How to Invest in Real Estate in Singapore

Many Singaporeans often wonder how to get into real estate investing and how to invest in property. Real estate investing presents a viable option, given the market's unique dynamics, government regulations that influence the market, and the diverse range of investment opportunities available.

If you're wondering how to invest in real estate, this article covers five popular strategies for how to invest in real estate in Singapore, ranging from REITs to investing in rental properties.

A REIT is a company that owns, operates, and invests in an income-generating real estate asset by pooling together investors’ capital. The REIT leases out spaces within the property, collecting rent in return. This rental income collected by REIT will form the yield that is distributed back to shareholders as dividends.

Types of REITs available include retail REITs, office REITs, and industrial REITs, each with its own risk and reward profile. In Singapore, REITs are traded on the Singapore Exchange (SGX), and much like how you purchase a stock, investors can purchase REITs using their brokerage accounts. While these REITs are listed on the SGX, some of them own properties in overseas markets, giving you diversified exposure to global properties and real estate markets. 

For many people who wonder how to invest in property, people will often recommend REITs because they offer high yields that typically range from 4% to 8%, making REITs an appealing buy for investors looking for passive income and consistent returns. REITs have such high yields because they distribute at least 90% of their taxable income each year to shareholders.

Also, with REITs, everyday investors have the opportunity to invest in these mega properties, which we can see and touch, like shopping malls and office towers, at an affordable price as they are traded on the SGX. A physical property takes time and money (in terms of commissions, fees, and taxes) to sell and can be illiquid. A REIT, on the other hand, offers high liquidity. You can buy and sell REITs on the SGX anytime you want, much like a real estate ETF, providing greater flexibility for investors.

However, it's important to know the risks. REITs are traded openly on the stock market and are thus subject to price volatility, influenced by market sentiment and economic conditions. Additionally, whilst REITs are required to distribute 90% of their income, the distribution can fluctuate from year to year depending on the REITs’ rental income and the overall performance of its property portfolio.

You can find some of the best brokerage accounts on SingSaver to start your REITs journey and explore the potential for passive income.

If you're wondering how to get into real estate investing in Singapore, there are some platforms you can use to invest in real estate and diversify your portfolio. This method is commonly referred to as real estate crowdfunding.

Real estate investment platforms connect developers to investors who want to finance projects through debt or equity, offering an alternative way to participate in the property market. Investors hope to receive monthly or quarterly distributions in exchange for taking on significant risks and paying a fee to the platform for facilitating the investment. However, like many real estate investments, these are inherently speculative and illiquid, and investors should proceed with caution.

On the other hand, this method requires low capital requirements, making it easier for those with limited funds to start investing in real estate and the potential for passive income through distributions. However, there are also potential risks. This includes the illiquidity of the investment, meaning you may not be able to sell your investment quickly, the possibility of losing your capital if the project is unsuccessful, and limited control over the investment decisions.

>> Want to start investing? Explore our list of the best real estate crowdfunding platforms

To invest in real estate, many investors in Singapore consider investing in rental properties as a long-term wealth-building strategy. This method is popular in Singapore due to the consistently strong rental market, driven by a large expatriate population and local demand.

If you plan to invest in rental properties in Singapore, you need to be acutely aware of and thoroughly understand the key regulations and market dynamics. Firstly, there is the Additional Buyer's Stamp Duty (ABSD), which is a tax imposed on buyers purchasing residential properties. For Singaporeans and PRs buying their second and third residential property, the ABSD is 12% and 15%, respectively.

Also, you need to understand Loan-to-Value (LTV) limits, which dictate the maximum percentage of a property's value that a financial institution can lend to a borrower, impacting how much upfront capital is required. For your second mortgage, the LTV will be 25% or 45% of your property value. For your third mortgage,  the LTV will be 15% or 35%.

Furthermore, you must track rental market trends, as these fluctuations directly affect potential income and profitability. These factors are key to consider when pursuing this strategy. That being said, potential benefits include a steady income stream through rental payments, the potential for capital appreciation of the investment property over time, and the use of leverage to potentially increase returns.

Naturally, there are also potential risks. This includes the rental income potentially being lower than expected due to fluctuations in the rental market or unexpected vacancy periods. The property may also not appreciate as well as expected, impacting your overall return on investment. Furthermore, if you decide to settle down, you may not have a home of your own, as your capital is tied up in the rental property, limiting your flexibility.

>> Related: Guide to property investment in Singapore

To invest in real estate, some Singaporean investors choose to flip properties, a strategy that involves buying a property, renovating it to increase its value, and selling it for a profit within a relatively short timeframe. The defining characteristic here is speed; you’ll want to sell your property as soon as possible to minimise holding costs, which include mortgage payments, property taxes, and other expenses associated with owning the property.

While this method can potentially yield quick profits, it also carries significant risks. This method also relies heavily on capital appreciation, which is something that you may not always be able to control. This is because the property market is subject to fluctuations, and you may not be able to accurately predict future market conditions or guarantee you'll sell the property for the desired price within your planned timeframe.

Additionally, there are risks associated with over-improving the property. Making too many improvements and pricing yourself out of the market can make it difficult to find buyers, as the property may no longer appeal to the target demographic for that area. There may also be unexpected problems requiring costly repairs, such as structural issues or hidden damage, which can eat into your profit margin and delay the sale.

Perhaps the biggest drawback is that there may be a lack of demand for the property, resulting in a prolonged sale period and increased holding costs. This can significantly reduce or even eliminate any potential profit.

>> MORE: 5 risks to think about before investing in property

For most people wondering how to invest in real estate with no money, this is probably the first and one of the most straightforward answers, as it leverages an existing asset. If you are a flat owner of a flat that is 3-room or bigger, you can rent out your spare bedrooms to generate additional income. However, you are required to seek HDB's approval before the commencement of the tenancy. Applications to rent out bedrooms can be submitted online via HDB’s e-services, providing a convenient way to apply. The outcome of the application will be made known immediately, allowing for a quick turnaround. An administrative fee is payable with each application at $9 per bedroom.

If you do not obtain approval to rent out your bedrooms or inform us of subsequent changes (termination, renewal of tenancy, or changes to tenants or tenants’ particulars), the rental will be considered unauthorised and HDB can take action against you, such as imposing a penalty and compulsory acquisition of the flat, so adherence to regulations is crucial.

There are also other requirements for both you and your potential tenants, like the minimum rental period and the number of tenants allowed, so you must check with HDB for detailed guidelines and regulations.

While this method of generating income from your property is straightforward, there are potential drawbacks that you should carefully consider. Potential risks include property upkeep and potential damage caused by tenants, the possibility of having difficult tenants, and the impact on your privacy and lifestyle.

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