Once you have found a property you want to buy, this document explains the steps to actually complete the purchase. Note that at this point you may want to appoint a solicitor to act for you - but please consult your agent about this first. You will need a solicitor in these phases of the purchase process: to act in purchase, to act in mortgage (if you are taking a loan from the bank), and to act in withdrawal of funds from the CPF Board (if you are using CPF Funds). Typically, one solicitor can do all of this, so there is no need to appoint multiple solicitors.
Before you sign any contracts, make sure you can actually get the money to purchase the property. Any deposits paid for reserving the property will be forfeited if you cannot go through with the transaction - unless the cancellation is due to conditions stated in the contract.
Financing the Property
Most people will finance their property using a bank loan (mortgage). The amount you can borrow will depend on your own personal financial circumstances plus the bank's valuation of the property or the actual transaction price (whichever is lower). Singaporeans can usually borrow up to 80% of the value and foreigners usually up to 70%. The bank will take into account your capacity to pay the monthly instalments - for this they will evaluate your income, assets, employment history and your age, and they will also check your credit history for any previous payment problems.
For the deposit you can use your Central Provident Fund (CPF) savings, if you have an account, and the rest has to be in cash. A Singaporean with good CPF savings might not need much cash to pay for a property, but foreigners should expect to have at least 20% in cash (+ fees) at hand to purchase a property.
If you are buying a HDB apartment, you should check the eligibility to get a concession loan from HDB. If you are not entitled to get the loan from HDB, you need to finance it with a normal commercial mortgage.
You should meet with your banker or mortgage broker before you sign any contracts to see whether you can actually secure the financing when you need it. Agents can also refer you to a bank or mortgage broker if you do not already know one.
The contractual part is typically a simple two step process. First you will sign an ‘Option to Purchase’ agreement with a good faith deposit. Following this, you have 14 days to decide whether to go ahead or not with the purchase. Alternatively, you can just give the seller the full deposit on ‘Offer to Purchase’ and bypass the ‘Option to Purchase’. After this, you will sign the ‘Sales and Purchase Agreement’ with the seller to complete the sale.
Option to Purchase
Once you have decided to purchase the property and agreed the price with the seller, you should ask for an ‘Option to Purchase’ agreement. The ‘Option to Purchase’ agreement is typically prepared by the seller’s agent or solicitor, and you should therefore go through it with your agent or solicitor before signing. However, any amendments need to be agreed by the seller. Typically 1% of the purchase price is given to the seller in exchange for the option as a good faith deposit.
‘Option to Purchase’ usually gives you a 14-day exclusivity period to decide whether to purchase the property or not. The seller is not allowed to offer the property to another buyer during this period. If you decide to exercise the option by signing it, you will send it back to the seller (or his/her solicitor) with another 4% or 9% of the purchase price (whichever was agreed in the option).
If you do not exercise the Option within the stated period, the Option will expire and the seller is entitled to keep the 1% option money and sell the property to any other buyer.
Offer to Purchase
If you do not wish to have the grace period given by the option, you can always make a binding offer directly – ‘Offer to Purchase’. This should be prepared by your solicitor or agent, and would state the price, completion date and other conditions that you may have.
If the seller accepts the offer by signing the ‘Offer to Purchase’, you can directly proceed to the Sales and Purchase Agreement. At this point a deposit of 5% or 10% of the purchase price is typically given to the seller.
Sales and Purchase Agreement
After the ‘Option to Purchase’ or ‘Offer to Purchase’ has been signed, your solicitor will do the necessary steps to complete the sale – lodge a caveat on the property, coordinate with the bank/CPF board for the mortgage, and prepare the contracts. This process will typically take up to 10 weeks to complete.
Inspection before Taking over Property
The ‘Option to Purchase’ should clearly state a permission to inspect the property before completion of the sale. The buyer should check everything that the seller has agreed to sell with the property – especially all the fixtures and fittings, e.g. air conditioning, kitchen appliances, etc. If there are any problems, you can ask the seller to fix them before you sign the Sales and Purchase Agreement.
If you are buying an HDB apartment, the Housing Development Boad will do the inspection on your behalf. They will check for any unauthorised renovation. The seller will need to reinstate the flat into the condition allowed by the HDB before it will approve the sale.
Fees and Commission
There are various fees that come on top of the purchase price when the sale is completed, and you should therefore reserve money to pay for them. Fortunately, some of them are borne by the seller. These are summarised below:
Agent's Commission - For private property, the agent's commission is paid by the seller - unless you have specifically appointed an agent as a representative. The seller typically pays 2% commission on the sale. For HDB apartment, the buyer pays typically 1% commission.
Solicitor's Fee - For the buyer, the solicitor’s fees are typically 0.3-0.6% of the transaction value. In addition, there are extra legal fees if CPF is used to pay for the apartment. The seller pays typically 0.15% of the transaction value to his/her solicitor.
Mortgage Fee - The banks typically charge an administration fee and valuation fee for the mortgage. These together are somewhere between S$200-300. In addition, you need to take out on insurance on the property for the bank to give out the mortgage.
Stamp Fee - The stamp fee will be payable to Inland Revenue Authority of Singapore within 14 days upon exercising the Option to Purchase (or signing the Sales and Purchase Agreement when you buy from a property developer). For properties above S$300,000, stamp fee payable will be 3% of the purchase price minus S$5,400. The mortgage stamp fee is up to S$500, which is the amount payable for most mortgages.
Associate Group Division Director, BSc (Hons), Cert-in-CEHA, Cert-in-MFP