Today we discuss a problem commonly raised by both up-graders and down-graders; people who own a property currently and looking for a change. So, can you buy first and sell later?
There are many variations of an answer to this question, and many customers come up with versions of hearsay: "My friend tell me", "My father tell me", "My neighbour tell me"... and so on. Rather than relying on hearsay, we are here to decipher the mysteries through uncovering the details. For the short version of the answer, you can, but it needs a lot of money upfront.
Chicken and Duck
People tend to associate selling first and buying later with trouble. Trouble in terms of the transition, the fears of not having a place to stay, the urgency of looking for a new home and other issues relating to the gap in time between selling and buying. Thus, an ideal situation is one where one can buy a new unit then sell the current one, with no issue of a gap without a place to stay.
However, this is somewhat like having a chicken in hand, then wanting to buy a duck, just that properties are far more complicated and also more expensive than poultry. For a start, you probably don't take a loan to buy a chicken, or duck for that matter.
We will go through the various scenarios and you can decide which one applies most to you!
HDB to HDB
For HDB to a HDB resale, one can buy first sell later, with the caveat being that you need enough money. You are able to go to a bank and take a 75% loan even if there is a current loan existing. There is a need for enough money to pay stamp duty and 25% downpayment for the unit you are buying. Also, HDB needs you to sell off your initial unit within 6 months.
Based on this scenario, in Aaron's experience there are 2-3 out of every 10 buyers that can do this. The majority of buyers will not have that amount of money available or are actually uncomfortable to fork out that sum.
It's important to note once again that the stamp duty and downpayment required are from your personal cash and cpf reserves and are not from the value locked up in the first flat. Thus, therein lies the challenge in having enough money to buy first sell later in the HDB to HDB scenario.
HDB/Private to Private
Next, the move to a private unit from either a HDB or a private property. The key factor to discuss here is the ABSD: Additional Buyer's Stamp Duty. This is on top of usual stamp duty fees and thus is an extra cost to consider.
Of course, it's possible to get the ABSD reimbursed since you are not intending to keep ownership of the two properties. This reimbursement is valid upon 2 conditions:
The property bought is a matrimonial flat
The property is sold within 6 months
The meaning of a matrimonial flat is that both husband and wife's names need to be in the new property, with both of them being owners.
This scenario thus is very expensive to buy first sell later, mainly due to the ABSD beyond the usual stamp duty. With a loan on the current property, the second mortgage loan is at a maximum of 55%. To use the funds in one's CPF Ordinary Account (OA), the OA needs first to hold enough money meeting the Basic Retirement Sum requirement.
Thus, it basically means that a lot of cash on hand or you need to be CPF-rich for buy first sell later to work. From Aaron's experience, about 1 or 2 out of 10 have the ability to do it. After all, most people need funds from the sale of the first unit to make their next purchase.
EC New Launch
A new launch is a unique situation. Firstly, it's possible to get a 75% loan even with a current loan on HDB. For the loan, it's possible to choose either normal progressive payment or deferred payment.
For example, one can pay 25% downpayment, and take a 50% loan. The remainder can then be paid later with deferred payment. This increased flexibility allows for people to have an easier transition. Again, there is a need for money at least to pay for the stamp duty and downpayment.
If you can afford that, you can then stay in the current unit until the EC is ready.
All the factors combined
Whether you can and want to buy first sell later depends on 4 main factors.
Cash on hand
Stamp Duty to pay
Need to rush to sell after buying
Bank and CPF matters
Having enough cash will sort out any considerations but cash is a luxury not many people have. Thus, it's important also to consider how much stamp duty is to be paid for the scenario you face. In several situations, there is a 6 month limit in which you need to sell after buying, so even if you eliminate the trouble of transition, you might face the stress of having to sell in a rush. Lastly, it's vital to consider how much CPF you have, how much you can use for payments and look through the detailed terms of bank mortgage loans.
What to do?
After looking at these situations, the recommended solution for the majority of buyers is still to sell first, buy later. Then with that, the key becomes how to transit between properties without too many problems.
The solution usually comes easier with a competent, experienced agent that is able to understand your specific situation, come up with a best possible plan and explain it to you based on your unique scenario!
Check out how Aaron dissects the Sell first or Buy first question in the video below!