7 Factors To Consider When Calculating True ROI On Singapore Property
Thinking about selling your property for a handsome profit? Think again. Your return on investment might not be as substantial as it seems.
Selling a property can provide a great return on investment (ROI). However, just because you sell a property for double what you bought it for, doesn’t mean all that money will be coming home.
As a seller, one must take into account a number of taxes, fees, and duties. Although Singapore has relatively low taxes compared to other developed countries, there are still important taxes related to property that you will need to be aware of when doing your calculation.
As Singapore home prices start to bottom out after a minor 0.3% decrease in Q2 of 2017, it’s likely that values could start to go up as early as next year. Once prices start increasing, many property owners will consider selling their properties.
We look at seven factors to consider when calculating true ROI when selling your home in Singapore.
1. PROPERTY TAX
Any outstanding property tax owed on your home must be paid. If you are currently living in the property, there are lower taxes than if you were not. Owner-occupier tax rates, as they are known, range from 0–16% and are based on the annual value of your home. The annual value of your home is how much the property is worth if it was rented out. Non-owner-occupier property tax rates range from 10–20% based on the annual value of your home.
2. SELLER’S STAMP DUTY (SSD)
According to the Inland Revenue Authority of Singapore (IRAS), you may need to pay stamp duty if you are the seller of a residential property in Singapore that was purchased on and after 20 February 2010 and sold before a specific duration has passed. The longer you have the property, the less tax you need to pay. Any properties bought on and after 12 March 2017 will need to pay 12% if held up to one year, 8% if held up to two years, 4% if held up to three years and no duty if held for more than 3 years.
Professional fees are often charged by the seller’s solicitor. Solicitor’s fees should range between US$1,120–US$1,860 (SGD1,500–SGD2,500). These fees can vary depending on which law firm is used and how complicated the transaction is. Property agents will also charge a commission based on 1–2% of the sale price.
4. MORTGAGE PRE-PAYMENT PENALTY
If you do have a mortgage on your home, you may need to pay a penalty if re-payment is made before the lock in period is complete. The penalty is typically around 1.5% of the remaining mortgage amount.
Any mortgage amount still owed on your property must be repaid. If you used CPF monies towards the purchase of your home, then that amount must be returned plus accrued interest to your CPF Ordinary Account.
6. CAPITAL GAINS TAX
You may be wondering what happened to capital gains tax. Why is it so far down the list? Well in Singapore, property gains are usually not taxable. There is an exception to this rule though. If the individual is buying and selling property with a “profit-seeking motive” or “trading in properties” then the gains are considered taxable income according to IRAS and you will be taxed.
7. INFLATION-ADJUSTED RETURN
When selling your property, you should also consider the inflation-adjusted return over the period you’ve owned your home. This can be done by figuring out the basic return on the investment. Next calculate the level of inflation over the time-frame you’ve owned the property. Finally, due to the compounding figures of inflation and your return, you must geometrically back out of the inflation amount. This will give you the true inflation-adjusted return on your initial investment.
This may all seem a bit complicated, but there are online tools such as the Monetary Authority of Singapore’s Goods & Services Inflation Calculator that enable you to easily calculate the inflation-adjusted return on your property investment.
THE BOTTOM LINE
Selling a property can involve paying a significant amount of fees, taxes, and duties that you may not be aware of. The profit you think you may be gaining by selling your property and the actual amount you are receiving may be significantly different. Keep your expectations in check and calculate everything before deciding to sell your home. It’s important to ensure you are getting the ROI you think, especially if the money will be used for purchasing your next property.
This article was originally published by WEALTH, Asia’s marketplace for investors. Written by Robbie Wilson