I Make Passive Income From My First Property in Singapore.

| 09 Sep 2019

We delve into the real costs of property in Singapore, whether you should rent or buy a property – and what you need to note before making a passive income.

After popping the big question, what naturally ensues for young Singaporean couples: collecting the keys to their apartment. If only it was that simple.

According to Robert Kiyosaki, author of ‘Rich Dad Poor Dad’, your property is a liability.

It’s a standard practice for young couples to decide on a BTO or resale flat to settle down in. Government-supported subsidies such as CPF Housing Grants of up $40,000 does make buying a property sound more enticing to Singaporeans, especially for first-time applicants.
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Buying a property in Singapore is a long financial commitment. Some costs every first-time applicant should be mindful of:

Costs spent before you get your keys

Downpayment: Albeit having up to $40,000 waived (based on your cumulative household income), the usual process requires a downpayment before key collection. Downpayment of the purchase price or valuation (whichever is higher) comes in 2 forms, depending on the loan you select. For HDB loans, you must make a 10% downpayment; and for bank loans, you must make a 20% downpayment. 5% of the downpayment taken out on a bank loan requires you to pay in cash between $15,000 to $30,000.
Legal Fees & Stamp Duty: Registration fees and conveyancing fees will be charged based on IRAS’ stamp duty calculator, would range anywhere between $600 to $2,000, depending on the type of apartment you live in.

Costs spent after you get your keys

Accumulative upfront costs: You need to bear upfront costs for home insurance and renovation as a homeowner. Note that home insurance is different from fire insurance. You need to purchase compulsory HDB fire insurance coverage to safeguard your home contents from fire-related damages. While the costs of insurance alone are typically affordable ($60 to $150), the accumulative upfront costs can still impose a strain on your finances. Home renovation and decor would cost around $80,000 to $100,000, depending on the intricacy and contractor you engage.
Recurring costs: Recurring costs on property taxes and mortgage repayment are processes to free yourself from feeding your income to your liability over time. Monthly repayment on mortgage loans includes payment for interest rates. A lump sum repayment may ease your finances as you do not incur interest rates, which can go up to $500 or more.
Buying a property in Singapore does make you cash-strapped. Couples frown on these housing costs as they find themselves lacking money for investments or saving plans. 

The next question, “Should I rent an apartment instead?”

Millennials are starting to prefer renting for the experiences – especially if they cannot afford the sky-high prices of a condominium, according to digital property portal 99.co. Renting does sound a lot simpler; renters do not have to worry about the various costs except monthly rent and miscellaneous fees such as renters’ insurance. Rental is great for the short-haul, and more often used as a stop-gap measure instead of a long-term solution.
Property is an indefinite cost everyone has to go through when moving onto the next phase of life.

Buying a property is not all bad: liability — or an asset?

Alternative opinion: Absorb the downpayment, earn a passive income from rental. Renting limits you to potentially profit from your own property, which is not income-generating in any way. On the other hand, with proper financial planning and an opportunistic mind, you can still enjoy a steady flow of passive income.
In the recent National Day Rally Speech, PM Lee Hsien Loong announced that retirement age will increase from 63 to 65 years old by 2030. Some say that early retirement is still possible with property investment. 66% of Singaporeans say the property is ‘value-for-money’, Income Generating Assets (IGAs) are still viewed as highly profitable.
Before turning your property into an option for cash inflow to grow your passive income, important questions you should ask yourself:

1. Maturation of the property

Your property has to have at least 5 years of occupancy before you can rent it out. Meaning, your property is still a financial liability for the first 5 years paying the upfront and recurring costs.

2. Your place of residence

If you’re intending to rent out the entire residential property, the best practice is to evaluate the passive income you can get from the rental and the cash outflow of the choice of accommodation you have.
Ultimately, talk with your partner on the plans of your first property. Work out the costs and cash inflow based on your subsidies, loans, expenses and renter’s fee. Property is only one of the many ways to grow passive income. If you’re uncomfortable with renting out your property, other ways include low-risk savings plans like endowment plans. Short-term endowment plans of 3 to 5 years are most ideal for young couples not looking to lock down their finances for too long. 

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