It is often a question whether you should hold on or sell your HDB as BTO flats have remained a popular choice among first-time buyers. Moreover, various grants are offered by the HDB to eligible buyers. However, for those who hold on to their flats too long, finding a buyer in the resale market will get tougher for older HDB. Banks seldom give out home loans once the remaining lease is 35 years or less, and there is restricted usage of CPF funds to buy units with less than 60 years of lease remaining.

When upgrading to private property, existing HDB flat owners can either sell their flat or keep it. Keep the HDB and move on to get another private property does incur Additional Buyer Stamp Duty (ABSD).However, if you plan to get your first HDB flat as a couple and want to support future growth on property investment portfolio after meeting 5 years Minimum Occupation Period (MOP) without incurring ABSD, a couple can check and see whether they are eligible to adopt the Owner + Essential Occupier holding manner to bid for a HDB BTO/resale HDBAn essential occupier has NO LEGAL OWNERSHIP RIGHT, and the home loan will fall solely on the main owner. 

Selling a flat will free up the capital that may be needed to purchase the new property. This reduces the amount of upfront cash payment and also the loan amount needed. It becomes crucial that HDB owners start considering whether holding on or upgrade to better assets has is a better option to help them achieve their financial goals.  

 

How Does It Work?

First, we will use a common scenario of a young couple bought a HDB BTO flat as their first home, service the HDB loan using CPF Ordinary Account (CPF-OA) fund to show what will happen if the couple:-

Option 1: Choose to continue to stay in their HDB after 5 years MOP 

Option 2: Choose to sell their HDB flat and upgrade to a Private Property after 5 years MOP 

Let’s say in this hypothetical scenario:-

Both are Singapore Citizens, 30 years old.

  • Both earning $5,000 each with combined income of $10,000.
  • They bought a 4-room HDB BTO in a mature estate at $450,000.
  • They were the first-timer, and their BTO flat will be near to their parents’; thus, they will get a total of $70,000 of HDB grants (i.e., $50K for 1st-timer grant and $20K for proximity grant)
  • They decided to go for a HDB loan instead of a bank loan. 

As both were below 35 when they bought their BTO flat, 23% of their CPF contributions would have gone to their CPF-OA.

CPF contributions only apply up to a monthly gross wage of $6,000. Anything more than that is not subject to CPF contribution — either by the employee or the employer.

This means they will be contributing $27,600 yearly to their CPF-OA. Given CPF-OA interest of 2.5% and assuming they have been working for 5years, they should have a combined CPF-OA fund of about $145,000 at the time of purchase of the BTO flat.

Yearly CPF-OA = ($5,000 x 23%) x 12 months = $13,800 

5 Year CPF-OA Amount = $13,800 x (1+0.025)^5years x 2 persons = $145,000

To make things simple, let’s assume:-

Here is the comparison if the couple wants to sell their HDB after 5 years of Minimum Occupation Period (MOP) and if they want to continue to stay for the next 25 Years. 

Option 1: Choose to continue to stay in their HDB after 5 years MOP

When you sell your property, the sale proceeds will be paid out in the sequence order – Bank/HDB first, follows by total CPF-OA funds used for the property, inclusive 2.5% accrued interest. You will only get the excess back in cash if any left.

If the couple chooses to continue to stay in the HDB, at the end of the loan tenure in which they are also 55 years old, they will need to refund $720K back to CPF fund if they plan to sell the property! Because of the accrual interest on CPF-OA funds they used to pay off the home loan, they may enter into a situation whereupon the sale of the property, and they are left with nothing in cash when all the sale proceeding going back into your CPF account.  

The longer period you used your CPF-OA fund to pay off a property, the lesser the cash return you will get back when you sell off the property.

Through a NON-OBLIGATORY consultation, you will have a detailed financial assessment to evaluate the possible options whether it is feasible to restructure and move your funds into a better performing asset.

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Option 2: Choose to sell their HDB flat and upgrade to a Private Property after 5 years MOP

Now, let’s look into if the couple decided to sell the property after meeting the MOP and upgrade to a condominium. The breakeven amount is $485,674, and this is the least value you need to sell your HDB in order not to result in a negative sale. A negative sale will mean that the seller is required to repay in CASH on any shortfall. 

IMPORTANT: CPF board rules are that “upon the sale of a property, if the selling price (including the option monies) after paying the outstanding housing loan is not enough to make the required CPF refund, sellers do not need to top up the shortfall in cash provided the property is SOLD ABOVE or AT MARKET VALUE.” The property must be sold at fair market value. HDB will decide what the fair market value is.

For this, we are still assuming on:- 

The couple will be upgrading to a private condominium of 3 bedrooms, which worth $1.2million. 

Thus, to make sure no negative sale and the couple can upgrade to private property, their HDB needs to be sold for at least $500,000. For instance, if the couple can sell their HDB at $650,000 and after CPF refund and accrued interest, they should be able to take back $148K cash added to their saving of $96K. So they have a total cash asset of $184K.

This will allow them to have still 6 months of an emergency fund, i.e., $60K, and make 5% of downpayment, i.e., $60K in cash for $1.2 million of a 3-bedroom condominium. Their total CPF assets, including CPF refund and accrued interest, i.e., $405K, will also be enough to make the 20% downpayment in CPF, i.e., $240K. 

And for the upgrade, they will need to top up an extra $1,800 monthly to repay the housing loan at 2% for 30 years loan tenure. 

If the couple intends to build up the retirement fund in CPF, the couple can look into paying the extra top-up of $1,800 using CASH instead of fully pay off using CPF. If their monthly repayment of the home loan is higher than their monthly CPF-OA contribution, they will lose the exponential growth of the compounding interest of 2.5% from the CPF-OA because there is no more excess. In this case, they will not enjoy CPF-OA fund growth when they reach 65 years old, and in fact, they will continue to use the balance CPF assets to pay off the home loan due to monthly home loan is greater than the monthly CPF contribution. 

However, if they can pay the extra top-up using cash, they should enjoy a potential growth in their CPF retirement fund by $620K when they reach 55 years old!

Conclusion

There is no right and wrong as buying property is a big decision. But it does matter whether you make a sound decision considering your financial goals and risks. 

With the two hypothetical scenarios, holding on to HDB too long may potentially miss out on the potential gains as the HDB value may depreciate as the lease is getting lesser. HDB flats are treated more like a home and not really an asset, but many still can extract the value from their HDB flats by selling them at the right time and parking those profits into a better-performing asset that can provide better returns. 

Of course, the key is by doing your sums, knowing your net worth and cash flow, and ensuring that you know what exactly you are doing. It would be best if you explored whether it is best to stay in your current HDB home or whether it is feasible to restructure and move your funds into a better performing asset.

 

What’s Next?

As we are looking into how to build a retirement fund, in the next two sections, we will work out the math behind using both CPF and cash to determine how you can achieve the most out of your property investment, considering your financial goals and risks. 

Related Posts:

Part 2: Should You Use Cash or CPF to Pay for Your Home

Part 3: Using CPF for Property May Give You More Options

Through a NON-OBLIGATORY consultation, you will have a detailed financial assessment to evaluate the possible options whether it is feasible to restructure and move your funds into a better performing asset.

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What You Can Expect During Your Detailed Financial Assessment:

  • The understanding of CPF accrued interest and how it will affect your cash proceeds/profit.
     
  • How to get profit from your HDB/EC.
     
  • Knowing what you need to do if you prefer to stay with your unit to build up your retirement fund.

  • Evaluate the possible options whether it is feasible to restructure and move your funds if you decide to sell your unit after MOP into a better performing asset.
  • Understand where you are financially now and in the coming years before your retirement.

  • The understanding of CPF accrued interest and how it will affect your cash proceeds/profit.

  • Evaluate it is better to hold the unit or feasible to restructure and move your funds to better-performing assets.

  • Discover the options in today’s property market if it makes sense to multiply to 2 properties with calculated risks.

  • Understand the stamp duties and choices of ownership to minimize the taxes in a legal way.
  • An analysis of your entire property portfolio to see the efficiency of their performance in terms of their values.
     
  • Evaluate options and any feasibility to restructure and move your funds to maximize the potential gains.

  • Assess the risk diversification of your property mix and whether you achieve the maximum return of your equity (ROE). 

  • Possible consolidation of your assets to restructure your portfolio for the maximum gains 
  • Understand Singapore property market trends and how you can invest.

  • Understanding the relationship between stamp duties and ownerships.

  • How you can take on Singapore loan by pledging or show funds to get the best advantage of leverage.