Saturday, February 20, 2010

What the changes mean

THE new rules mean a homebuyer will now have to fork out more of his own money to buy a property, and will reap a smaller profit if he sells it within a year.

Take, for example, a buyer who pays $1million for a home today and sells it in less than a year for $1.1million.


The buyer could take out a loan of 90per cent of the price – so he could purchase the property with as little as $100,000 as a downpayment.

By selling, he would have made a fast $100,000, less the stamp duty he paid when he bought the property – $24,600 under the stamp duty formula.

That means he would pocket a profit of $75,400.

His return on capital: 75,400/100,000 = 75.4%


The buyer can take out a loan for only 80per cent of the price which means a downpayment of $200,000.

He would have made $100,000 minus his original buyers’ stamp duty ($24,600), and now minus an additional sellers’ stamp duty, of $27,600.

This means a greatly reduced profit of $47,800.

His return on capital: 47,800/200,000 = 23.9%

Source: Straits Times, 20 Feb 2010

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