Buying Property in Singapore: How to Pay for Your Property
One major consideration when purchasing a property is the financial aspect of the purchase. How do you pay for your house?
If you happen to be one of the fortunate ones with so much spare cash lying around that you can pay the entire purchase price and related fees without any loans or using your CPF funds, the information below may not be too relevant to you.
For the rest of us who are less fortunate, here is a guide to help you through the basics of what has to be paid and show you how you can utilise the funds you have built up in your CPF account.
What You Have to Pay For
- Option fee (a fee to be paid for receiving the Option to Purchase in respect of the property)
- Deposit upon exercise of option
- Stamp duties (Buyer’s Stamp Duty and Additional Buyer’s Stamp Duty)
- Rest of purchase price
By the time you see your lawyers, you would have paid the option fee with your own funds by cheque. The purpose of paying the option fee is to book or secure the unit of your choice. You will typically be asked to pay either 1% or 5% of the purchase price in exchange for the developer/seller issuing an Option to Purchase (OTP) in your favour. The remaining amounts can be paid for by a combination of bank loan, CPF and cash.
Sources of Funding: What You Can Use to Pay For Your Property
- Bank loan (housing loan)
There is a fixed order in which your monies must be paid – cash must be paid first, before CPF funds can be drawn out, and then finally the bank loan amount. What this means is: for example, if you are intending to pay for your property using 60% bank loan, 20% CPF and 20% cash, cash must be used first whenever a payment is due. Only when 20% of the purchase price has been fully paid for by cash can CPF funds be used. Similarly, the 60% housing loan amount can only be utilised after 40% (20% from cash and 20% from CPF) of the purchase price has been fully paid.
Use of CPF
Most buyers will be eager to know how and when they can utilise their CPF savings. These are funds which one cannot normally use, with purchasing a house being one of the very few approved purposes. The following are the costs which can be paid for using your CPF Ordinary Account (OA):
- Legal fees
- Stamp duties
- Purchase price
- Monthly repayments of bank loan
Whether you should use your CPF funds and how much of your CPF funds to use is a financial decision you have to make. Remember that CPF funds used towards your housing purchase must be refunded to your CPF account, together with accrued interest, when you sell off the house. The current OA interest rate is 2.5% per annum.
For buyers purchasing a second property using CPF, you must set aside the Basic Retirement Sum (BRS), which currently stands at $80,500. This amount can consist of sums in your Special Account (SA). Only monies in excess of the current BRS remaining in your OA can be applied towards your second housing purchase.
Both legal fees and stamp duties can be paid from your CPF OA. This can be in the form of reimbursement, meaning that you first pay up in cash, and receive the amount paid at a later date from your CPF. For purchase of a property that is still under construction, legal and stamp fees can be paid directly from CPF.
Your CPF OA balance can also be used to service the monthly payments of your bank loan instalments. Let your lawyers know that you wish to use CPF for monthly payments of the bank loan and they will make an application to CPF Board for you. Once activated, you will be able to change the amount to be used from your CPF OA each month by logging in to your CPF account.
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Timing the Use of Your CPF Right
If the amount of cash you have is just about enough for the housing purchase, you may have to be careful of how you time your purchase. This is especially so if you are looking to pay your stamp duties directly from your CPF funds for purchase of a property under construction.
Stamp duties are payable within 14 days of exercising the option to purchase. However, an application to the CPF Board to use your CPF funds to pay stamp duties directly may usually take 3 weeks to process. This means that if you only approach your lawyers near the expiry date, your CPF funds will not be released in time. You will be left with 2 options – either pay the stamp fees with cash and await reimbursement from CPF, or pay the late payment interest. Thus it is important to see your lawyers as soon as you sign the option to purchase so that they can advise you accordingly based on your needs.
You may wish to get in touch with one of our experienced property lawyers to assist you with your purchase.
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