No. 1 Top Question by My Clients: Buy then Sell? OR Sell then Buy?
Recently I chanced upon my friend asking me this question again: "My husband and I are currently staying in our HDB and plan to upgrade. Should we sell first before buying or buy before selling?"
Journey to Upgrade is Not Easy
Some are selling their matrimonial home to move closer to kids' schools. Some are moving closer to their parents’ place. Many are upgrading for better lifestyle and space.
Regardless what are the reasons to upgrade, a lot of HDB home owners are not aware of their options and not sure what are the factors to consider which I believe might hinder their ability to make informed decision.
Let's say you are in the midst of scrolling property portals reading through hundreds of property listings and happened to chance upon one property that checked a lot of boxes in your mind. You are afraid if you do not put down option fee on the viewing day itself, you might miss out this particular property which you and your partner both love. In your mind, you will keep thinking if competition will be tough and if the unit will be sold very fast.
Most home owners will be very excited after their house has fulfilled the MOP requirements. They will start browsing and viewing properties before selling their own house. That is why they will be in dilemma situation whether to secure the unit first before selling their house.
“Today I am giving you 5 things on the checklist for you to make informed decision”
I am going to breakdown into 5 different checklist pointers which are crucial in helping you as the owner to decide what's best for you and your family.
Checklist 1: Your Existing Bank / HDB Loan
You have to ask yourself if you have cleared the existing loan regardless bank loan or HDB loan. If yes, you are good to go ahead with the purchase. You won't be affected by the Loan-to-Value (LTV) ratio meaning you can borrow the maximum loan depending on your family's income and credit history. Your downpayment will be just 25% [5% cash and 20% CPF] whereas the remaining 75% will be covered by bank loan. If you still have your outstanding loan, your downpayment will be increased to 55% [25% cash and 30% CPF], bank loan will cover the remaining 45% of the purchase price. Downpayment could be huge if you have existing home loan. If it is beyond your means, you should sell first then purchase next.
Checklist 2: Affordability to Pay Upfront Transactional Cost
Not to forget there is also Buyer’s Stamp Duty (BSD) on top of downpayment. BSD tax is payable up to 4% depending on the purchase price. You need to ask yourself if you have sufficient cash and CPF to actually buy first or sell first. The Buyer's Stamp Duty for $1 million property purchase price amounts to $24,600. If you have the sufficient cash / CPF, definitely you can go ahead to purchase your dream home. If not, the option is very clear that you need to sell first.
Checklist 3: Affordability to Pay Additional Buyer Stamp Duty
Bear in mind, by purchasing first before selling, you will have 2 properties under your name and you will be subjected to Additional Buyer's Stamp Duty (ABSD) of 12%. So right now up until this checklist 3, purchaser needs to prepare sufficient cash or CPF for 25% downpayment + 4% Buyer Stamp Duty + 12% Additional Buyer Stamp Duty. If you require cash proceed and CPF to be refunded from the sale of the house, it is a NO to actually go ahead to purchase before selling. If there is a delay in paying for any stamp duty regardless BSD or ABSD, the late payment penalty imposed by IRAS is enormous.
Checklist 4: Timeline of Sale & Purchase
For ABSD, you can apply for ABSD remission if you are purchasing 2nd property jointly as married couple and sell the 1st property within 6 months. You need to ask yourself if the time frame of 6 months will put you in a very stressful situation. Different property will require different amount of marketing period depending on market response. Owner also needs to find the right buyer with the offer that matches the expected selling price. You as the seller might have such experience if you decide to own the next property before disposing your current one. However, if you are confident that your property can sell, by all means go ahead and buy first.
Checklist 5: House Moving Arrangement
Last but not least about moving of house. Buy first will definitely save you the hassle of moving house all at once especially if your family is big with kids. With new house on hand, you can start doing renovation and slowly move things from old place to new home. You won't feel the adrenaline rush as you still have a roof over your head. Unlike those who prefer to sell then buy, timeline has to be nicely planned. This is to ensure that they have a place to stay at the same time rushing the renovation in time, so that they shift out within the procedure time frame for house handover to new owner. It could be even more stressful if there is delay on the renovation contractor or unforeseen circumstance with the new owner not granting extension stay or seller retracting the promise of giving new house early for renovation.
For those choosing to sell first, you might have either fulfilled the MOP requirement or you sell in order to upgrade or for any other reasons (near school, near parents' place, near work place etc). Then you do not need to consider the above 5 checklist pointers at all.
In terms of timeline, you will have more relaxed timeline that you can take your own sweet time to market and consider all offers on the table. The downside is that you might need to move house more than once where you need to rent an alternative place to stay or find completed property as next home.
Do consider the pros and cons to both scenario (buy 1st OR sell 1st) depending on your finances and comfort level.
We understand that financial planning can be a daunting task, and we're here to simplify it for you speak with us.
If you have a plan in mind but not sure if it works well – do share with us or let us know.
We will do our best to assist you to make sure you look at your plan from multiple angles and ensure you have a very clear picture on what’s going on.