What is the due diligence process when investing in property?
Purchasing real estate is one of the most sensible ways to invest your money.
If that piece of property also happens to be the place that you are going to live in, then it means you get to avoid the trouble of renegotiating lease agreements or shifting houses every few years.
Acquiring a second property is often the next logical step, if you can afford it. The rent that you receive will provide you with a steady inflow of money while the property appreciates in value.
Although real estate investments can give you all these benefits, they are not without risks.
If you are lax in conducting your due diligence, you could buy a property for a sum far greater than its current value. You also need to ensure that the procedure followed for the transfer of title is correctly carried out.
Here are some of the precautions that you can take before finalising your real estate purchase.
Is the seller bona fide?
Are you aware that if you are buying an HDB flat, the seller has to meet the “minimum occupation requirements” laid down by the government?
If the seller had purchased the flat from HDB, it is necessary that it should have been held for a minimum of five years.
If the flat was purchased from a developer under the Design, Build and Sell Scheme (DBSS), the minimum period that should have elapsed from the date of flat selection is stipulated as seven years.
There are other rules connected with the minimum occupation period. These are related to the size of the flat and whether its purchase was originally financed by a CPF Housing Grant.
There are a number of rules involved and it is advisable to get professional help to understand them.
Entitlement to buy property
Different sets of rules govern the acquisition of residential property by Singaporeans and foreigners. There are no restrictions on non-residential property purchases.
Residential properties are categorised into “non-restricted residential” and “restricted residential.” While foreigners cannot purchase restricted properties, permanent residents in Singapore can.
Remember to limit your search to only those properties that you eligible to buy. A lack of awareness about the rules can result in disappointment and wasted time.
Once you have ascertained your eligibility to purchase a property and drawn up a shortlist of flats, it is time to start making site visits.
Don’t make the mistake of ignoring this essential task. Yes, it is time-consuming and tedious, but it is absolutely vital that you go through this exercise.
Once you have taken the trouble to visit a property, take out time and carry out a thorough inspection.
Is the flat well-maintained? Does it need any immediate work? Are the rooms airy and well-ventilated? Try and imagine how the flat will look once it is furnished.
It may be a good idea to walk around the neighbourhood as well. Check the distance to the nearest train station and bus stop.
If you are close to finalising a property, you should visit it more than once, preferably at different times of the day.
The sale process
The first stage to formalise the transaction is the signing of the “option to purchase” (OTP). You will need to put down a deposit on the flat. This will be calculated as a percentage of the final sale price that has been agreed upon with the seller.
The OTP provides you with a three-week window to conclude the deal. If you cannot come up with the money to buy the property within this time, you may have to forfeit your deposit.
The best course to adopt is to tie up your bank financing before you enter into the OTP. Your banker will provide you with an “approval in principle” that confirms your eligibility for a loan to buy a property. The “approval in principle” has a limited validity, so you need to co-ordinate its timing with the OTP.
The final step will be to come up with the entire sum that has been agreed upon for the purchase of the flat.
Use professionals to help you
Buying property can be a complicated affair. Even if you miss one stage in the process, you could be setting yourself up for a great deal of trouble. Consider using a buyer’s agent to help you.
A buyer’s agent will exclusively represent your interests and help you with all aspects of the transaction.
The agent’s knowledge about the real estate market and its pitfalls can be invaluable in your search for the ideal property.