Recently, I wrote a series of articles about how much we need to earn to buy a BTO, HDB resale, EC, or condo. When I sent these articles to my clients, many found them empowering and helpful in their property decisions.
However, some clients currently own a property, and they have come back to me with more questions because they were unsure about their math of selling and buying a house. Their questions have prompted me to write this article using the example of one of my clients - Benjamin and Angie - What If They Want To Sell And Buy?
Let's call them Ben-gie for short. They are 45 and have two kids. The family lives in a 28-year-old 3BR leasehold condo in Singapore's outer core regions (OCR), aka estates such as Choa Chu Kang to Jurong West, Kaki Bukit to Changi, Seletar to Marsiling, and many more.
Rest assured, the process of buying a new house remains unchanged. In fact, because Ben-gie have an existing home, they would be able to unlock more funds in their CPF for the next house and possibly cash proceeds, too!
I would usually Zoom with or meet my clients over coffee because selling + buying isn't a pure and straightforward process. It usually involves these questions:
Should we sell or hold our current home?
How much sale proceeds can we get if we were to sell?
What can we buy?
Should we sell first, then buy, or buy first, then sell?
Plus, it deals with data, charts, math, and timelines so that it can be rather heavy as a web article. In comparison, my Zoom with Ben-gie was definitely more engaging, with lots of laughter and relatable explanations of the jargon and analogies.
But some may find it too intimidating to talk to real estate agents, which is why I wrote this article nonetheless. Having said that, this web article does not and should not replace the discussion that you should have with your agent (or me!).
In this article, I will discuss the process step by step. Still, I can only broadly cover the main flow and framework as the thinking process of a sell+buy often requires a customised and personalised study. So, let's start!
Should We Sell Or Hold Our Home?
To answer this question, we should examine your home's appreciation trends. Agents have tools that plot the growth of a condo/estate over the past ten years. We can compare this trend against your district, other districts, and the average national trend and share that information with you.
Let's look at Ben-gie's situation:
1. Ben-gie's Condo Growth Vs Their District Growth
This chart shows that their current condo has appreciated by 1.4% annually. In comparison, the transacted prices of condos in their district have grown by 4.7% annually.
In 2017, the market experienced a significant spike, primarily due to the strong sales of newly launched condos in this district. The subsequent transacted prices were largely influenced by resale condos, which have grown considerably in recent years.
2. Ben-gie's Condo Vs Similarly Old Condos In Their District
Well, some of you may say that comparing Ben-gie's old condo with all condos in their district is unfair because it is akin to comparing the running speed of a senior person with that of a young athlete.
So, let's look at the trends for Ben-gie's condo against similarly-aged condos in their district. As a fair comparison, I have set the parameters of older condos as those five years younger and older than Ben-gie's condo. This means we are comparing Ben-gie's 28-year-old condo against 23 to 33-year-old condos in their district.
The chart above shows that Ben-gie's condo's growth trend is somewhat similar to that of their district's older condos. In terms of actual percentage comparison, Ben-gie's condo is a tad below the district's average for older condos.
This chart also shows another thing: Older condos generally face lower appreciation growth. You may say that comparing old and newer condos is unfair. Still, the reality is those in the newer condos are seeing higher and better growth than the older ones.
If we translate these figures into a simple Math equation:
If Ben-gie had bought a $1.5M newer condo in this district ten years ago, they should have seen an estimated $700K growth ($1.5M x 47%)
As they had continued staying in their older condo, their gains for the past ten years are about $250K growth ($1.5M x 17%)
Enuff said.
3. Ben-gie's Condo Growth Vs Similarly Old Condos In The OCR
Next, we will look at Ben-gie's condo and similarly aged condos in the OCR parts of Singapore. How will Ben-gie's condo fare?
Oops, unfortunately, the news is not too good. The OCR condos have seen an annual growth of about 4.8%. This means a similar-aged condo in other OCR parts of Singapore is seeing better appreciation than Ben-gie's.
So, Back To The Golden Question — Should Ben-gie Sell?
A property plan has no right or wrong because it depends on their priorities and needs. As long as they have done their due diligence and taken action to prepare for their family's financial needs, that is already a plan.
I, for one, did not buy a new property. My husband and I went for an old 30-year-old leasehold HDB because:
The size of 131 sqm is just lovely
Our kiddo is attending school in this area
Our friends and family support are around here
We wanted a home that gives us the financial freedom to resign at any time without consideration should we need to take care of our aged parents
But one thing is certain: A 30-year-old ageing home has a decaying lease, which means our lease gets shorter each year, and our home won't appreciate much. And we are prepared that it may even depreciate, so for those in the same situation as Ben-gie and us, you don't have to sell your home (though it is advisably from a financial viewpoint). However, you should ensure you have an alternative finance/income/savings plan for you and your family.
After seeing these charts, are you also curious to know the growth trends of your current home? If you would like me to prepare a similar study for your property, contact me to set up a non-obligatory Zoom meeting with you. Let me assure you again: The focus isn't about selling your property; it is about knowing your property so that you can prepare for the future.
Okie, back to Ben-gie. They now want to know what will happen if they choose to sell. In the next step, we will discuss how to calculate Ben-gie's sale proceeds.
How Much Sale Proceeds Can Ben-gie Get If They Were To Sell?
Pat yourself on your back if you have made it here cos you have survived through the charts! Next, we are going into the world of Math now. To do this math sum, Ben-gie must find some information first.
1. Estimated Selling Price / Valuation Price
Ben-gie will need to know their estimated selling and valuation price. In my Zoom with them, this was given to them on a silver platter—all scrubbed and prepared. If they were to do it themselves, they could search the URA website for the list of recently transacted prices. For HDB properties, you can check using the HDB website.
Alternatively, Ben-gie can also use property websites such as propertyguru.com, 99.co, and edgeprop.com to find a list of recent transactions for their condo. These websites also have data analytics calculators to estimate their house's value. Lastly, if needed, Ben-gie can ask me to request a banker's estimated valuation of their condo.
2. Outstanding Loan
Ben-gie will also need to know their outstanding loan. Since their home is a private property, it will be a bank loan. To retrieve this information, they can log into the bank's portal or call its hotline.
For HDB owners, you may have an HDB loan. To know your outstanding loan amount, you can log in to your HDB portal or check your SingPass App under the tab 'Property', and you can see your HDB loan details.
3. CPF Principal Sum Used + Accrued Interest
The next and last information that Ben-gie need to prepare is how much CPF Principal Sum and CPF Accrued Interest were incurred for the house. All they need to do is log in to their CPF account or check their SingPass App under the tab 'Finance' and scroll down to 'CPF Housing Withdrawal'. It will show their Principal Withdrawal and Accrued Interest Amount. They must jot down both sets of numbers, as they would need to return both Principal Withdrawal Sum + CPF accrued interest to their CPF when they sell their condo.
As the condo belongs to both Ben and Angie, they will also need to retrieve this information for both of them.
4. Miscellaneous Fees of about 3-4%
The last portion is an estimate of the transactional cost of a selling transaction. What do these miscellaneous fees include? Ben-gie will incur these costs when selling their condo, such as agency and legal fees.
Let's talk a bit about the Agency Fee. The market rate for the agency fee is 2% for the sale of a property, and it is subject to negotiation between the client and the agent. Sellers may have to pay a higher agency fee depending on the extent of the marketing efforts.
Generally, the agency fee of 2% or more (or less) allows the agent to have a sufficient budget to produce marketing materials for the home, such as professional photographs, home tour videos, mailers, web articles, home styling, etc, and an advertising budget to publicise the house's availability to the target audience.
Another fee that must be incurred is the Legal Fee. As Ben-gie own a private condo, they must hire a private conveyancing lawyer. Clients with a bank loan (including HDB homeowners) would also need to work with a private conveyancing lawyer. Only those with an HDB loan or a discharged bank loan can engage the HDB lawyers.
Huh, what is a discharged bank loan? Does it sound like mambo jumbo already? Well, this is why this web article is only a reference guide. Please always discuss with your agent so they (I would love it if it were me!) can explain more and help you avoid unnecessary pitfalls or heart attacks.
I saw this quote on Pinterest that day, and it really hit the nail on the head.
There is a reason why some clients' transactions with agents are always smoother than others. And in my case, my referral rate is also high. And it isn't pure luck. Even if it is just luck, there is a Chinese saying - 运气也是一种实力。
This Forbes article also affirms that "LUCK IS A SKILL", and it aptly describes that luck is where opportunity meets preparation. It says that cultivating the luck skill requires conscious effort, learning and practice to create a mindset and environment that maximises the potential for luck to deliver positive opportunities.
Okie, there I said it. Haha, and back to the portion on miscellaneous fees. There are also optional costs that clients may wish to set aside, such as spending some money on minor repairs and repainting so that the house is more likely to secure good offers. This is especially useful for older homes. The main reason is that most buyers of older properties could be looking for a homestay. So, if the house gives a welcoming vibe, you will likely see more offers.
Now that Ben-gie knows where to get their information, let's input that data into the table below. The table shows a simplified formula for calculating their sales proceeds from the house.
Calculating Cash Proceeds | Amount |
|---|---|
Estimated Selling Price/Valuation Price | $1,200,000 |
(Minus) Outstanding Loan | ($480,000) |
(Minus) CPF Principal Sum Used + Accrued Interest | ($300,000) |
(Minus) Miscellaneous Fees of about 3-4% | ($36,000) |
Estimated Sales Proceeds | $384,000 |
If Ben-gie choose to sell their condo, they will likely see cash proceeds of $384,000 and $300,000 CPF returned to their CPF accounts. That looks decent.
What Can Ben-gie Buy?
Ben-gie have various options. Suppose they are thinking of buying another condo (resale or new launch) or upgrading to a landed property. In that case, they can proceed to buy immediately. To learn more about the math of buying a condo, read my earlier web article - how much do you need to earn to buy a condo?
If Ben-gie is thinking of buying an HDB resale, so we need to explore two crucial questions:
How old are Ben-gie?
Why is it important to know this? As of 30 September 2022, private home sellers under 55 must wait 15 months before they can buy an HDB resale.
What if the private home sellers are over 55 years old? They can buy an HDB resale up to 4-room HDB flats. If they wish to buy a bigger HDB flat, they must fulfil the 15-month wait-out period.
Can private home sellers buy a BTO or EC? Yes, after a 30-month wait-out period if they have yet to fully utilise their two chances to buy subsidised housing from the Government.
Do Ben-gie have an alternative place to stay?
Because Ben-gie are under 55, they will face a 15-month wait, so Ben-gie have to explore alternative places they can stay. Some families move back to their parent's place, while others look into renting another place.
In short, these are Ben-gie's options ranked according to timeline:
Timeline: | Options: | Links to Read |
|---|---|---|
Immediate: | Buy a new launch condo, resale condo or landed | |
After 15 months: | Buy HDB resale | |
After 30 months: | Buy HDB BTO or EC |
For Ben-gie and everyone, please remember there is no right or wrong in your property plans. Upgrading is not a must, though it is a good strategy for those who are financially capable and young. It is OK to right-size, too, if that is the best plan aligned to your priorities. The important thing is to have a common consensus in the family because your property choices will be a change that uproots everyone.
Should Ben-gie Buy Then Sell, Or Sell Then Buy ?
And yes! We have reached the last question!
In Ben-gie's case, if they want to buy an HDB resale, they have only one option — they have to sell first, then rent for at least 15 months before they can buy.
What if Ben-gie are now thinking of upgrading another private property—a 4BR resale condo or a 3BR new launch at about $2.1M? Which timeline will work better for them?
From a timeline perspective, many would prefer to buy first and then sell. That will allow them to comfortably renovate their new house, move into it when ready and slowly sell their current unit.
Scenario 1: Buy Next Home Then Sell Condo
If Ben-gie can buy and then sell, there are various advantages that they will enjoy:
STRONG BARGAINING POSITION AS BUYER because they are not in an urgency to buy. They can shop around to find their ideal new house. They can walk away from a closing discussion if the price is too high. They are not tied to a bind to quickly find their next house. Plus, Ben-gie can also offer timeline flexibility to any home seller - no issue with longer completion, no problem if they need an extension of stay - as long as the price is attractively low enough for them.
STRONG BARGAINING POSITION AS SELLER because they are not in an urgency to sell. They can wait around for the next best offer. They can refuse to close the deal if the price isn't in their ideal price range. They are not tied in a bind to quickly sell their home to secure the new house they are eyeing. Plus, Ben-gie can also offer timeline flexibility to any home buyer - no issue with fast completion, no problem if they need their home immediately after completion of sale - as long as the price is attractively high enough for them.
So, the timeline looks really good. Let's look at the math now for Ben-gie. Offhand, it seems pretty heavy. Firstly, Ben-gie must prepare at least 25% for the downpayment and almost $75K for the stamp duty for a $2.1M condo.
In addition, because they have the current condo under their names, the new house will be considered a second property, and that purchase will be subject to the Additional Buyer's Stamp Duty (ABSD). Ben-gie, being Singaporeans, will have to pay 20% ABSD. If they are PRs or foreigners, the ABSD rates would be higher.
Overall, Ben-gie will have to shell out $874.6K to buy their new house and ensure they can get the remaining 75% loan of $1.575M. I believe this is gonna be a tough call for Ben-gie and others in the same shoes as them.
There is a silver lining for Ben-gie: the current condo is their first matrimonial home, and this means that they can apply for an ABSD remission and have their 20% ASBD returned to them if they sell their existing condo within six months of the date of purchase of their new house. Several conditions must be fulfilled, e.g., Ben-gie must buy the new home as a joint owner. Click here to read more about the conditions for ABSD remission for married couples.
What if the current condo is not Ben-gie's first matrimonial home, or Ben-gie prefer to buy the new house using only Ben's name? Then Ben must pay the ABSD, and ABSD remission will not apply. Thus, his most feasible way is for them to sell, then buy, or bite the ABSD bullet and own two properties - one for homestay and one for rental. If they really want to own two properties, there is another option where they don't have to incur the ABSD. Read the last section.
Scenario 2: Sell Condo First Then Buy Next Home
This is a common scenario for many clients because we often need the sale proceeds from our current home to buy the next property, especially those who are upgrading to bigger and more expensive houses. This time, let's look at the math first.
In the earlier section, we calculated Ben-gie's CPF refund and estimated cash proceeds should they sell their condo.
Coupled with some savings that they have set aside for the new home and the existing amount in their OA, Ben-gie's budget would be capped at about $2.348M for their next house.
That will be a pretty comfortable budget for a 4BR OCR newly TOP condo or a 3BR new launch.
Suppose Ben-gie were to buy a new launch. In that case, the unit will be ready a few years later, so Ben-gie will have to find an alternative place to stay with their family or rent a place until the new launch condo is ready.
If they choose to buy a resale or a new TOP condo, he can move directly from his current place into his new home. Now, let's take a look at the math of this sell-then-buy process:
With the proceeds from selling their current condo, Ben-gie will have sufficient funds to proceed with the purchase. What about the timeline of selling and buying? Here's a sample of an ideal timeline for Ben-gie if they buy a resale or a new TOP condo.
Well, the timeline looks doable, too. In fact, this is frequently happening in the property market. If Ben-gie hope to move directly from their current condo to their new house, they may not have the best bargaining position as sellers and buyers. They would need to sell to a buyer who is willing to give them an extension of stay and buy a new house without an extension of stay. But it is possible.
If Ben-gie is able to move to a family's place for a few months, then their bargaining position will be strong again because they don't need an extension of stay for their current home. They can slowly find their next house since they will have a roof over their heads.
Looking at this timeline, I know many clients have started shooting questions. Can I option for my next home before my buyer exercises for my unit? Must the option fee be 1%? Must I wait 2 to 3 weeks to complete my buying? Can I complete my buying earlier?
This is the flexibility of timeline management, and this is why you would need an agent to oversee this portion for you. Yes, these concerns can be managed, but they require a more in-depth explanation so you are fully aware of the risk and cost involved. If you really wish to know the answers to these questions, please ping me or discuss them with your agent.
Now, for the bonus portion - what can Ben-gie do to own two properties and not incur ABSD?
Ben Can Part-Sell To Angie And Ben Buys A Condo
You would have heard this term before - decoupling or part-sale. This is only possible for private homeowners. For HDB homeowners, you cannot decouple.
What does decoupling or part-sale mean? Joint homeowners can “decouple” when one co-owner transfers their share to the other, relinquishing their ownership completely. This means that Ben can sell his share of their condo to Angie, and therefore, he will have no property under his name. He can then proceed to buy another property for homestay or as an investment property to earn rental income.
In Ben-gie's case, we suggest that Angie buy over Ben's share so that Ben, being a higher income earner, will have more options when buying the second property.
A quick look at the math below will tell you this is a challenging process, so clients are strongly advised to work this through with their agent and banker. In short, the math involves:
Part 1: Knowing the key info of the current house
Part 2: How much is needed for Angie to buy over Ben's share
Part 3: How much Angie has in her CPF and cash on hand, and whether it is enough to cover Part 2
Part 4: Whether Angie can cover the loan needed for Ben's share and the remaining outstanding loan
Part 5: How much will Ben get in terms of his CPF refund and cash from the sale of his share and his loan eligibility
Well, this also looks like a feasible plan for Ben-gie. And one more last litmus test—what is their monthly instalment if they were to sell and buy a $2.1M condo instead of owning two properties? I have used a very high interest rate of 4.5% to calculate Ben-gie's monthly instalment. Recent April 2024 fixed rate packages are offering 3.0% or lower.
Similarly, I have used a low rental sum of $4K. For this second property, Ben can look at buying a new launch or newly TOP condo, and newer condos often fetch higher rentals.
So, these are the options for Ben-gie, and my job is done, at least for now. And woohoo, you made it to the end of this article! Great job!
Now, it is in their hands to see which property options work best for their family and their priorities ahead. If you are keen to have a similar discussion with me and you know what to do, contact me. And in case you are curious about their final decision, have coffee with me!
ABOUT THE AUTHOR
Pris Low has nearly 20 years of experience in the non-profit sector - representing consumers in their conflicts with retailers and advocating for the less privileged in our community.
Her social service background has helped her be sensitive and attentive to her client's needs and feelings to prepare them financially and emotionally to welcome their new homes.
She has thrived because she doesn't tell her clients what to do. She hears their needs and explains the options to them. She respects every choice her clients make because she feels there is no wrong decision as long as it meets their needs and they are aware of the possible pitfalls and prepare for it.