Singapore Real Estate: Jargon Explained
Updated: Oct 25, 2021
Do you often feel intimidated when your friends or family members begin talking about the property market? More often than not, when we are speaking to our property agent, we’ll fear that we will come off inferior when we do not understand the terms that are used. Whether you are in the midst of looking for your dream home, saving up to purchase one, looking to sell your home, or researching and studying the property market, your experience will be made easier if you understand the common real estate jargon. To save you the trouble of having to comb through Google each time an unfamiliar term pops up, we’ve gathered some of the most common real estate jargon in this handy guide. Check them out below!
1. Buyer’s Stamp Duty
Upon a successful property sale transaction, you’d be obligated to pay for certain governmental fees. The Buyer’s Stamp Duty (BSD) refers to the tax paid on documents signed when you buy or acquire property located in Singapore. The fees are payable to the Inland Revenue Authority of Singapore (IRAS).
The amount of BSD you have to pay is dependent on which of the following would have the higher value:
Purchase price of the property (as stated in the signed sale and purchase agreement)
Market value of the property (based on the property’s valuation reports)
What this essentially means is that your BSD rate will be based on whichever is the higher amount: If you manage to haggle the price of a property down to 1.5 million from 1.8 million, it will still be calculated based on the latter.
The table below summarises the BSD rates:
Example: Say you are eyeing a condominium with a value of $2,000,000. The BSD you have to pay would be worked out this way:
1% of the first $180,000: $180,000 x 1% = $1,800
2% of the next $180,000: $180,000 x 2% = $3,600
3% of the next $640,000: $640,000 x 3% = $19,200
Remaining Amount of $1,000,000: $1,000,000 x 4% = $40,000
BSD payable = $64,600
2. Additional Buyer’s Stamp Duty
On top of BSD, you may have to pay for Additional Buyer’s Stamp Duty (ABSD)—a property cooling measure introduced to prevent property prices from rocketing. ABSD is a requirement if you are:
a Singapore citizen who is already a residential property owner and wants to buy another
a Permanent Resident (PR)
There is an exception: Thanks to Free Trade Agreements, if you are a foreigner or PR from Iceland, Liechtenstein, Norway, Switzerland and the United States of America and are married to a Singaporean citizen, you don’t have to pay ABSD for your first property purchase.
Like BSD, the amount of ABSD you have to pay depends on whichever is the higher of the two: the property’s purchase price or its market value. ABSD rates are as follows:
3. Seller’s Stamp Duty
Seller’s Stamp Duty (SSD) is a fee that is payable on all residential properties and residential lands that are acquired on or after 20 Feb 2010 and if they are disposed of within the holding period. The SSD payable is calculated based on the purchase price or the market value of the property, whichever is higher:
4. Loan-to-Value Ratio
When you decide to purchase a property, you’d most likely have to take out a loan to finance it. Whether it be a HDB loan or a bank loan, there is a limit to how much financing you can get. This, essentially, is the Loan-to-value (LTV) ratio—a restriction that the Singapore government put in place to limit the maximum amount property buyers can borrow from HDB and banks.
Because it determines how much you can borrow, it determines how much downpayment you need to fork out upfront, either in cash or together with your CPF savings. The LTV for HDB housing loans and bank loans differ.
(i) HDB LTV Ratio
The HDB loan has a maximum LTV ratio of 90%. So, you can loan up to 90% of the purchase price/property value. The other 10% would be a downpayment that you can pay off in cash, CPF, or both.
(ii) Bank loan LTV Ratio
For bank loans, the maximum LTV is 75% for your first loan, and if you have no outstanding home loans. For the remaining 25%, 5% has to be paid in cash. Cash, CPF, or a mix of both can be used to pay the other 20%
5. Total Debt Servicing Ratio
The Total Debt Servicing Ratio (TDSR) is basically a way in which the government keeps Singapore’s property market healthy. It ensures that people borrow, and banks lend, responsibly. Through this framework, a limit is placed on the amount borrowers can spend on debt repayments to 60% of their gross monthly income.
The aforementioned 60% applies to those with fixed incomes. Because lenders view Individuals with variable income (e.g. freelancers, odd-job workers, self-employed) as risky, only 70% of their total assessed income is counted towards the TDSR.
TDSR is calculated by dividing a borrower’s total monthly debt obligations by gross monthly income.
Example: Salary Man Tom earns $10,000 a month and has $4,500 of monthly debt to pay.
TDSR = 4,500 / 10,000 = 45%
TDSR limit = 60% x 10,000 = $6,000
Under TDSR rules, Tom can only make a monthly maximum repayment of $6,000-$4,500 = $1,500.
If Jane were a freelancer earning the same amount, with $2000 monthly debt, only 70% of $10,000 ($7,000) is counted.
TDSR = 4,500 / 7,000 = 64%
TDSR limit = 60% x 7,000 = $4,200
Under TDSR rules, Jane can only make a monthly maximum repayment of $4,200-$2,000 = $2,200.
6. Mortgage Servicing Ratio
While TDSR applies to all housing loans, Mortgage Servicing Ratio (MSR) applies only to loans for HDB flats and Executive Condominiums (ECs). The MSR limits the amount that may be spent on mortgage repayments to 30% of a borrower’s gross monthly income.
If you earn $8,000 per month, your monthly home loan installments cannot exceed 30% of that, which is $2,400.
MSR, like TDSR, limits the amount of money you can borrow based on your income. However, the MSR does not consider other loans you might have.
7. Plot Ratio
Image Credit: URA Space
You must be thinking “Another ratio? You’ve got to be kidding me!” Don’t worry, this one is a little more straightforward. The plot ratio refers to the density of the development on a certain piece of land. It is determined by evaluating the total covered area on all floors of all buildings on a certain plot divided by the area of the plot.
As it is the determinant to calculate the maximum gross floor area, it can determine the intensity of land usage of a piece of land. Plot ratio is thus a useful indication of potential developments in an area.
You can make use of URA space to find out the plot ratio of any property. As a general rule, the higher the plot ratio, the denser the area.
8. Temporary Occupation Permit
The Temporary Occupation Permit (TOP) allows someone to move into a property before the remaining amenities are completed. For example, if the living spaces of a condominium is ready and deemed safe to occupy, but the gym and other facilities are not completed yet, TOP allows you to collect your keys, move in, or even rent out your unit without waiting for the entire project to be completed.
9. Certificate of Statutory Completion
If TOP signifies graduation from secondary school, the Certificate of Statutory Completion (CSC) indicates graduation from college. CSC is issued by the Commissioner of Building Control and marks the legal completion of a project, indicating the completion of building works and compliance of requirements. It certifies that every aspect of the development has been completed. Unlike TOP that is optional, CSC is compulsory for residency in a completed building.
10. Building Under Construction
Image Credit: Flickr
If a building has not yet received TOP or CSC, it likely falls under the category of Building Under Construction (BUC). Put simply. BUC refers to any property that is still in the process of being built. You can still purchase an incomplete property. In fact, people who buy BUC properties often enjoy early bird discounts. This is to compensate for the fact that they are essentially buying the unit “blind”. You do not know how exactly the property looks. On top of that, you are unable to rent the property out any time soon.
11. Minimum Occupancy Period
The Minimum Occupancy Period (MOP) refers to the amount of time required for an owner to legally occupy the property before they can sell or lease the apartment out. Whether it’s a resale or BTO, the MOP for HDBs and ECs is five years. During the MOP, you cannot sell your flat on the market, rent out the entire flat, or buy a private property. You can still rent out individual rooms, if you, too, are living there.
The MOP is not applicable to private properties such as condos. Instead, if you sell your condo within three years of purchase, you’ll have to pay a SSD.
12. Option to Purchase
Option to Purchase, or OTP, is a legal agreement between buyer and the seller to buy a residential property. It involves a non-refundable deposit that protects both the seller and the buyer.
From the point of view of the buyer, the OTP helps you to chope the house: when you get the OTP to purchase a property, the seller is legally obliged not to sell it to anyone else. They are not allowed to advertise the property to other potential buyers as well.
On the other hand, the OTP protects the seller in that if the buyer backs out, the seller gets to keep the OTP. The OTP is typically valid for 14 days for condos and 21 days for HDB flats.
Reading about real estate need not feel daunting all the time. With this handy guide, you’ll not feel like you are solving a mystery each time an unfamiliar jargon pops up in conversation. OTP is no longer taken to mean One-Time-Password and MOP is not a tool for you to clean the floor! Whether you are a buyer or seller, keep this guide near so that your real estate journey will be a less confusing one.
Please add in the countries which are exempted from ABSD e.g. Switzerland, USA, Iceland, Norway and liechtenstein