Should I Buy First Or Sell First?
When you are ready to make a move to upgrade to a private property, or are thinking of relocating due to education or family care needs, you will always find yourself caught in this dilemma.
Should I sell my home first or should I buy my next home first?
Whenever you are ready, the very first thing that most people would be excited about is to start shopping and look around for their next home.
That’s where the excitement is!
Home buying is usually more exciting then home selling
Finding a home, looking around, thinking of all the things that you can do with your next home and imagining the renovations that you can do.
And when you found a unit that you really like, you will be so eager to put down the deposit and ‘chope’ the place.
That’s when you realise you have not sold your house yet.
Believe me, it happens to almost everyone.
See, the part where everyone is usually more involved in is the buying. That’s where all the fun happens.
The selling part is usually strictly business and price is often the only concern. That’s the rather boring part but yet very essential.
But there is actually another factor in between selling and buying that is equally, if not more important than both of them combined.
That is Timeline Planning
Planning your sales and purchase
What happens when you get your timeline planning wrong?
Paying enormous amount of tax upfront
Being homeless
No time for renovation works
Paying extra for the purchase
Paying enormous amount of tax upfront
On 16th December 2021, the government announced a slew of cooling measures to control the high growth of properties since May 2020.
One of the measures introduced was a higher Additional Buyer’s Stamp Duties across the board for all 2nd property buyers.
The Additional Buyer’s Stamp Duty for Singaporean’s buying a second property went from 12% to 17%. Effectively, that would mean that a family thinking of buying a private condominium that cost $1,200,000 for their own stay while still holding on to their HDB flat, would have to pay $236,600 upfront for Buyer’s Stamp Duties plus Additional Buyer’s Stamp Duties.
And this can only be paid in cash if you are buying a resale private condominium.
After which, the family could only apply for a refund of the Additional Buyer’s Stamp Duties paid, if they sell their flat within 6 months of exercising their Option To Purchase the resale private condominium.
Paying this additional amount, on top of the 5% cash that is payable for the deposit of the property, can be a super heavy load and may well tap into the emergency funds of many families.
Also, there could be a pressure to sell the current flat at a lower price if the property is marketed late and the deadline of refund is getting tighter.
Being Homeless
The feeling of homelessness can be very real
As scary as it might sound, this actually happened to a lot of families. There is usually a tight timeline between the date you are going to vacate your current home and the date where your new home is ready for you to move in.
Even a small hiccup like a delay in renovation work due to unforeseen circumstances might cause you to have a gap of a few days even up to weeks where you need an alternative accommodation.
Due to the tenancy laws in Singapore, one cannot rent any unit that has a tenancy of less than 3 months.
So what do they do?
More so, what if they have furnitures that they will need to move to the new home?
It will become a logistical nightmare where you would have to find a temporary storage for the furnitures, temporary accommodation for your family, hotels, serviced apartments or bunking in with relatives.
Not to mention the cost of all these temporary measures and the inconvenience it will cause to your daily lives.
No Time For Renovation Work
We are no strangers to news of nightmare contractors dragging the renovations months and providing shoddy work.
According to many interior designers and contractors, the biggest issue which still plagues many of them, is the lack of manpower.
With most of the skilled workers in the renovation trade hailing from Malaysia, local companies are finding it harder and harder to retain the workers when the competition are so strong.
Some companies even have to push away projects simply because they could not handle the amount of work.
And there are others who will tell you that they have no manpower issues and will definitely handover on time.
Big red flag there.
Due to this big manpower crunch, factoring additional time for renovation works is absolutely essential. Even if there are delays in the work, you could still have the option to discuss with the contractor to finish certain area of the house first so that you can at least sleep in the rooms while they are finishing the works in the living room for example.
Paying Extra for the Purchase
While it seems like buying a property only consist of the fixed costs that you are being told, one such cost that is getting more and more common is the bridging loan.
What is a bridging loan?
A bridging loan is a loan extended by the banks on top of your mortgage loan to help to bridge the amount for completion of your purchase.
This will likely happen when CPF from the sale of your previous property was not credited into your Ordinary Account ( OA ) in time to be used for the purchase.
These loans can have an interest rate of 4% - 6% per annum and can easily cost a few thousand dollars depending on how long you need the bank to bridge the loan.
So should I sell my current house first or buy my next house first?
Well, I wish I could say there is a definite answer for this question but unfortunately the situation differs for every single person.
Despite saying that, here are some simple rules that you can pay heed to in order to decide whether you should sell first or buy first.
When To Sell First
Selling first will the right buyer at the right price
When you do not have much funds on the side and need to depend wholly on the proceeds from the sales of your house, this is an obvious reason to sell first.
You will also be certain that there is a buyer who is willing to offer the price that you want from your house.
Once the buyer exercises the option to purchase your house, no Additional Buyer’s Stamp Duty will be required for the next purchase.
You can then go ahead and launch your home hunting into full gear mode and acquire your desired house with confidence.
Furthermore, you can negotiate for an extension of stay from the buyer of your current house so that you can vacate your current house at a later date, giving you more time for renovations.
You can also negotiate for an early takeover or early completion of the house that you are interested in so that you can start your renovations early, giving you even more time for renovations.
However, there might also be cases where the seller of your asks you for extension of stay as well, so that they can have time to find their next house or have more time for their renovations as well.
You would then have to weigh out whether preparing for an alternative accommodation or giving up the unit and looking for another one will be a better choice.
Pros
Certain that your house has a buyer at the right price
Able to use the funds from the sales proceeds for the next house
No need to pay Additional Buyer’s Stamp Duty
Cons
Lose out on potential units
Might need to find an alternative accommodation to stay temporarily
When To Buy First
If feels good to secure your dream home right away
When you have a certain property type that is rare in nature ( penthouse units or ground floor units ), or some development that you have been eyeing for a long time, then that may be a reason to make the purchase first.
These type of properties will come and and go so fast that you might not even get the chance to consider for too long.
There have been more and more instances where properties are sold with no viewings conducted. Buyers are buying blindly ( I absolutely do not encourage that ).
If you do not need the funds from the sales proceeds to go ahead with the purchase, then you can safely put down the option fee and secure the unit.
However, this will also require you to prepare the Buyer’s Stamp Duty and Additional Buyer’s Stamp Duty to be paid upfront if you are going to exercise the option to purchase before finding a buyer for your house.
One way around this would be to ask the seller to provide a longer option period.
Instead of the standard 14 days for a private option to purchase, request for a 2 or 3 months option period with a higher option fee.
If the seller agrees, this arrangement will give you more time to secure a buyer for your house and you would not need to pay the Additional Buyer’s Stamp Duty.
Pros
Secure the unit that you like immediately
Can get at current price
More or less certain the time you have to take over the place, and time needed to do Reno
Cons
Need to come up with funds for the purchase upfront
Limited time to sell the house, to avoid paying ABSD
Might need to come up with ABSD upfront
Might be forced to sell the house at a lower price if selling takes too long
Might need bridging loan if house did not sell on time for funds to be ready for the purchase
Conclusion
Deciding whether to sell or buy first really boils down to how urgent you want to secure a unit and how much funds are under your deployment.
In order to help my clients to navigate these confusing timelines involving selling your HDBs and buying a private property, I have come out with a clear framework that I use to help my clients plan out and execute their buying and selling simultaneously.
If you are in the midst of deciding whether to sell or buy first and want to get a clearer picture on the pros and cons of each and the different methods you can use to help tackle the different situations, request for your free consultation session by clicking on the link below.
