Switching properties is not as easy as it seems. Here’s some common money pitfalls that people might overlook.
The time has come for you to sell off your old home, and move into a new one. Whether you’re upgrading to a condo, or moving due to an en-bloc sale, there are bound to be some complications. In fact, given the recent spate of en-bloc sales, it’s likely that many Singaporeans will soon be switching to a new home. Here are the money concerns to prepare for:
1. Consider the Cost of the ABSD
Should you buy a new house before you’ve sold your current property, or after? This is one of the most immediate problems faced when switching properties.
If you decide to buy before you sell, note that you will have to pay the Additional Buyers Stamp Duty (ABSD), if the second property is bought under the current property owner’s name.
For Singapore citizens, the ABSD is seven per cent of the property price or valuation (whichever is higher). So if you decide to buy an S$800,000 condo, for example, you will have to pay S$56,000 for the ABSD.
For Singapore citizens, the ABSD can be refunded if you sell your existing property within six months of buying the new house. In addition, check this list for other valid forms of ABSD remission, such as if you are a foreigner covered by a free trade agreement.
Note that if you don’t qualify for ABSD remission, it’s almost never worth buying before you sell.
You must also be wary of last minute problems, in the sale of your property. If for any reason your existing property can’t be sold in six months, you will lose the money paid for the ABSD.
2. Ensure You Can Manage the Payments for Both Properties at Once, If You Buy Before You Sell
If you are buying your next property before you sell the existing one, you will need more money set aside.
Remember you’ll need to make at least a five per cent down payment on the new property (it can be even higher, depending on how much the bank is willing to loan). You’ll also need to cover costs such as conveyancing fees (S$2,500 to S$3,000), renovation, and the monthly cost of more than one mortgage, if you’re still holding onto the old property when repayments start.
These have to be paid for even before you receive the sales proceeds from your old house. This can leave you financially stretched; so if you want to buy a new place before selling the old one, it’s advisable to first build a savings fund of at least six months of your expenses. Otherwise, you could be forced into using various high-interest loans.
3. Never Make Assumptions Regarding Sales Proceeds
If you are going to buy before you sell, you face an added risk: there’s a chance that your house may not sell for the expected amount.
A sudden shift in the property market can mean getting a lot less in sales proceeds; you may find that, even after the sale of your old home, you are S$50,000 or S$100,000 short of making the new property price.
This is especially risky if you are upgrading, such as by selling your HDB flat to buy a much more expensive condo. If you’re not confident that you can make up for any shortfall, then sell and collect the proceeds, before you buy.
4. Check on outstanding property maintenance fees and power bills
Before you sell your house, ensure you’ve paid any outstanding maintenance fees and power bills - otherwise you could end up in a messy dispute later. If you tend to roll over your maintenance fees, make sure you pay everything in full - including the interest - before handing over the keys.
Also do the same for the property you’re buying: if it’s a resale property, check that the seller has paid off any outstanding fees.
5. If selling your house first, be prepared for
If you are selling your house before buying a new one, you will probably want to pay off the outstanding mortgage (note: if you don’t pay off the outstanding mortgage, you won’t be able to borrow more than 60 per cent of your new property’s price or value).
However, many mortgages come with prepayment penalties. This is typically 1.5 per cent of the undisbursed loan amount. Check with your bank for the exact cost.
For HDB loans, the good news is that there’s never any prepayment penalties.
6. Consider the cost of temporary accommodations
You may be not be able to buy a new property, right after you leave your house. For example, during an en-bloc sale, you may have to vacate the house months before receiving the sales proceeds.
Do make early preparations for this. If you have a big family and can’t stay with relatives, you may need to rent for a few months. One interesting alternative is to rent from the buyer of your house: if the buyer is willing, you can arrange to stay in your present house while paying rent to the buyer rent, until you can buy your new place.
7. Be ready for potential storage costs
If you cannot immediately buy and move into a new home, you have to consider storage costs. Large items, such as beds and dining room tables, can’t easily be stashed away in a rental home. Chances are, you will have to either put them in storage or sell them off.
You should look around for storage options and compare prices, at least a month before moving out. For high value items, such as rare paintings, you may want to buy insurance before leaving them with a storage company.