Upgarders

Upgrading to the next property?

You have worked hard for the initial period of your career. Now is time to enjoy some of the wealth you have accumulated. Upgrading to your next property is a good way to reward yourself. As not only will you enjoy a better lifestyle, if done correctly, you will also be investing in a more profitable investment vehicle! Again the key word here is “if done correctly”. So what are the points to consider to make sure that the upgrading is a fruitful one?

1. Budget Not surprising the starting point should be consideration of your budget. The good news is that most of us actually underestimated how much money we could have for the next property. The amount of money for the next property will come from 3 sources:

a. Proceed from sale of current apartment – This amount is equal to sale of your current amount minus away the remaining unpaid loan. Click here to get an estimated figure!

b. Borrowing from bank – The amount you can borrow will be based on your income. Click here to get an estimated figure!

c. Cash and CPF available – Another source is of course the amount of cash and CPF you have!

Adding all the 3 sources up, that is the budget you can have for your next property! Click here if you wish to get a more precise figure A numerical example would be as follows: Suppose a working couple, both who have worked for about 10 years, currently owns a 5 room HDB flat in Bukit Merah which they bought in 2006 at about $400,000. They have borrowed 80% at that point in time for 30 years. Currently their combined income is about $12,000 and they have savings of about $250,000 as cash and CPF. The amount they could afford for the next property is estimated as follows:

a. Proceed from sale of current apartment – Their current loan remaining (in 2014) would be about $250,000. If the apartment in 2014 can be sold for about $800,000, they would have about $550,000 ($800,000 – $250,000) from the sale of their current apartment.

b. Borrowing from bank – based on their current salary of $12,000, it is likely that they can borrow about $1.2 million from the bank!

c. Cash and CPF available – Assuming that they save $250,000 over the years.

In this case, they total they can afford for their next property is $550,000 + $1,200,000 + $250,000 = $2,000,000! We must say that this example is quite close to real life! A 5 room HDB dweller could actually afford a $2 million property! Do Click here to know how much you can afford! You may be in for a pleasant surprise J

2. When is the best time to upgrade? We believe that there is no best time to upgrade. There are too many variables to consider if you want to scientifically work out the best time to upgrade. So we believe that the best time to upgrade is when you have the budget! One thing you need to take note is that price trends of different apartments can be vastly different! i.e. do not assume that when your apartment price increase, all the rest of the apartment prices increase as well! And even so, the quantum of increase can be different. In that sense, is it possible to find a property with price reduces while your apartment price increase? The answer is YES! On the same note, is also possible to find a property with price falling more when your apartment price decreases. Hence the key here would be dig harder to find!

3. Upgrade to New or Resale? Most people prefer new things to old. But in the case of properties, resale properties has their advantages. Below are some of them:

a. There is a greater chance of getting properties that are more value for money. New properties tend to have a price premium which diminishes quickly after 1 to 2 years.

b. Waiting time is definitely shorter especially when the new properties are under construction.

c. What you see is what you get – You are looking at the exact product and you know who your neighbours are. Unlikely buying off models or floor plans, you may not get what you expect when you walk into your new apartment for the first time!

In any case, it is possible to get a new home from a resale property by just doing a major renovation! So our point is that don’t write off resale properties! You can find good gems there most of the time! Of course we shouldn’t get properties that are too old as well… the simple rule of thumb is that we should really be careful for properties that are 25 years old and above.

4. Upgrade to HDB – where to buy? If living preference and budget is not a constraint, you should try to get your HDB in mature estate such as Bishan, Bukit Merah, Clementi, Kallang, Marine Parade, Queenstown and Toa Payoh. Apartments in these areas are always in demand unlike units in the outskirt whereby you can have a situation of no buyers at all! If making a choice between a smaller flat in mature estate versus a larger one in the outskirt. Would definitely advise to take the one in mature estate! This may seem to be an obvious suggestion but realistically, many do not make the choice correctly. They are attracted to the lower price in the outskirts even though they can afford something in the matured estate. After staying in the outskirt, most of them will realise that it is not that convenient. And if they wish to sell during bad times, they really have to be very lucky! If due to budget constraint and there is a need to stay in non-matured estates, at least go for places with a growth story. Jurong and Woodland are 2 good places to consider. We can see that a satellite CBD is slowly taking shape in the Jurong area and we do expect more people to be shifting over. For Woodlands, with the closer integration with our Malaysia neighbour, it is likely to gain some attention as well. Try to avoid estates that have poor connectivity to CBD and have nothing else besides blocks and blocks of HDB flats. Choa Chu Kang and Bukit Panjang are 2 examples. I can’t really find selling points for HDB in these areas!

5. Upgrade to Condo – where to buy? Firstly, do not brush off resale properties! Very often, there is a premium in new properties and you can usually find gems in resale properties when you dig hard enough! You have to acknowledge that property market is not an efficient market. What we mean is that there is always opportunity to get undervalued properties and there are always people overpaying for a property! Again if living preference is not a constraint, the key here is finding undervalued properties. One of the simplest way to do so is to compare unit price of similar properties. Properties can be similar in terms their location, e.g. in the same district or in terms of the same target market, e.g. condos in Tampines and Pasir Ris are likely to have the same target market. Obviously, look for condos with the lower unit price. Don’t be surprise that you can get cheap and good condos! It happens all the time! Another consideration would be to see the growth potential of the area. As mentioned earlier, Jurong may be interesting with the satellite CBD taking shape. Another example would be the Tanjong Rhu area whereby we can expect a lot more buzz with the sports hub coming into picture. As at the time of this article is written, an area worth looking at is District 4 and 5 (Telok Blangah / Pasir Panjang area). There are some obviously undervalued properties (Jurong prices!) and the area definitely have a growth story! With the establishment of Mapletree Business Park and the development of the research hub (biopolis), we can definitely see more activities brewing in this area! Which property in the various district? Check out our recommendation!

As a property upgrader, you may fall into some of the following scenario:

  • Upgrading to from a smaller to bigger HDB flat
  • Upgrading from HDB flat to condo or private property

Upgarding from a smaller to bigger HDB flat

If you are upgrading to from a smaller to bigger HDB flat it will be important to plan for the following:

  • Financing
  • Your accommodation (Always have a place to stay)

Upgrading to a bigger HDB flat will involves the selling of your current HDB flat and then the buying of another HDB flat. You can decide to buy the HDB flat first. If you choose to do so, do consider do you currently have sufficient CPF or cash for before selling your HDB flat:

  • Downpayment for the next house
  • Stamp duty payment for the purchase

If you do not have sufficient CPF or cash, for the above payments, you may consider taking a Bridging loan with the bank or using HDB contra facilities to help finance the purchase. You can also decide to sell the HDB flat first. This option can allow the sales proceeds and CPF refund to goes back to your accounts before you do the next purchase. However in both cases, it will be crucial to plan for the timing of the sales so that you will always have a place to stay. Ensure that you have sufficient time to renovate and move into your new place. If not you may have to plan for your interim accommodation or you may want to request for an extension of stay with the buyers. For loans, you may decide to finance the new purchase with a bank loan or HDB loan. For bank loan do take note that you will have to set aside cash monies of 5% of the valuation amount for the purchase. If you are taking 2nd HDB loan, you may have to set aside a portion of the cash proceeds from the selling of your flat to offset the HDB loan granted. Therefore before making any purchase or sales, it will be important to plan for your financing and accommodation.

Minimum Occupation Period (MOP):

Do ensure that you have fulfilled the MOP before you sell your flat. You can check this with HDB.

Ethnic and PR quota

Selling and buying of HDB flat will be subject to the condition that the proportion of your ethnic group and Singapore Permanent Resident quota (if applicable) has not reached the set limit on the block that you are buying or selling

Upgrading from HDB flat to condo or private property
If you are upgrading to from a HDB flat to a condo or private property, it will be important to plan for the following:

  • Financing
  • Accmomdation
  • ABSD

If you are buying the private property first, do ensure that you have sufficient CPF or cash for:

  • Downpayment for the next house
  • Stamp duty payment for the purchase

If you do not have sufficient CPF or cash, for the above payments, you may consider taking a Bridging loan with the bank to help finance the purchase. You can also decide to sell the HDB flat first. This option can allow the sales proceeds and CPF refund to goes back to your accounts before you do the next purchase. In both cases, it is important to plan for the timing of the sales so that you will always have a place to stay. If not you may have to plan for your interim accommodation or you may want to request for an extension of stay with the buyers. Therefore before making any purchase or sales, it will be important to plan for your financing and accommodation.

Minimum Occupation Period (MOP):

Do ensure that you have fulfilled the MOP before you sell your flat. You can check this with HDB.

Additional Buyer Stamp Duty (ABSD)

Do take note if you are buying the property first before selling your current flat, you may be subjected to ABSD. Therefore you may want to time your sale and purchase strategically.

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