This post was first published on 11 April 2017 and has been updated to include the latest information.
Everyone should fully understand what 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 – whether it’s for buying another property, investing in the stock markets, 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 we have committed to using the bulk of that money for other purposes, such as opening a business, paying off a debt or for investments, we may be in for a rude shock after seeing how much cash in hand we actually end up with.
What You Should 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 have fulfilled your 5-year MOP (Minimum Occupation Period) if you are selling an HDB flat. While you can engage a property agent slightly earlier, the transaction can only be completed after the MOP. 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 requirements. If you’re purchasing a private property, you have to ensure there’s a plan in place for you to receive your sales proceeds (and have a place to stay) 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: $500,000
Payment: 10% from CPF Ordinary Account
Loan: 25-year HDB loan
Remaining Home Loan (After 5 Years): $270,000
# 1 Pay Down Outstanding Home Loan
Your mortgage will be the first thing that gets paid down. This sum is deducted from your sales proceeds. Your sales proceeds of $500,000 will be used to repay your remaining $270,000 HDB loan, leaving you with $230,000 in remaining proceeds.
# 2 Refund Your CPF Ordinary Account
Downpayment: Next, you have to refund the money you “borrowed” from your CPF account. This can be up to the $37,500 downpayment you made when you purchased the property, as you can fully fund your downpayment with Ordinary Account funds if you take an HDB loan.
Accrued Interest on Downpayment: Apart from the principal sum used, you also need to refund accrued interest “owed” to your CPF account. This is the 2.6% interest that you would have earned if you hadn’t used the funds. This amounts to about $5,100.
Stamp Duty and other charges paid for with your CPF: You can pay for your Stamp Duty, and other charges such as lawyer’s fees with your Ordinary Account (OA) balances when you purchase a BTO flat. This should add up to about $9,000.
Accrued Interest on Stamp Duty and other charges: The accrued interest on this upfront payment will amount to $1,200.
Monthly Loan Repayment: During the five-year period you were living in your home, 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 $1,700 on your mortgage every month. This would amount to $102,000 in five years.
Accrued Interest on Monthly Loan Repayment: You also need to refund the accrued interest you owe to CPF for using these funds. Approximately, this will amount to $8,000.
CPF Housing Grant: You will also have to refund any housing grants you received when you sell your HDB flat. This is the $40,000 in the example.
Accrued Interest on CPF Housing Grant: Of course, you also need to pay accrued interest on your housing grants. This works out to $5,500.
After deducting these sums from your remaining proceeds of $205,000, you will actually be left with $21,700) even after selling your property for $100,000 more after 5 years.
# 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 $500,000, you may be paying between $5,000 to $10,000 in commission to your agent. This may leave you with $11,700.
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 with negative 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, along with nearly all of your CPF refunds and accrued 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 $186,000. If you do not have the FRS 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 $186,000 to purchase your next property if you want to buy another flat after 55. Alternatively, you can also opt to set aside $93,000 for the Basic Retirement Sum (BRS), which would also require you to pledge your property.
This may drastically affect the amount of CPF balances you have to pay for your next home purchase after 55.
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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