Sell One Buy Two
Is Sell one Buy two a Popular Wealth Building method or is it a Scam?
Sell HDB Buy 2 Properties
“Sell HDB Buy 2 Properties” has been one of the catchlines of various property agents in challenging times.
The proposal - sell your HDB flat and use the proceeds for down payments on two condos.
It sounds like a perfect plan and has had some homeowners and investors hooked, but market watchers are cautioning against it, calling for prudence because Selling HDB to Buy 2 Properties carries some serious risks.
Check out the MAS statements within the Business Times
Table of Contents
Why Sell 1 Buy 2?
Since 1st April 2016, HDB flat owners are no longer allowed to transfer ownership of the flat to a family member except under exceptional circumstances.
This means that HDB dwellers are disallowed from giving up their ownership to obtain a private property without incurring the recently inflated Additional Buyer Stamp Duty (ABSD).
“Selling your house to buying two private properties” strategy are usually targeted at HDB owners, as they need to pay 12% additional buyer stamp duty (ABSD) for their 2nd property.
Having this precedence set, one would understand why the ‘Sell 1 Buy 2’ concept has picked up rapidly over the last few years.
Lets weigh the Pros and Cons of Sell 1 Buy 2 concept today.
An ingenious strategy or a doomsday plan? Is it a good idea to sell your HDB flat and become owners of two properties with potential for long term profit? Lets weigh the pros and cons so that you can make a well-informed decision.
The Pros of Selling HDB and Buying 2 Properties
Price movement comparison between HDB resale and Private Property from 2011 to 2020
The value of HDB flats depreciates over time and in order to capitalize on its appreciation thus far, couples have opted to sell off their HDB flat and renounce their ownership.
This will then enable one of them to purchase a private property such as a condominium as their residential home and the other can invest in another private property, that will not incur additional ABSD and can be rented out, resulting in earnings. Normally buying a Resale Condo for home stay and purchasing a New Launch for investment.
On the flip side, this also means the couple will have two mortgages to pay off.
However, with proper financial knowledge and planning involving personal finances, loans, CPF Ordinary Account contribution, their monthly installments will eventually be manageable.
Sounds enticing? When calculated prudently, employing the ‘Sell One Buy Two’ approach could pay off.
However, this approach is accompanied by certain risks that home owners should be aware of.
The Cons of Selling HDB and Buying 2 Properties
In an article by the Business Times late last year, potential buyers were warned of the sluggish economy, being laid off and depreciating property values.
The Monetary Authority of Singapore (MAS) themselves stood by these potential risks, urging Singaporeans to think twice.
Buyers also need to consider that their eligibility for a good loan to help pay off two mortgages is not guaranteed and so are the rental returns.
If they ‘Sell One Buy Two’, it will become necessary for both parties to work in order to qualify for their individual property loans.
In the situation where one party is laid off, finances would become tight, stripping reasons for having two mortgages.
Eventually, the second property may have to be let go at a loss. These are factors that need to be taken into serious consideration in your planning.
Is Sell 1 Buy 2 suitable for you?
In this article, I am not making an attempt to influence you in any way. Instead, I would like to guide you on:
Factors to consider
Financial Calculation
In-depth financial calculation is always one of the key factors
Scenario 1 - Decide to sell HDB and buy 2 properties
CPF usable amount for property purchase
– Work out the total usable CPF amount that you can use to purchase property. Meaning Current Ordinary Account(OA) plus Refunded CPF amount after selling your house.
CASH proceeds you will get back after selling your house
– Understand the amount of cash you will get back after selling your house. Is it sufficient for you to purchase your next property?
CPF monthly deductible for mortgage loan
– Understand how much is the monthly mortgage loan amount.
How much do you need to top up cash after cpf deduction.
Mortgage loan for property purchase
– The monthly mortgage loan amount after purchasing the property.
Potential Rental yield or passive income generated from the investment property
– Have an idea the rental trend or rental income you are expecting from your investment property.
So you can estimate if you need to top up cash monthly for mortgage loan. Or, the fund from rental plus your monthly cpf is more than sufficient.
Potential capital gain from investment property
– Any future potential development that will increase your capital gain in the future.
Study the surrounding and understand why the property is a good buy.
Scenario 2 - Keep HDB and buy one more property
CPF usable amount for property purchase
– What is the usable CPF for 2nd property. Check more information on CPF Website.
CPF monthly deductible for mortgage loan
– Understand how much is the monthly mortgage loan amount.
Do you have sufficient cpf to deduct for your 2nd property?
Eligible loan for next property purchase
– How much loan are you eligible to loan up to?
You are not eligible for Full loan for 2nd property onward, refer to table on top.
Mortgage loan for property purchase
– The monthly mortgage loan amount after purchasing the property.
Potential Rental yield or passive income generated from the investment property
– Have an idea the rental trend or rental income you are expecting from your investment property.
So you can estimate if you need to top up cash monthly for mortgage loan. Or, the fund from rental plus your monthly cpf is more than sufficient.
Potential capital gain from investment property
– Any future potential development that will increase your capital gain in the future.
Study the surrounding and understand why the property is a good buy.
Additional Buyer Stamp Duty (ABSD)
– Is it worth paying for the extra stamp duty. (Refer to table above)
Summary
To summarized, financial calculation is an important key factor in Selling 1 to buying 2 properties.
Have your financial work out on the available usable CPF and cash.
If you are not in a good financial situation at the moment, then the Sell one Buy two is a very risky option.
If you are well-positioned to explore the options available. PLEASE study and analyze in-depth on the investment property that you are looking to buy.
Identify the benefits and how some owners successfully benefited from it
Price movement comparison between HDB resale and Private Property from 2011 to 2020
Looking at the price chart comparison between HDB and Private Property for the past 10 years – It clearly shows that HDB has been a depreciating asset since 2013 due to certain factors and regulations.
I am not saying that all private property is worth the buy.
But with proper study and analysis, there are some development out there that have good returns in time to come.
Successful owners that benefited from it.
Selling or Keeping your HDB before purchasing second property
- Looking at the HDB resale price movement. It shows that it is a depreciating asset. To keep or sell your HDB – depend on your personal needs and goal.
- Don’t Sell your flat – If you too comfortable in your place, the depreciation factor does not concern you, and you have the extra fund for the down payment on your next property and additional buyer stamp duty.
- Sell your flat and maximize the options available – If you think property asset is an important factor. And is looking forward to unlocking the cash proceeds and cpf fund from your current house.
Sell hdb buy 2 property | Case Study
Mr Ang has been staying in a 4 room flat in Punggol with his family.
One month before the property reaches MOP in 2017, Mr Ang contacted me to find out more about his options and in essence, I have gathered that their goals were to:
1) Invest in a property with potential appreciation as their main priority
2) Utilise a low risk investment approach
3) Wait for the right opportunity
With the understanding that they do not require an immediate place to stay, I proceeded to work out both short-term and long-term plans for them.
With my recommendation, I sold the Punggol flat and went ahead to purchase a brand new 2-bedroom condo at Parc Riviera with Mrs Ang as the sole owner; at this point in time, we have not decided whether this property will be for own stay after its TOP or for rental purposes.
DOWN-PAYMENT without savings
They have since purchase a 2-Bedroom Private Condominium without touching their savings.
Mortgage Instalments without CASH
They can even repay their monthly mortgage loan installments WITHOUT paying any extra cash from their own pocket.
Then in 2019, after going through detailed financial assessments and a clear asset progression road-map planned for Mr Ang, he also bought a 1-bedroom resale condo with an existing tenancy to generate immediate rental income.
Thereafter, with the good rental yields, the Angs decided to focus both properties for investments, reaching their final goal of low-risk investment and asset progression.
What Mr Ang says about me:
As a investor interested in taking advantage of the booming property market in Singapore, I needed a realtor with in-depth knowledge of the local market.
Using his understanding of the various sectors of the market, Rick generated a investment progression report and we decided to buy a condominium in a choice area with huge potential for multiple returns in the future.
Thanks Rick, I will definitely be doing business with you for a long time!
Conclusion
Now that you see both sides of the coin, it will do you well to mull over the idea of ‘Sell One Buy Two’.
Invest some time to calculate and plan out potential options before deciding on a suitable solution and do deliberate this further with your trusted agent on your preferences and strategies.
As you will come to realize, there is no ‘best’ solution, there is only one that is the most suitable for your finances and family’s needs.
In doing so, you will be able to determine if your move is a doomsday plan or an ingenious strategy.
After learning how you can multiply your assets, upgrade your family’s living standards, now learn how to execute this asset progression plan in a structured way in order to minimize your risks and gain maximum upside.
I will assess:
- Your Current life situation / life stage
- Do an IN-DEPTH Financial quick calculation
- I will only recommend proven methods and steps
You ONLY need 20 minutes to clear your doubts!
*you can expect comfort, quality and valued services throughout the process
Property Planning Session
With Youhome.sg property planning session, you will understand:
- Financial calculation – where you stand financially (cash and CPF) after selling your property
- Understand your needs and goals – staying on track with your practical needs and priorities
- Risk assessment – evaluate foreseeable risks in your property journey
- Investment assessment – realistic estimation of buying property without cash
- Property Asset progression plan – assess your potential short term to long term planning
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Self Introduction
Rick Huang, Associate Deputy Group Director of OrangeTee & Tie, has been in the Real Estate industry for a decade.
He is driven, committed and is enthusiastic about real estate investments.
Today, he leads Team Youhome.sg, and together, aims to provide his clients with the best experience in their property journey.
The team focuses on understanding client’s personal finances and needs, and is determined about delivering the best solutions and results for them.
Amidst the hustle and bustle, Rick enjoy quiet time and indulge himself in the intricate art of tea-brewing and tea pot appreciation.
He would also take this chance to energise himself and reflect on his personal development and areas of improvements.
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Ken
19 May 2020Hi really appreciate the in-depth sharing. But i do have some doubts on the risk level. Will contact you for a meet up. Thanks