Anyone who has been through the process of buying an HDB flat, or even attempted research in that area can attest the start-to-end process is not a walk in the park at all. Similarly, selling an HDB flat and working towards the next property purchase is equally complicated.
Given how ‘hot’ the HDB resale market has been in the last year and property prices still continuing to climb in 2022, you may be considering selling your flat in hopes of turning a nice profit and taking the opportunity to upgrade your home while the market conditions are favourable.
To help you better understand where your money goes when selling your HDB, we’ll take you through different financial milestones from pre-flat sale to flat sale, post-flat sale and new flat purchase.
Selling Your HDB Flat: What Are Sales Proceeds?
Before we dive into selling your HDB flat, we need to understand the flow of money is not straightforward. There are several important factors that will affect your HDB sales proceeds.
But what exactly constitutes sales proceeds? It essentially refers to the cash you receive from the sale of your HDB flat, after deducting any outstanding loan, CPF monies used with accrued interest, other legal and agent commission fees, and penalties.
Here’s a summary of what the process of selling your HDB flat looks like:
Before Selling Your HDB Flat
As with most other property-related transactions in Singapore, the first step prior to selling your flat is checking if you meet the eligibility criteria. Here’s a quick list of what you need to take note of.
Fulfil the Minimum Occupancy Period (MOP), which will defer depending on how you first purchased your flat.
Ensure that the sale of your flat is within the Ethnic Integration Policy (EIP) and Singapore Permanent Resident (SPR) quota. Prevailing quotas can be checked after you register your Intent to Sell on the HDB Resale Portal.
Check if additional requirements apply if the flat sale is on basis of declaring bankruptcy or filing a divorce.
However, if you are selling your flat under regular circumstances, it’s worth considering why you wish to sell it in the first place. Upgrading to a larger flat might be in the books, especially if you want to raise a family.
Alternatively, your flat may double as an investment, and selling it could reap decent profits based on how much it has appreciated. Calculating your potential sales proceeds beforehand may help you decide if it’s the right time to sell your flat, but what are the factors that will impact how much cash you receive?
1. Finding Out How Much of Your Mortgage is Left After Selling HDB Flat
While it would eliminate a lot of pain from the entire selling process, your mortgage doesn’t automatically go away the moment you sell your flat, assuming you are not quite done paying it off.
Any outstanding home loan will need to be fully paid off, and the balance will be deducted from the sale of your flat. For instance, if your flat sold for $400,000 and your outstanding home loan is $100,000, your estimated cash proceeds will be $300,000
Sounds easy? Things could get tricky if your outstanding loan amount is higher than what your flat sold for.
If the sale of your flat is insufficient, the balance of your home loan will need to be paid in cash. In this case, not only do you receive $0 in sales proceeds, but you also incur added costs as a result of the sale.
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2. Calculating How Much CPF You Have Used from Buying HDB Flat
There are different ways to finance an HDB flat and using CPF monies is one of the more common ways to do so. CPF funds can be used in a variety of ways; it can be used to cover the downpayment in part or in full, pay the conveyancing and other legal fees from a flat purchase, and also finance the monthly mortgage.
Whatever way it’s used, CPF funds will have to be returned with interest back into the CPF Ordinary Account (OA), or in some cases, the Retirement Account (RA).
Besides the accrued interest, housing grants that you received while buying the flat will also need to be credited back into your CPF account.
So, let’s say your flat sale price is $400,000. But your outstanding home loan is $100,000 and the total CPF amount used with accrued interest and housing grants received amounts to $200,000. That means your estimated cash proceeds will be $100,000.
The accrued interest can be calculated based on the prevailing 2.5% per annum rate for OA, which is compounded annually. If you’re unsure how to calculate this, no worries. You can check your accrued CPF interest using the CPF mobile app.
Unlike your mortgage, any shortfall doesn’t need to be supplemented with cash. However, the buyer’s deposit of up to $5,000 will be used as part of the CPF refund.
When Selling HDB Flat: Fees and Taxes to Pay in Singapore
Taking into account your outstanding loan and how much of your CPF you’ve used to pay for the flat will give you a rough idea of what your sales proceeds might look like.
While we’re on the topic of deductions, there are other fees that you may incur during the sale of your flat, including:
Legal fees based on the appointed solicitor
Seller’s stamp duty if ownership is by way of transfer
Property tax up to the end of the year
Service and conservancy charges up to the date of resale completion
All that said, nothing will impact your sales proceeds more than the price you sell your flat at.
3. Selling Your HDB Flat: Figuring Out the Resale Price
Finding the right balance between a reasonable resale price and what will turn a good profit can be tricky and will depend on the reasons why you’re selling the flat.
In order to generate good profit, some patience may be required in waiting for the optimal market conditions. Meanwhile, circumstances requiring you to move out quickly may lead to hasty decisions. For instance, you may quickly ‘settle’ on a price which could result in diminished sales proceeds.
Most crucially, you will want to avoid selling your flat below HDB’s valuation.
How to Determine HDB Valuation
If both the valuation and selling price are higher compared to when you first purchased the flat, the likelihood of successfully paying off your loan and CPF refunds while maintaining a healthy sales proceeds margin is fairly high.
That’s because if the agreed-upon selling price is above the HDB valuation, the buyer will have to pay you the difference, known as Cash-Over-Valuation (COV), in cash.
However, there is no straightforward way to exactly determine HDB valuations. HDB doesn’t openly publish this data, and you only receive the valuation after you and the buyer agree on a price and sign the Option-to-Purchase (OTP). What you can do to estimate your HDB flat’s value is to check out recent sale trends and statistics.
Original flat price
Agreed upon flat sale price
To be deducted:
Outstanding home loan
Total CPF with accrued interest and housing grants received
Overall HDB sales proceeds received:
Estimated cash proceeds
If your selling price is equal to the flat’s valuation, your sales proceeds are then dependent on how the sale price compares with the original price of the flat.
In case you sell it at a loss while equalling HDB’s valuation of the flat, you will not need to top up your CPF refunds in cash should there be a shortfall. However, this will mean fewer CPF monies available not only for your next property purchase but also for your retirement fund.
Ideally, you would want to avoid a situation where the selling price is below valuation. In this instance, you will have to top up the shortfall in CPF refunds in cash if your sales proceeds are insufficient in covering the outstanding home loan and CPF monies.
4. Settling the Buyer’s Deposit When Selling HDB Flat
While not quite as impactful as the selling price itself, the buyer’s deposit (option fee + option exercise fee) may come in handy.
The deposit can amount to up to $5,000, which is paid upon granting and exercising of the OTP and may be used to pay back the CPF funds utilised if the sales proceeds are insufficient.
After Selling Your HDB Flat
Taking from the above example, after much deliberation and negotiation, you’ve successfully sold your 4-room HDB flat at $400,000.
Not only have you managed to sell it above the original flat price, but the agreed selling price is also above market value. After paying off your outstanding home loan and refunding your CPF monies, and with no penalties incurred, your estimated sales proceeds are about $100,000.
While it’s a nice cash boost if you don’t have to worry about buying another property, chances are, you’ve been house hunting for your next home while working towards the sale of your flat. The proceeds you received from the sale of your flat may then be used to finance your new property.
But before that can happen, how will you receive your profits?
5. Receiving Your Sales Proceeds After Selling HDB Flat
Sales proceeds are obtainable via a cashier’s order on the day of sale completion, which can immediately be deposited into a bank account. In the meantime, your CPF refunds will take about two to three weeks to process.
While receiving and depositing your sales proceeds is a straightforward process, how do you go about utilising it, especially if your flat sale and new home purchase are happening at the same time?
6. Buying Your Next Property: HDB Upgraders
Depending on what sort of property you intend to buy after selling your HDB flat, the resale levy may be applicable to you. Specifically, it depends on whether you’ve sold a subsidised flat and intend to buy a second subsidised housing.
HDB defines subsidised housing as any of the following:
A flat bought from HDB
A resale flat bought with CPF housing grant
A DBSS flat bought from a property developer
An Executive Condominium (EC) unit bought from a property developer
Other forms of housing subsidy (e.g. enjoying benefits under the Selective En bloc Redevelopment Scheme (SERS), privatisation of HUDC estate etc.)
In short, if you are buying a resale flat on the open market, or upgrading to private property, the resale levy won’t apply to you. In such instances, your sales proceeds can be utilised in any cash payments, such as for the new property’s downpayment and OTP. You may ultimately prefer to set the money aside for investment or savings and choose not to use it at all.
If you plan to buy a resale HDB flat, the Enhanced Contra Facility is a scheme that facilitates the concurrent buying and selling of your old and new flat. The scheme channels your sales proceeds and CPF refunds from the sale of your old flat into the purchase of your new one.
That seems convenient, but an important caveat to note is that the CPF monies cannot be used to pay stamp duty and conveyancing fees in your new flat purchase. In addition, your sales proceeds will only be utilised after your existing CPF balance, including the CPF refunds, has been exhausted.
Another helpful scheme to note is the Temporary Loan Scheme. The scheme allows buyers who are concurrently selling their old HDB flat to pay for their new flat without taking a long-term mortgage.
The Temporary Loan Scheme is applicable to sellers who intend to use their sales proceeds to finance their new flat. The sales proceeds will also be used to redeem this temporary loan once the transaction on the new flat has been completed.
Your HDB Sales Proceeds May Not Be the ‘Profit’ You Expect
Contrary to what you might have thought, selling your HDB flat at a higher price than you paid for doesn’t immediately guarantee that the difference will be the profits you receive, and it’s important to account for all the deductions and refunds that will be incurred and to calculate beforehand how much of your actual sales proceeds will be available for your next property purchase.
For assistance selling your home, reach out to an agent listed on PropertyGuru’s agent directory. If you’re new to financing your upcoming home purchase, our friendly Mortgage Experts are ready to guide you through it.
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