Buy first, sell later? Be careful when trading homes in a slowing market

MANY locals who trade one owner-occupied home for another need to sell their existing home first before buying the replacement one in order to avoid being hit with the Additional Buyer’s Stamp Duty (ABSD). The applicable ABSD rate for a Singapore citizen buying a second home is 20 per cent.

However, some locals who trade their sole owned-home for another enjoy greater flexibility under the ABSD regime.

Subject to meeting various conditions, a married couple comprising at least one Singapore citizen can enjoy ABSD remission when they jointly buy a second home, while a single Singapore citizen aged 55 and above can claim a refund of ABSD paid on the second home he buys. For singles, the second home must cost less than the existing one.

One condition for the full ABSD refund is that the owner must sell the first home within six months of the date of purchase of the second property for a completed property, or the issue date of the Temporary Occupation Permit or Certificate of Statutory Completion, whichever is earlier, if the property was uncompleted at the time of purchase.

Making financial sense

Should buyers who can get an ABSD refund buy a second home prior to selling the existing one? 

By buying the second home before divesting the first unit, one may save on rental and relocation costs involved in moving to an interim rental home. On the flip side, one who sells his sole existing home first before buying a new unit might need to rent a home in the interim.

It makes much financial sense to buy the second home first and sell the existing one later when home prices are rising. The Urban Redevelopment Authority’s (URA) private home price index rose by 10.6 per cent, 8.6 per cent and 6.8 per cent in 2021, 2022 and 2023, respectively. 

When buying an uncompleted new private home, an existing homeowner can possibly benefit from a double-digit percentage gain in the price of his existing home if prices climb by several percentage points annually within, say, a three-year period prior to the completion of the new home. In this case, the homeowner can sell his existing home at a much higher price versus what it was worth three years back when he committed to buy the said new uncompleted private home as his second property.

On the other hand, the purchasing power of one who sold his existing home first before buying a replacement unit shrinks if home prices escalate.

Slowing market

However, the slowing pace of increase in private home prices might render a strategy of buy first, sell later when it comes to trading one’s owner-occupied home for another far less effective. 

The URA’s flash estimate showed that prices of private homes here grew by 1.1 per cent quarter on quarter in Q2, easing from rises of 1.4 per cent in Q1 and 2.8 per cent in Q4 2023. Prices of private non-landed homes edged up 0.9 per cent in Q2.

Amid weaker home buying sentiment, the six-month period for a person to sell the existing home after buying a new completed resale home in order to get their ABSD refund may be inadequate, despite the best efforts of hungry property agents. 

With high interest rates, some buyers might avoid resale private homes due to home loan financing costs. Also, resale private home buyers may be opportunistic or slow to commit as there is less urgency to buy for fear of missing out.

Moreover, some homes might take longer to sell because they have more niche or limited appeal due to, say, an odd configuration or an inauspicious address.

In addition, an unforeseen external shock could send the private housing market into a freeze for several months.

Indeed, a vendor of a home who does not receive any acceptable offers as the six-month deadline approaches could be left panicking.

Perhaps, in today’s market, for greater peace of mind, it may be prudent to sell one’s existing home first before buying the replacement home.

Still, a person who sells his existing home first should act relatively quickly to buy his replacement unit. Keeping close tabs on the market and being clear on one’s new home requirements will help.

As it stands, private home prices could stay resilient amid higher costs of development. And odds are that those waiting on the sidelines won’t benefit from home prices correcting sharply. Also, buying a replacement home fairly quickly minimises one’s outlay on renting an interim home.  

Ultimately, a generally softer private housing market may be helpful to those trading their owner-occupied homes. Compared with when there was frenzied buying of new homes, one faces less competition to snare a unit with a particular configuration or on a high floor or having a good facing in a new condominium launch.

Jurong Lake District’s latest private residential project Sora sold 102 – or 23 per cent – of its total units as at 6 pm on Jul 7, during its launch weekend. The launch of the smaller freehold condo project Kassia in District 17 last weekend drew a far stronger sales take-up rate.

Buyers will have ample choice in the new private homes market where around 2,300 units could be launched for sale in Q3.

Also, a buyer who is flush with proceeds from selling his existing home may be able to land a good deal in the resale market by offering a seller quicker deal closure and higher certainty of closure. Moreover, a vendor won’t suddenly renege on selling a home because housing prices are rising rapidly. 

Over a lifetime, one may trade one’s home several times as family size, financial circumstances and needs change. Executing such moves well can have significant financial implications.

In a private housing market where demand is somewhat uncertain and prices are stabilising, prudent home buyers may do just fine selling their existing home first prior to quickly buying their replacement unit.