“What if we buy a new launch, and it wipes out our cash proceeds?”

It’s not an uncommon question, nor a recent one – I heard it as often back in the early 2010s – when property prices were spiking – as I did in the aftermath of COVID. But more recently, this question has been driven by a series of hot new launches that (contextually!) are “cheap”. 

Projects like Skye at Holland and River Green are driving a lot of excitement, and there’s a psychological dimension that needs to be acknowledged. The idea of owning a condo in an area like Holland V, Great World, etc., isn’t one that comes along often; and the allure is strong enough to make buyers go all out. In the heat of the launch weekend, all that matters is securing the best unit they can afford, before there’s no more chance to live there.

(Which, in all fairness, is a very real possibility, since the gargantuan older condos surrounding many of these launches will price out the majority of buyers. It can be a case where resale is not in fact the cheaper option.)

I’ve even heard it said that it’s a norm to wipe out all the cash proceeds; albeit in the tone that suggests it’s more to convince themselves than the listener. Or they believe that, as long as they can pay the mortgage, wiping out cash proceeds isn’t too big a deal. “The monthly loan is paid from CPF anyway,” or so the argument goes. But whilst I empathise with the sense of urgency, there are a few serious issues with this. 

The first is that, in my experience, wiping out the cash proceeds tends to result in taking expensive loans. 

There are two things that tend to cause this. The first, as you’ve probably guessed, is renovation costs. The maximum reno loan from a bank is $30,000 or six times your maximum income, which by today’s standards is… stretched. There are homeowners who have spent that much on carpentry alone, let alone other features or the subsequent furnishing.

So, beyond the reno loan, which typically ranges around five per cent, what often follows is the use of credit cards, personal loans, etc., to pay for additional work; and after that, there’s the issue of paying for furnishing. 

It’s far less of a headache though, if you factor these costs into the sale of your previous home. That is, try to make sure the sale proceeds don’t just cover costs like the downpayment, but also cover, say, $50,000 to $60,000 for renovation and furnishing. 

Buyers who do this tend to find upgrading a much less stressful process. If you’re already taking on a bigger home loan than your flat before, it helps that you don’t compound it with another five-digit figure you had to blow for renovation.

The second issue, because some people do a reminder in all that excitement, is that the new property takes time to be built.

During that interim period, you’ll need a place to stay. And if you’re not so lucky that you can crash with parents, that means paying rent. This is also where buyers tend to spend more than expected – there are buyers who find the landlord too impossible to work with and need to move, or buyers who find they need to rent much longer than expected (remember, contractors can cause long delays even if the developer is on time).

People with pets, especially, should take note – you tend to be constrained with where you can rent due to your furbaby, and having to switch rental properties can result in much higher monthly costs. 

And in the most typical Singaporean sense, light rains become thunderstorms in an instant. Expect that the landlord is going to raise rent, right when you find out you need to rent for another three months. 

There are also extraneous costs that can quickly add up. Storage is one of these: if you have bulky furniture, and you don’t want to get rid of it, odds are you need to rent space. The same goes for hobby or professional equipment. 

And whilst I’m not a financial advisor and won’t dispense financial advice, it’s a really good idea to have a buffer. Don’t look at the amount you’ve refunded to CPF. Even if it covers your mortgage repayments for the next six months, that’s of zero use when you’re short of dollars in your wallet and need to pay for an emergency right now.

Remember what I said above, about tending to take expensive loans? This is very much a contributing reason. If your property purchase wipes you out to the last dollar, the response to emergencies tends to be credit. And in an indirect way, the interest you rack up on the needed loans (which can be quite high if they’re unsecured) is a part of your property move; this is often overlooked when it comes to working out how much the home has truly cost you.

Does this mean you should surrender your dream home though?

That’s not a question anyone can truly answer for you, so I’ll just express it from my perspective instead: 

If my dream home meant living on fumes for the next year or two, it’s 90 per cent likely I wouldn’t go ahead. To me, affordability doesn’t mean “I can get it if I go all out.” It means being able to buy and still have room to breathe; when life does what it always does (i.e., appear around the corner and clobber you senseless, at the exact moment you’ve fallen down.)

I also don’t think the solution is to buy a smaller or worse layout, or make any such compromise. If I had to live with that for the next decade, I’d rather not buy at all. Because, well, that wouldn’t be my dream home anymore. 

Mind you, that’s a personal opinion. 

If you’re not sure whether buying your intended property would leave you in a crunch, do speak to a qualified expert to check the numbers for you first. Sometimes you can get lucky, and a five-minute conversation can show how you can work through it after all.

Meanwhile, in other property news…

Weekly Sales Roundup (13 – 19 October)

Top 5 Most Expensive New Sales (By Project)

Top 5 Cheapest New Sales (By Project)

Top 5 Most Expensive Resale

Top 5 Cheapest Resale

Top 5 Biggest Winners

Top 5 Biggest Losers

Top 5 Biggest Winners (ROI%)

Top 5 Biggest Losers (ROI%)

Transaction Breakdown

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