FAQ #4

(Part of “The Almost Complete Goondu’s Guide to Buying a HDB Flat in Singapore” series.)

If I sell my property and make a profit, do I need to pay tax on the profits?

No. According to IRAS, profits resulting from the sale of property is known as ‘capital gain’, and Singapore does not have ‘capital gain’ tax.

However, if you are a trader who makes a living out of the profit of buying and selling houses, you might have to declare profits made under ‘other taxes’.

Check out IRAS’s “Gains from sale of property, shares and financial instruments” for more information.

If I rent out my property, what taxes will I have to pay?

Rental properties have to pay property tax calculated as 10% of its Net Annual Value (NAV) value. Apart from that, rental income will be taxed minus rental expenses.

Related Articles from IRAS:
– “Having investments in Singapore”
– “Rent and Net Annual Value”

What are the differences between a HDB loan and a Bank loan?

1) To qualify for a HDB loan, your household income must be less than $8k, whereas, anybody can apply for a Bank loan as long as your loan amount is at least $100k.

2) You can take out a 80% or 90% loan from HDB at the same interest rate, and your down-payment can be fully funded from your CPF.

However, for a bank loan, 5% of the down-payment must be paid in cash, with the rest via CPF, be it for 80% or 90% loans. On top of that, 90% loans charges a much higher interest rate.

3) HDB interest rates are pegged at 0.1% above CPF OA’s interest rates (currently 2.6%). Thus, it is more transparent and stable. Also, HDB is less likely to kick you out of your flat if you miss a few months payments, and are more ‘understanding’ and will try to work with you.

On the other hand, bank interest rates move up and down in line with the economy. In some case (like now), interest rates are way below that of HDB loans (some loans currently carry a 1.3%pa interest rate). However, if you do not keep up with your payments, banks might not be as forgiving, and would repossess your house, as they are commercial entities.

How to calculate Rental Yield?

Where do you see this?

In property brochures or advertisements.

What does it mean?

Rental yield is the annual rental return from a property, or the amount of rent the property earns over a year. It is expressed as a percentage of the purchase price. The higher the yield, the better the return.

It is calculated this way:
rent x 12 months
——————– x 100
purchase price

To work out the net rental yield, you will have to subtract maintenance costs, commissions and other expenses from the rent figure. If you have spent money on renovation, add the amount to the purchase price.

In Singapore, rental yields of 3 to 4 per cent are common.

Why is it important?

It gives you an idea of the returns from your property investment and allows you to compare different properties.

As one of the indicators of the investment potential of a property, it can help you decide on the purchase of an investment property. So you want to use the term? Just say…

‘I want to buy property in District 9 or 10 because I hear the rental yields are good.’

Source : The Sunday Times, Jan 11 2009