HOUSING MATTERS
8 Things To Be Aware Of When Upgrading Your Property
Having moved from a HDB flat to a private condominium would mean that you are improving your lifestyle. But at the same time, you also know that would mean that you are undertaking more financial commitments.
It’s more than the difference between the value of the two properties. There are other things that you should be more financially worried about. Therefore, this article will discuss the things that you should be mindful of when upgrading your property.
READ ALSO: Things You Should Know About BTO VS Resale: Part 2
#1. Resale Levy
First and foremost, this only applies if you are moving from a subsidised flat to another subsidised flat. Say, for example, you are moving from a 4-room flat to a 5-room flat.
A resale levy is an amount charged to the owner when changing from a subsidised flat to another subsidised flat.
The amount payable depends on the size of the flat.
Therefore, if you think you will be getting a certain amount after selling off your flat, make sure you think of the resale levy before being happy with profits.
READ ALSO: 8 Must-Know Abouts When Buying A Resale Flat
#2. Overlapping of home ownership
What this means is that you buy first prior to selling off your property.
If you do this that means that you will have to pay for two properties at one time. You might be paying for two mortgages when actually you are just staying in one home.
On top of that, you might need to pay the downpayment in cash for your subsequent property. The reason is that the balance in your CPF Ordinary account might not be sufficient. To add on, since you have not sold off your first property, you do not have the extra cash or CPF monies to use for the downpayment.
#3. The ABSD (Additional Buyers’ Stamp Duty)
The term ABSD has ever been buzzing around. For the benefit of many, the ABSD is a tax charged on an additional residential property.
The ABSD was implemented as an act of cooling measure in the face of rising property prices in the thick of strong investment demands from investors. We can out it as a “penalty” if you buy extra properties.
The ABSD might be payable if you buy first prior to selling off your property. Technically you do own more than one property therefore, ABSD might be payable by you.
You may get an ABSD remission as long as your first residential property was sold off within 6 months after the date of purchase of the second property for completed property.
It may not be implemented on you if you have already contracted to sell off your first residential property ahead of signing the Option to purchase (OTP) for your next residential property.
The ABSD amount depends on the buyers’ residency status. It is now charged at 12% for your second property for a Singaporean and 15% for a Singapore Permanent Resident (ABSD rates after 6 July 2018).
READ ALSO: Questions You Need To Ask Yourself When Buying Your First Home
#4. Sales proceeds assumptions
This is an important one. If you buy first and before selling off your property, you do not want to play your finances based on assumptions of your sales proceeds.
Say, for example, you found a perfect home and decided to sign the OTP straight. You used up your entire emergency fund just to pay for the downpayment.
On the other hand, you already have an interested buyer for your first property. But due to the market change, you only manage to sell off your property for a way lesser amount than your expected amount.
By doing that, you may receive lesser cash proceed. You actually expected that the cash proceeds could pay back the original sum of your emergency fund.
Simultaneously, you lose your job and you do not have an emergency fund to pay off your new mortgage or even your daily expenses.
With that, you might want to sell off first before buying. So that you will know where you are at with your finances.
#5. Prepayment penalties
Now we will talk more on the action of selling off first before buying.
Since you are selling off your property before the loan tenure, you are somehow not fulfilling your “promise” of not holding out to your full tenure.
With that, you must be aware of the prepayment penalties that might be implemented on to you by the mortgage provider (banks, financial institutions).
The bank will charge you on the balance of the loan that was unpaid. It is normally a percentage on top of the amount. Therefore, if the amount is huge, do expect a high prepayment penalty amount.
This, however, does not apply if you took a HDB loan. There is no prepayment penalty on HDB loan prepayments.
#6. Temporary Accommodations
By selling first and buying later, you may have a period where you are left “homeless”.
The property that you bought might face delays. It could be a transaction or even construction delays.
That being the case, you might need to find temporary accommodations to lodge in. It could be a few days, weeks or even months.
Thus, do plan out well if you are considering selling first and then buying later.
You could always stay at friend and family’s place while waiting. Or you could negotiate with your buyer to give you extra time before moving out.
#7. Wait another 5 years (Minimum Occupancy Period)
You waited 5 years or more before you could sell your first property. Now it’s back to start again. This applies if you are upgrading to another HDB flat.
It might not be an issue if you love your new home. But imagine your expectations of the neighbourhood are wrong, and you also do not like any other aspect of your new home.
You simply cannot buy another home or even sell off the flat all due to the Minimum Occupancy Period.
You are left with no choice and you just have to live with it.
Therefore, do your own research about your new home and make sure you really have made the right choice.
READ ALSO: Minimum Occupancy Period (MOP): Why Is It 5 Years?
#8. Restarting on mortgage commitments
As you buy a new home, you will also start on a new mortgage commitment. What this means is that you are back at year one of your mortgage journey.
If you bought a new flat at age 35 and undertake another HDB loan, you will be paying off your mortgage till age 60.
Your dreams of retiring at age 50 may not come true as you have an obligation to pay off your mortgage. You would still need to work just to pay it off.
Therefore, after a certain age, you are not able to take on a mortgage just due to the fact that you may not be able to pay for it.
Even at age 40 or 50, you would want to focus more on your finances on your retirement rather than on your home.
As a result, do take note that you might finally have your dream home but your liability just got bigger.
Upgrading lifestyle, degrading your future
You finally bought a new home and you feel happy about it.
But if all your life you have been ever too focused on paying your mortgage, are you really prepared for your retirement in the future?
Your mortgage may take a maximum of 30% of your salary. The amount of money to maintain that home may take another 10%. The rest of your salary would be used for your daily expenses and responsibilities.
The big question is what percentage of your salary can be used for retirement?
With that, do take not note of all that was discussed above prior to upgrading your property.
That is the end of the article and hope the information is useful. Do share it with your friends and families. Till next time.
Disclaimer
I am a financial adviser but I am not your financial adviser. Therefore, what is posted on this website, are my opinions and NOT to be taken as financial advice. Information provided might be relevant at this period of time but may be irrelevant due to alterations to rules, regulations or policies. The information provided is true to the best of my knowledge, but there maybe omissions, errors or mistakes.
