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Negative HDB sales

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Bullionstar

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In recent years, HDB resale volume has been declining in the aftermath of various government cooling measures like the Mortgage Servicing Ratio (MSR) and capping of the loan term for HDB loans. Arising from these policies, there have been cases of negative HDB sales.

What is exactly negative HDB sales? It means that after you sold your HDB flat, the resale price is sufficient to pay off the outstanding HDB or bank loan but not enough to repay fully the CPF refund with accrued interests. In this situation, besides having no cash proceeds from the transaction, you may even require to top up the shortfall in cash to your CPF account if your property is sold below market value.

Negative HDB sales

According to CPF rule, there is also a difference for those owners who bought HDB flats with HDB loans and bank loans.

For HDB flats bought with HDB loans

The sale proceeds (including the option monies) will be used to pay off the following, in this order:

1) Outstanding HDB loan

2) HDB resale levy (if any)

3) Required CPF refund

If the sales proceeds after paying (1) and (2) is not enough to make the required CPF refund, you do not need to top up the shortfall in cash, provided the flat is sold at market value.

For HDB flats bought with bank loans

The sales proceeds (including the option monies) will be used to pay off the following, in this order:

1) Outstanding bank loan

2) Required CPF refund

3) HDB resale levy (if any)

If the sales proceeds after paying (1) is not enough to make the required CPF refund, you do not need to top up the shortfall in cash, provided the flat is sold at market value.

So how do sellers determine the market value of their HDB flats to avoid negative HDB sales? With this question in mind, I called the CPF Board but the officer replied that only HDB would be able to advise accordingly. Then I called HDB to enquire on this matter but they told me to check with CPF Board instead because they claimed that CPF Board would review on case-by-case basis. Not happy with this reply, I persisted and was eventually referred to the Resale department of HDB.

I was told that sellers should first and foremost check the last 6 months HDB resale transactions in their vicinity. Then with the data, sellers should mark up the selling price above the median price to avoid having negative HDB sales. However, I wasn’t satisfied with the answer and did some research.

Based on my analysis, the selling price of my resale HDB flat should be shaped by the accrued CPF interest and not the prevailing market price. Sure, if I were to follow the market trend, I could have sold my flat at market value but that would incur substantial losses in my CPF savings. So if I were to follow HDB’s advice strictly, I would have suffered a massive $30,000 loss in my CPF savings. Thus, to circumvent this, I set my selling price of my HDB flat based on the CPF accrued interest, instead of the prevailing market price.

I am not blaming HDB because they would not have the full picture of my financial situation. So it is not fair for them to advise me on how to sell my HDB flat without suffering wealth destruction. Also, the way I framed my question might have led them to provide such replies to me. What I am trying to highlight is that one should take ownership and be familiar with the regulations before making a property move. We should make the effort to understand the system to avoid nasty surprises in our asset planning.

In my previous article on CPF Accrued Interest, many Singaporean readers refused to believe that the above scenario could exist and many claimed that I wrote “misleading” and “nonsense” information. But what they don’t know is that I am actually writing from personal experience. I don’t want readers to suffer the fate of wealth destruction for their CPF savings. That is why I am sharing my knowledge in this blog. But I didn’t expect some people to be ungrateful.

As my family would be upgrading to a new home at The Terrace executive condominium, we are required to dispose our existing HDB flat at Bedok North. I love my current neighbourhood as I have lived here for close to 40 years. This is the place where I was born, grew up, got married and started my family. So obviously, there are many happy memories created here and the thought of leaving this place sometimes made me sad. A part of me can’t let go of this special phase of my life.

But in life, there are always opportunities for progression and we should be forward looking. The motivation behind the upgrade is mainly to give my children a better living environment to grow and forge their futures. Having lived in a 3-room HDB flat for more than 35 years, I know I shouldn’t be saying this but you can’t deny that HDB neighbourhood’s amenities are freely accessible to the public, which may sometimes attract the wrong type of people. You see all sort of strangers gathering nearby your place to smoke, gamble, complaining or just waste their lives away.

We don’t have the right to ask these people to leave but I can certainly take actions to limit my children to such negative exposures.

Henceforth, even though we would suffer from a negative HDB sale, I feel that the sacrifice is worth every penny of it. Sometimes in life, you cannot always win. There are times you may have to pay a price for something that you think could enhance the quality of life.

The good thing arising from this episode is that we don’t have to top up cash for the shortfall in the CPF refund because we are selling our flat slightly above the market rate. In addition, the executive condominium that we have purchased is exempted from resale levy.

In a buyer’s market, there will always be winners and losers. Cases of negative HDB sales are common during bear market. Therefore, it pays to understand the HDB rules and manage your finances accordingly. If you are a busy professional like me, it may be a better option to engage a real estate agent to help you with the financial planning and guide you through the whole process of buying and selling an HDB flat.

Property is an important financial asset. It is naïve to think that you can buy or sell an HDB flat without the aid of a real estate agent. Sure, with today’s online technology, you can easily source or sell your home through various listing portals. But buying or selling a car through online portal is different from buying or selling a property on your own. There are myriad of CPF and HDB rules that you need to be mindful of and if you overlooked these traps, the outcome could be disastrous for your wealth.

More importantly, the value proposition of a competent real estate agent is his marketing network and negotiation skill. If your trade does not lie in the real estate industry, you are not in the market. Thus, attempting to market your HDB flat may be difficult because you would not know the prevailing market dynamics and estimate value of your property. Under such circumstance, you would also not have realistic selling or buying prices. A good real estate agent would help to match the expectations of both the sellers and buyers.

Many homeowners thought that buying and selling property in Singapore is a straightforward process but in reality, it is not that simple. Sometimes, you need to look at the big picture. Some expenses, like agent commission fees, are unavoidable when it comes to buying and selling property. My real estate agent has helped us to get a very good price for our existing HDB flat under this slow market. Even though it is a negative HDB sale, I am still grateful that the selling price match our target price that we set.

Read my other articles on HDB:

  1. Wealth destruction from CPF Accrued Interest
  2. Devastating HDB Loan and CPF Accrued Interest
  3. CPF’s Home Protection Scheme (HPS)
  4. The Dark Side of CPF Housing Withdrawal Limit

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8 Comments

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  1. Aiyoh, you think too much.

    If REALLY don’t want to affect CPF savings, then should use purely cash.

    We are born in the wrong generation, if you intend to earn fat profits from property. Since the mid-1990s, SG property market is considered mature and over long-term, the gains are tied hand-in-hand to inflation rate. This is particularly so for HDB & mass market condos.

    As overall inflation has been roughly 2%-3% over the last 20 years, hence don’t expect windfall profits that can cover mortgage interests + CPF accrued interest. ESPECIALLY if you buy resale. If you bought BTO (or direct from HDB) then still got chance to cover both costs.

    BTW, I thought the Terrace EC no need to pay Resale Levy??

  2. Hi Sinkie,

    I am not cash rich, so have to rely on my CPF savings.

    Yup, agree that it is difficult to make money from property, especially HDB flats. But with private properties, I still think the opportunity is there if you play the game right.

    Yes, The Terrace EC is exempted from resale levy.

    Regards,
    Gerald
    http://www.sgwealthbuilder.com

  3. Actually it’s much easier to make money from HDB flats! Rental yield is also much higher than for condos. The trick is to watch for lease decay & not buying too old flats.

    In a mature property market & very low rental yield like in Singapore, can only have high chance of earning good returns if buy during low points in property cycle & sell when in a prolonged hot property market.

    However, it’s quite difficult (timing, convenience, disruption to daily living) if you’re just playing with your 1 & only home. And it’s quite pointless if you need to buy another replacement property to stay in. That’s why majority of Sinkies don’t play this game, and most of them actually stay in their 1st home until the end. Don’t get conned by the hundreds or thousands you see at condo showrooms & news reports of HDB upgraders etc.

    For condos, people just keep fingers crossed will get enbloc after 20-30 years. But this is pure speculation & chances are not that great if the condo is heavily build-up with tall blocks containing hundreds or thousands of units. Those successful enblocs with windfall gains are more for those with fewer units, less build-up, that the developers can take advantage to max out the redevelopment and maximize profits with new tall condos with thousands of smaller units selling at $1+M each.

    In other mature markets like US, savvy people go into property investment for yields. Price appreciation they take it as being same as inflation rate. Unless they are willing to wait for years for recession to buy at low prices. I know someone who has friends in the US, and in the last few years he invested in about 6 or 7 residential houses with his “business partners”. Each house cost on average US$80K to US$100K and rental yields of 10% to 15%. But their taxes, fees & insurance are higher than SG.

  4. So are you taking HDB loan for your EC or bank loan?

  5. Hello Gerald,
    Thank you for sharing your story. When you buy the EC, do you need to pay the additional buyer stamp duty as you are still staying in your hdb flat?
    I am wondering and could not help but ask you this question.
    Thanks once again.

  6. Hi Raam,

    For EC, the regulation stipulates that you can only use bank loans.

    Regards,
    Gerald
    http://www.sgwealthbuilder.com

  7. Hi Pei Yau,

    When you buy new EC, the rule requires you to sell your existing HDB flat.
    Hence, there is no additional buyer stamp duty because after selling my existing HDB flat, I am only left with the EC.

    Regards,
    Gerald
    http://www.sgwealthbuilder.com

  8. Hi Sinkie,

    Thank you for sharing. Indeed, with the slew of cooling measures, it is very difficult to invest in property nowadays. I am still learning the game and hopefully can build wealth with property in Singapore. I still believe in the value proposition of a new EC because it is a subsidized condominium. Only time will tel whether I am correct.

    Regards,
    Gerald
    http://www.sgwealthbuilder.com

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