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