This article was updated on 3 June 2019.
Everyone should fully understand what really happens to our money once we sell our HDB flat, private condominium or landed property in Singapore. This is so we can prudently plan for how we can use the proceeds – for investing, buying another property, even starting a business or setting funds aside to pay for your children’s education.
For various reasons, people tend to receive less in cash than they had expected after selling their properties. If they have committed to using the bulk of that money for other purposes, such as opening their business, paying off a debt or for investments, they may be in for a rude shock after seeing how much cash they actually end up with.
Things To Consider Before Selling Your Home
We will not delve too deep into what goes on from a transaction standpoint. Rather our focus will be on the money side of things. There are several steps to selling your HDB, first of all, you should know if you have fulfilled the MOP (Minimum Occupation Period) before you engage an agent or go about selling your home on your own. If you’re selling a private property, you have to consider the Seller’s Stamp Duty (SSD), which applies to sellers who are offloading their property within three years of purchasing it.
Before agreeing to sell your home, you should have already considered your housing options going forward. You should also note that it may take a while, approximately two to three months, for your money from the sale of your property to come in.
In the case of selling an HDB and buying another, you can use the HDB’s Enhanced Contra Facility to reduce your cash outlay or loan requirement. If you’re purchasing a private property, you have to ensure there’s a plan in place for you to receive your sales proceeds before paying down on your new purchase.
What Happens After I have Sold My Home?
Once you have agreed to sell your home, you have to consider how much you will actually receive in cash before taking on any other financial commitments. Let’s use a simple example to go through this process.
Home type: 4-room
Purchase price: $375,000
Grant: Approximately $40,000
Sale Price: $475,000
Payment: 10% from CPF Ordinary Account
Loan: 25-year HDB loan
Remaining Home Loan (After 5 Years): $199,000
# 1 Pay Down Outstanding Home Loan
Your mortgage (HDB loan or bank loan) will be the first thing that gets paid down. This sum is deducted from your sales proceeds. Your sales proceeds of $475,000 will be used to repay your remaining $199,000 HDB loan, leaving you with $276,000 in remaining proceeds.
# 2 Refund Your CPF Ordinary Account
Downpayment: Next, you have to refund the money you “borrowed” from your CPF account, with an interest equal to what it would have in your CPF Ordinary Account during the five-year period had you not used the money. Considering you and your spouse paid the initial $37,500, or 10%, from your CPF Ordinary Account balance in full, you have to refund this sum, with interest. This works out to close to $42,500.
Monthly Loan Repayment: During the five-year period, you were also paying down your mortgage using your CPF contributions. You need to refund this amount as well. In this scenario, you would be paying close to $1,637 on your mortgage every month. This would amount to $98,000 in five years. Finally, you also need to refund the accrued interest you owe to CPF for using this funds, amount to approximately $106,000.
HDB Housing Grant: You will also have to refund the HDB housing grant, with accrued interest, when you sell your HDB flat. Since you received $40,000 in grants, you will have to refund $45,500 to your CPF Ordinary Account.
After deducting these three sums from your remaining proceeds of $276,000, you will be left with $82,000. This is the amount you will receive in cash.
# 3 Agent Commission
Selling your flat via an agent may mean paying between 1% and 2% of the sales price in commission. At a sale price of $475,000, you may be paying up to $9,500 in commission to your agent. This may leave you with $72,500.
# 4 Additional Costs And Fees
Some miscellaneous expenses including administrative and legal fees could cost you close to $2,000 and $3,000, finally leaving you with a sum of $69,500.
Buying Your Next Home
Once you have sold your home, you will need to buy another home for your family to live in. If you choose to buy another subsidised flat from the government, you will have to pay a resale levy for your second flat. In our scenario, this will amount to $40,000, ultimately leaving you $29,500 in cash after selling your HDB flat.
As you can see, this final sum you will have in cash can be much lower than the $100,000 “profit” you thought you had earned from selling your HDB flat at a higher price.
If you choose to go private or opt to buy another resale flat, you will not have to pay any resale levy. Do note that you will have to pay a minimum of 5% in cash downpayment on your private property. This would not only easily wipe out the cash in hand you have after selling your HDB flat, but also require you to put more cash down.
Of course, whether you choose to buy an HDB flat or a private property next, you can use your CPF balances, with the interest paid back, to fund the purchase of your next property. So, it may not really matter how much you had to pay back in accrued interest to CPF since you can still use it to fund your next purchase.
What If You Are Above Age 55 When You Sell Your Property
At age 55, your Retirement Account is created. Your combined balances from your Ordinary Account and Special Account are used to set aside the Full Retirement Sum (FRS) of $176,000. If you do not have this amount set aside, any refunds paid to your CPF Ordinary Account from the sale of your property will first go into your Retirement Account.
It is important to note that you can only use funds above the Full Retirement Sum of $176,000 to purchase your next property if you want to buy another flat after 55. Alternatively, you can also opt to set aside $88,000 for the Basic Retirement Sum, which would also require you to pledge your property.
Ensure Proper Cashflow Planning
You should do your sums before selling your home. Know all the costs involved and where your sales proceeds will be going, as well as how you can utilise them going forward. These are basic yet vitally important considerations to make before deciding on any decisions.
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