Individual Vs Company buying residential property

[Santro]

I currently own two residential properties and planning to get another one in the next few months.
For multiple property ownership, does it help to form a company and buy properties on the company name. Is there any benefit on the ABSD or loan amount if these purchases are made on company name. Also, for taxation purposes, rental income gets added into your base salary income pushing up the income tax rates higher. Are there any tax benefits if property is on company name. What are the pros and cons.
I tried searching on the internet for more info but couldnt get much insight.
Gurus, please share tips on how best to manage multiple investment properties .

[Arcachon]

Additional Buyer's Stamp Duty for
a stable and sustainable property market
The Government announced today an Additional Buyer's Stamp Duty (ABSD) to be imposed on certain categories of residential property purchases. The ABSD will be imposed over and above the current Buyer's Stamp Duty, and will apply to the purchase price or market value of the property (whichever is higher) for the following purchases:

Foreigners and non-individuals1 (corporate entities) buying any residential property will pay an ABSD of 10%;
Permanent Residents (PRs) owning one2 and buying the second and subsequent residential property will pay an ABSD of 3%; and
Singapore Citizens (Singaporeans) owning two2 and buying the third and subsequent residential property will pay an ABSD of 3%.

http://www.ura.gov.sg/pr/text/2011/pr11-162.html

[Arcachon]

It has proposed that mortgage equity financing - where banks offer loans based on the owner's equity in their homes - be subject to the same loan-to-value (LTV) limit of 80 per cent for those with only one home loan; 60 per cent if there is more than one home loan; and 50 per cent for non-individual borrowers.

http://www.asiaone.com/Business/News...17-258690.html

http://www.mas.gov.sg/news_room/pres...ty_Market.html

[Santro]

Thanks Arcachon. Are there any tax benefits on rental income or special rules if I intend to sell the property at a later date.

It has proposed that mortgage equity financing - where banks offer loans based on the owner's equity in their homes - be subject to the same loan-to-value (LTV) limit of 80 per cent for those with only one home loan; 60 per cent if there is more than one home loan; and 50 per cent for non-individual borrowers.

http://www.asiaone.com/Business/News...17-258690.html

[Arcachon]

http://www.guidemesingapore.com/taxa...rate-tax-guide

[Arcachon]

Thanks Arcachon. Are there any tax benefits on rental income or special rules if I intend to sell the property at a later date.

rental income can be offset from the interest pay for the loan. The % of tax pay by individual and corporate are different.

Selling the property depend on the number of year you hold.

Five months after the last measures, Singapore government announced new property market cooling measures on January 14th 2011. These measures, 4th in the last 16 months, "are tough but they are meant to stabilise home prices and not necessarily intended to cause them to crash" according to the National Development Minister Mah Bow Tan. Mr. Tan also mentioned that "the measures may not be the last but also are not permanent, and once they are no longer necessary, they will be removed". [1]

What are the new property cooling measures in Singapore? Here is the list:
Holding period for imposition of Seller's Stamp Duty (SSD) increased from three to four years.
SSD rates raised to 16 per cent, 12 per cent, 8 per cent and 4 per cent for homes bought today and thereafter and which are sold in the first, second, third and fourth year, respectively.
Loan-To-Value (LTV) limit lowered to 50% on housing loans for property purchasers who are not individuals.
LTV limit lowered from 70 per cent to 60 per cent for individual property purchasers with one or more outstanding housing loans.
New measures may be directly targetting flipping, purchasing a property and quickly reselling (or "flipping") it for profit. Of the new measures, one of the harshest was on sellers' stamp duty - which went up to a maximum 16 per cent on property sold within the first year, a jump from 3 per cent previously. Banks will also reduce the maximum loan to those who already have one or more mortgages to 60 per cent of the property value. These measures are a direct hit to the profit margin of flippers.[2]

The aim is obviously to lower the demand that's been driving prices up. But in short term these measures may lead the flippers to hold their properties and lower the supply and drive the prices up.

http://www.sgpropertyinvestors.com/n...-measures.html

[Santro]

From the tax link, the rental income may not really be taxable. Not sure of the capital gains when the properties are sold.

First Three Years of Income Tax Filings
Taxable Income (S$)Tax Rate0 – 100,0000%100,001 – 300,0008.5%300,001 – 2,000,00017%After First Three Years of Income Tax Filings
Taxable Income (S$)Tax Rate0 – 300,0008.5%300,001 – 2,000,00017%

http://www.guidemesingapore.com/taxa...rate-tax-guide

[Laguna]

it depends also on how u structure
when u sell the property, it may end up as trading profit and subject to corporate tax

[Santro]

Thats what I am concerned as well.
Would be great to hear from multiple property owners on how they manage their taxes and capital gains .

it depends also on how u structure
when u sell the property, it may end up as trading profit and subject to corporate tax

[Laguna]

I set up LLC when buying US properties for obvious reasons, mainly of its limited liability in the event of getting into trouble with US laws.

In Sg, there is no benefit in setting up limited liability for the purpose of buying properties
1. cost of incorporation etc, of course, there is no need to audit the accounts, but rather troublesome to answer IRAS questions at times
2. how do u distribute the so call dividend or cash returned to yourself
3. when come to disposal, ru selling the company or the company selling the property
4. upon death, u will the company to your estate or the property? this is rather complicated...
5. corporate tax rate could be higher than yr personal income tax rate...

i cannot really see the benefit of setting up a company unless u the intention of holding real long term otherwise may deem as trading income upon disposal.

Even u setup one company for every property you buy, u may not run away from IRAS as deem to carry out property trading.

[kane]

I set up LLC when buying US properties for obvious reasons, mainly of its limited liability in the event of getting into trouble with US laws.

In Sg, there is no benefit in setting up limited liability for the purpose of buying properties
1. cost of incorporation etc, of course, there is no need to audit the accounts, but rather troublesome to answer IRAS questions at times
2. how do u distribute the so call dividend or cash returned to yourself
3. when come to disposal, ru selling the company or the company selling the property
4. upon death, u will the company to your estate or the property? this is rather complicated...
5. corporate tax rate could be higher than yr personal income tax rate...

i cannot really see the benefit of setting up a company unless u the intention of holding real long term otherwise may deem as trading income upon disposal.

Even u setup one company for every property you buy, u may not run away from IRAS as deem to carry out property trading.

1. fair enough
2. if you plan to keep the assets rolling in itself forever, you can probably just pay yourself nominal director fees.
3. sell the property
4. will the shares of the company, there should be the idea if you want to perpetuate the business
5. i'm no tax expert, so can't comment.

[SpinCity]

1. fair enough
2. if you plan to keep the assets rolling in itself forever, you can probably just pay yourself nominal director fees.
3. sell the property
4. will the shares of the company, there should be the idea if you want to perpetuate the business
5. i'm no tax expert, so can't comment.

3. You may want to sell the company as the stamp duty on share transfer may be lower than that on property transfer

[silver023]

1. fair enough
2. if you plan to keep the assets rolling in itself forever, you can probably just pay yourself nominal director fees.
3. sell the property
4. will the shares of the company, there should be the idea if you want to perpetuate the business
5. i'm no tax expert, so can't comment.

5. Short answer is, corporate income tax burden is usually higher than personal income tax because personal income is taxed at different brackets. However, companies do enjoy the partial tax exemption on the first S$300K chargeable income and newly incorporated companies get additional income tax exemptions. So, you probably have to do a simple modelling on a case-by-case to see if the company route is worthwhile.

I reckon it would not be worth it (company), as it'll probably be more complex with statutory filing requirements, etc.

[Santro]

Looks like forming a company and investing in real estate is more challenging than just the income tax part of it.
More overheads than what I was expecting

[Jonathan0503]

If you do set up a company to hold properties. Make sure it's GST registered.

Else, you will need to incur 7% GST when the company buys a property

[silver023]

If you do set up a company to hold properties. Make sure it's GST registered.

Else, you will need to incur 7% GST when the company buys a property

Not necessarily... you only pay GST if seller is GST registered.

[Jonathan0503]

Not necessarily... you only pay GST if seller is GST registered.

So better don't buy directly from developer as I think most will be GST registered?

[silver023]

So better don't buy directly from developer as I think most will be GST registered?

The sale of residential properties is GST exempt. So developers would also not charge you GST for residential properties.GST will apply for non-residential units.

[focus]

Sorry to sidetrack, but is this do-able ?
Buying 7 properties now ... and whether bank will loan you that much?

# Purchase Price Valuation Downpayment LVR Loan Amt Interest
Rate Annual
Interest Principal + Interest Payable Rental
Yield Rental mthly Gross Rental Property Tax Misc Expenses(inc. ppty tax) est. 30% Nett Rental
1 $700,000 $700,000 $280,000 60% $420,000 3% $12,600 $1,771 3% $1,750 $21,000 $2,100 $7,350 $13,650
2 $700,000 $700,000 $280,000 60% $420,000 3% $12,600 $1,771 3% $1,750 $21,000 $2,100 $7,350 $13,650
3 $700,000 $700,000 $280,000 60% $420,000 3% $12,600 $1,771 3% $1,750 $21,000 $2,100 $7,350 $13,650
4 $700,000 $700,000 $280,000 60% $420,000 3% $12,600 $1,771 3% $1,750 $21,000 $2,100 $7,350 $13,650
5 $700,000 $700,000 $280,000 60% $420,000 3% $12,600 $1,771 3% $1,750 $21,000 $2,100 $7,350 $13,650
6 $700,000 $700,000 $280,000 60% $420,000 3% $12,600 $1,771 3% $1,750 $21,000 $2,100 $7,350 $13,650
7 $700,000 $700,000 $280,000 60% $420,000 3% $12,600 $1,771 3% $1,750 $21,000 $2,100 $7,350 $13,650
8 $700,000 $700,000 $280,000 60% $420,000 3% $12,600 $1,771 3% $1,750 $21,000 $2,100 $7,350 $13,650
9 $700,000 $700,000 $280,000 60% $420,000 3% $12,600 $1,771 3% $1,750 $21,000 $2,100 $7,350 $13,650
10 $700,000 $700,000 $280,000 60% $420,000 3% $12,600 $1,771 3% $1,750 $21,000 $2,100 $7,350 $13,650
$7,000,000 $7,000,000 $2,800,000 $4,200,000 $126,000 $212,488 $17,500 $210,000 $21,000 $73,500 $136,500 Total Yearly

[focus]

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[focus]

Paisay.. disregard my previous 2 posts. I found mistakes in the calculation

It is not doable.. if interest rate is at 3% and you are getting at best 3.5% gross rental yield. It will be negative cashflow every year.

Back to the drawing board...

[Santro]

Bro, the interest rate is not 3% though this may happen in the next few years. Also, bank loan interest is on reducing balance, so your calculation does look very much workable. I have been looking at a similar model for quite some time .

Paisay.. disregard my previous 2 posts. I found mistakes in the calculation

It is not doable.. if interest rate is at 3% and you are getting at best 3.5% gross rental yield. It will be negative cashflow every year.

Back to the drawing board...

[focus]

Bro, the interest rate is not 3% though this may happen in the next few years. Also, bank loan interest is on reducing balance, so your calculation does look very much workable. I have been looking at a similar model for quite some time .

The updated chart below with 2% loan (though I think 3% is more prudent).

So leveraged properties at the current price seems to be more suited for capital appreciation in 10yrs time(ie, paying down of principal + possible price appreciation). If I am interested in passive income NOW, it is still better to get it from equities/bonds yielding >4%.

What model were you looking at? Care to share?

[Santro]

My approach very similar but I factor in the stamp duty as well in the downpayment. Even though it doesnt add on to the valuation, its still a sizeable amount considering the additional 3% ABSD. Hence I calculate the ROI based on downpayment+stamp duty .
Like what you mentioned, this approach is for long term and hedged with inflation.

The updated chart below with 2% loan (though I think 3% is more prudent).

So leveraged properties at the current price seems to be more suited for capital appreciation in 10yrs time(ie, paying down of principal + possible price appreciation). If I am interested in passive income NOW, it is still better to get it from equities/bonds yielding >4%.

What model were you looking at? Care to share?

[august]

company loan max now 50% leh...

[focus]

company loan max now 50% leh...

Yup. The result will still be the same. Not attractive as a current income instrument. But will be useful for accumulating wealth as you use $2mil to control $5mil and the rental pays down the loan.

So, the other way to do it is buy $5mil of properties fully paid and then draw an equity loan of 50% (which is $2.5mil) to buy equities yielding 4%.

This two type of investments can be held in a pte ltd company .

[focus]

But I've done some research on holding ppties and shares in an investment holding company and found there is no benefit and more disadvantages (ie, taxes on your dividend/interest as well).

You can refer here for more info.
http://www.iras.gov.sg/irasHome/page04.aspx?id=444

Anyone else can enlightened me on what is the usefulness of the company?