. It's best to buy a second home now, while prices are relatively within reach, what do we need to know before we secure property for our Children? We touched on this briefly from the trust point of view.

What what else do we need to think about? I think at the end of the day you must have a will set up. Yeah. I mean, that's important because if I purchase a second property and I'm not buying it under the trust because I'm not rich enough to buy a property fully in cash. And I buy a second property today. If I'm going to leave it for my kids. Number one, I need to make sure

that I have a w will set up. Oh, yeah, yeah, because if I don't have a will then, you know, the it it gets distributed to people who I may not have the intent to, you know, in the first place, have them have the property, so have a will set up most importantly as well. I think get insurance if you buy a second property and you know, halfway through you, you meet up with a life changing accident or worst case scenario, you no longer on the face of the planet,

what's going to happen to the mortgage, right? If, if your kid inherits the property with the mortgage, you know, that's going to be an issue as well. So a lot of people tend to forget this and I've seen many cases like that too where, you know, owners buy a second property with the intent to, you know, oh, you know, when my kids grow older, they can eventually, I will eventually give them the property, have them transfer under the name if they want to

sell it. But sometimes sad cases, I've seen them quite a few where the main sole breadwinner passes on. Right, the property gets down to, for example, like the spouse in this instance, for example, but the spouse is not working and there's a mortgage on the property, there is no insurance. So the wife is left burden in this case with a second property. I mean, of course, you know,

you can sell it off. But in the meantime, if you fail to meet the payment, I mean, the mortgage is still running and that you don't sell a house overnight. Exactly. So if you want to think of inheritance, you've probably got that thing holistically, get a will set up and ensure that you have insurance, right? So all these things are not like, oh, buying a property,

real estate, we just talk about real estate. You really have to think about the whole picture when you're planning for the, you know, if you're living a property to your kids. No, that, that's fantastic advice. It's very easy to get caught up in the moment of, oh, hey, ok, here's my windfall. I'm going to go and invest in this second piece of property. Let's go buy one and then you don't think about the longer term impact of what that's going to be

like when you pass it on. What kind of property specifically should we be looking at for investment versus a second home to love and to have a child. I think it's really different kind of requirements because if you're looking at purchasing a home you need to look at. Oh, do I like the view? Do you like my neighbors? Do you like the community? Yeah. Is the development, you know, like some developments, a

lot of experts are attracted to certain developments. Oh, and I like that feel, you know, is it convenient to the bus stops and the M RT stations? But when you're buying a property for investment, primarily, you're just looking at the numbers as well. Is it easy to rent out? How many rentals are there in a year if I lose my tenant today? How fast am I able to find another tenant for the replacement rate? Is it going to be?

Of course, you know, if you're, if you're near an M RT or good because, you know, if you sell it, chances are you sell it at a slightly nicer price, but the considerations are quite different. You're primarily looking at the numbers right to decide whether you would move into that particular development or not, whether it's ability to basically appreciate in capital. Whereas like I said, if you're buying a home, you may just like it, but 10 years

down the road, you may not make a lot of money. Yeah. Yeah, I mean, I think if you're going in with the objective of living there, then it shouldn't bother you too much Well, Singaporeans, when we always ask this question, we are too pragmatic for, oh, you buy your own home? Yes. But I also like to have it as a good investment. You cannot have your cake and eat it all the time. I mean, are there properties like that that meet the requirements of you calling it a home and also having, having it

a good investment? I mean, there are some properties like that as well. But yeah, generally if you're looking like an investment property, um chances are, you know, unless the requirements coincide with that property then great. But otherwise the requirements are the properties you're gonna get are quite different. Sure. Sure. Ok. Right. So if the second property is then a piece of investment purely versus the second home, should we think about an exit plan? You talked about

this in terms of asset disposal, right? So what should this exit plan look like? Yes, it's an important point that you just brought up a lot of people purchase a property not knowing when to exit, right. They may have like a vague plan like, ok, I think, but they always say, ok, client, whenever it hits this value,

I just sell it right? So simple. But thinking we have to think deeper than that, we have to come up with our cash flow as well because now along the way, let's say you buy a property and the kind of rental that you're getting is not fantastic. And interest rates right now in the market are quite high, you have to fork out quite a bit of cash. So all these are expenses, right? And if you sell the property five years later at a certain price, let's say at a 10% gain, 20% gain.

If you do the math, you may not get a lot of returns at the end of the day. Right? So it's important to at the get go plan. Ok, if I buy this property, have my cash flow ready, what kind of expected rental am I going to get? Yes. What is my maintenance fee? What is my property taxes? Especially property taxes? You know, because they're going to basically what your outflow is exactly. Consider all your outflows, factor them into part

of the expenses and then you plan. Ok, if I exit after five years, what is a realistic amount I can sell my property yet? Based on current trends. So, ok, let's do a two or three or maybe 4% appreciation per year and we sell it after five years at this price. Work the numbers out plan ahead and say, ok, if I sell it at this price, what kind of returns am I gonna get? A lot of people fail to do this? Everyone is just drawn into the hype of. Oh,

it's a new launch. Sure. Make money. Yeah, exactly. My first, my first because one is buying I can't get a queue number. I better just four more, four more, four more, but not all new launches do well. Right. As we've seen in the headlines and you may not at the end of the day, make money from, from this investment if you haven't really done the numbers. No, you're absolutely right. You're

hitting the nail on the head right there. So we talked about decoupling earlier and I loved your explanation of decoupling. So now I read that a factor to consider when it comes to decoupling. And of course, before you go ahead and buy the second property is the type of holding or the type of tenancy. Ok. Help me understand this. Ok. So we call this the manner of holding. Now, basically, let's say you're buying a property with your spouse or a friend. Ok. So two, at least two parties involved,

you can buy the property under two different ways. You can buy it under joint tenancy or you can buy it under this thing called the tenancy in common. Ok? So now let's assume me and my wife, we purchase a property and we hold it in joint tenancies. So joint tenancy just means we own equal shares. Now, the deeper meaning behind the joint tenancy is if I pass away my shares automatically go to my wife, right? She inherits the property. It's a rule of survivorship.

Now, there is another way of holding it, which is in tenancy in common and tenancy in common allows us to alter the percentage that we hold in the property. Can it still be 50 50? Of course, it can, so I can hold the property in a tenancy in common. 50% with my wife and 50% myself. And what happens if I pass away if I pass away my stress get distributed according to my will, it, it doesn't automatically go to right now. That's one thing.

The second thing that usually people talk about when it comes to manner of holding more commonly heard as 99 1 this term. What is this entire 99 demystify this for me, please? Ok. So here it goes, I own the property with my wife in equal shares. The property is worth a million dollars today. Now I want to perform a decoupling where I buy my wife's share so that my wife can buy another property and being the first property that she doesn't have to pay

for an additional buyer. That that's my intent. So now I buy over my wife's share. My wife owns 50% of the share. So that's 500 K, right? I have to pay for buyers stamp duty on 500 K. Ok. So what's the other scenario if I own the property in 99%? And my wife owns 1% I buy over my wife's share. 1% of a million dollars is $10,000. Much more affordable than 500,000. When I buy that $10,000 I'll pay buyer stamp duty

on $10,000 which is $100. That's genius as compared to paying bias MDT on that 500 K, which is like 9006. So I save some money in that buyers M duty. Right. So that's the reason why you go about and like everyone is telling you, hey, 99 1, 99 1, it's efficient in that manner because you save a lot on bias M duty. Right? But there are some downsides to it. I was thinking about, they, they often don't consider now, let's assume this. My wife owns 1% of the property and she has used CPF

on the property as well. Let's assume that she has used $250,000 of CPF. When she sells her share to me, she has to refund that $250,000 back to CPF. Right. How is she going to do that? She has to come up with cash from her pocket, put it back into CPF. And when the moment comes, when the couple realizes that, ok, I'm safe on buyer stamp duty, but now I have to forgo $250,000 and put it back into the CPF. Where am I going to get the

money from? Forgot to think about. Exactly. Exactly. So if you don't have the means or sometimes people say I do have that 250 K, but it's supposed to be used for the deposit on my new property. And now if I put it back in the CPF, where do I get the cash? Two steps forward, one step back. Exactly. So it has to be considered and it's not always the case that the couple would go for a 99% 1% ownership. It might be varying like 70 30 there are some reasons behind that.

But yeah, just to break down simply what this manner of holding is about and how it's actually utilized. Hm, I think that's exactly it. And then there's so many strategies to think about this. When you're doing the 99 1 70 30 you calculate what you have in hand and what you're going to get in the future. But the most important thing is how you're going to finance it right at the get go without overstretching yourself. Really? Because like we've been talking about, you know, it's great

to think about the future to think about. Ok, this is what I'm going to get out of it. But what's the, now, what can you afford now? Because that's going to be able to stretch you into the decades as you get older. It's a very common thing that you brought up. Andrea, that people. Really? Yeah, they think of the now. Ok. Oh, I have money now. Let's do this and let's hold it in 99 1 in the hopes of getting a second property. But they

don't think of like down the road eligibility. If I'm going to buy over my wife's share, can my wife afford? Based on eligibility? The new property? Oh, we haven't thought about it yet. Let's not make that painful mistake and all the other mistakes that you noted. So, buying a property in Singapore, it sounds complicated. Right. But if the time is right, if you time it right,

and you've done your calculations. Well, as Clive has pointed out that asset could serve you and your family well, in the long run, thanks, once again, Clive for walking us the consideration and it was great to have you on the show. Thanks for having me and thank you to you, our listener. If you've enjoyed this episode of Money Talks, there is always more content for you to enjoy. Just follow us on Apple podcasts or Spotify. Give us five stars.

Don't forget to leave a review. The team behind Money Talks is Jacqueline Chan, Joanne Chan Tiffany, Ang Christina Roberta, Wind Jess and I'm Andrea. He.