Asset progression is something many of us want to work towards, yet it can be a tricky decision to carry out with the lack of proper experience and knowledge. Here are some choices you can consider, including the pros and cons for each choice.
Choice #1: Buy your Condo first and Sell your HDB flat later
In a situation where you can buy a private condominium with enough funds to keep HDB flat without selling it first, it would be tempting to do so and keep the HDB flat to sell at a satisfying price.
By keeping the HDB flat, you will be able to wait and see till you chance upon a potential buyer that can buy off your HDB flat at a good price – you will not have to rush to get it off your hands and settle for a less than ideal price.
However, we would like to add a word of caution that owning one property while buying the second will incur a couple of extra costs. For one, you will need to pay a 17% of Additional Buyer’s Stamp Duty (ABSD). ABSD is a mandatory payment on top of the standard Buyer’s Stamp Duty (BSD). This will increase the cost of your second property considerably. For many of us, 17% is quite a significant figure – if you are buying a $1.6 million condominium, you will need to pay $272,000 for the ABSD, just because this is your second property.
In addition, if you are still paying your HDB loan, you will also incur higher monthly repayments as you will only be able to take 45% of a home loan for the private condominium.
You would also want to get the HDB flat off your hands soon as well, since HDB flats are 99 years leasehold and therefore depreciate over the years. Generally, a HDB will depreciate by approximately 2% a year, which is considerable if you are going to hold on to your property for another 5-6 years.
That being said, there is an option to claim back the ABSD paid (yes, that painful $272,000 can be claimed back!) provided if the new purchase is a matrimonial home. This means that you buy the house under you and your partner’s name (i.e. husband and wife) and sell off the HDB on hand within 6 months. This means that for singles, widows/widowers, and divorcees, there will be no remission on the ABSD paid.
However, this means that you will still need to pay the ABSD first before getting it back. You will need to make accurate calculations to ensure that you have enough funds on hand and in your CPF account to fork up the expenses above. This upfront capital outlay can be a deterring factor for many.
Choice #2: Sell your HDB first and buy your Condo later
Since the ABSD is such a painful payment and a significant cash flow problem, some of you might to consider selling your HDB first then, and buy your condominium later on. This means that you have more time to find your dream home, while you stay at your relatives’ or friends’ place for the time being. The cash flow problem will naturally be solved. By selling your HDB earlier than waiting it out, you will also be able to sell it before it depreciates in value further.
However, staying at your loved ones’ accommodation can only be short term, and any longer will create problems for your family and theirs as well. As it is only a temporary accommodation, be prepared that it would not be as comfortable or “free” as your own home. From difference in lifestyle habits, noise level and more, you will have to make some concessions here and there for the decision that you have made.
For those that have children, this will be extra difficult. That might be why some of you would choose to rent a unit separately instead. While this solves the accommodation issues, it also implies that extra rental costs is incurred during this interim period where you hunt for an attractive condo unit.
That being said, by selling your HDB flat earlier, the extra percentage in price should more than cover the cost of renting. If your family do not mind having to move again once you secure a condo unit, this is a viable option. A more leisurely timeline also means that you are better able to secure a new launch unit, which usually has early bird discounts, developer prices and first mover advantage (i.e. better able to command a higher selling price as you are the first-hand buyer of the unit).
Choice #3: Sell your HDB and buy your Condo at the same time
Finally, we have another option – which is to sell your HDB and buying the condo unit at the same time. As selling off a HDB takes approximately 10 weeks turnaround time, it means that you do have that 10 weeks to act fast and secure a condo unit. If you are able to match the OTP within the same time period, you will also be able to make the move from the old to the new home immediately. This also saves up on the moving fee and rental fee since you will no longer require to rent a home elsewhere first while you find a condo unit.
However, apart from the massive coordination and stroke of luck to get the dream unit while selling your HDB at a satisfying, you will also need to have sufficient cash to pay the 5% cash along with the buyer’s stamp duty (BSD). While there are cases where buyers allow you stay at your HDB for a while more, not every buyer is willing to grant you that. Therefore, the timeline is definitely very tight.
Certainly, the options above all have their pros and cons. To carry any of them out, you will need property guidance and help from someone with the right experience and knowledge. If you are unsure of what choices to make, reach out to us at www.sellwithkaeden.com to know more! We will be happy to assist you in your asset progression journey!