How your HDB sale proceeds might get “taken” by CPF - 99.co

 

Singaporeans are a practical and savvy bunch. When it comes to selling our flats, most of us would prefer to receive the HDB sale proceeds in cold hard cash, rather than having it go into our Central Provident Fund (CPF) accounts. In this article, we’ll show you exactly how much of your property sale proceeds needs to be refunded back into your CPF account upon selling your flat.

Knowing the amount can help you plan your finances and decide whether to sell your flat or not. (Agent commission and the HDB resale levy are rather straightforward deductions from your sale proceeds, but refunding CPF needs more explanation.)

What you taketh from CPF, they must taketh back (from your HDB sale proceeds)

 

It is compulsory that any CPF funds used or received to finance a property must be repaid to your CPF account when the flat is sold. This repayment is made up of the principal amount used/received plus accrued interest. Accrued interest is the interest this amount of money the principal amount would have earned if it was sitting in your CPF Ordinary Account (CPF-OA) instead of having been taken out to pay for your flat. (Currently, the CPF-OA interest rate is 2.5%). Think of it as a reverse interest; the more the time passes, the higher the accrued interest you’ll have to pay back into your CPF-OA.*

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Yes, most of us would need to do a double-take when first hearing about the accrued interest rules, but hey, the Singapore government really sees the value of CPF for our retirement…

*The reality of having to pay accrued interest on top of the interest you already pay for your mortgage is why some people choose to service their home loan installments in CASH, even if they can do so using their CPF.

Click/tap to enlarge graph.

 

You must return the principal amount + accrued interest of all the received CPF grants

Although the word “grant” sounds generous, there are strings attached when it comes to getting it from the CPF. If you apply for and receive a grant from CPF at any point of time to help pay for your HDB flat, you’re required to return that amount, plus accrued interest on that amount, when you sell your flat. We’ve heard a story of a flat seller who forgot they received a grant from CPF some years back, only to find that the cash proceeds from the sale of their flat got nearly wiped out because they needed to refund CPF the said grant plus accrued interest.

 

To illustrate how CPF grants could end up eating into your sale proceeds, a flat owner who took a $5,000 CPF grant in 1998 would owe CPF a total of $8354.44 on that grant in 2018. Another example: If you buy a resale HDB flat today and take a CPF Family Grant of $50,000 for your purchase, your principal plus accrued interest on this grant amount alone would be $107,991.81 after 30 years — more than double of the grant amount you originally took!

If it’s any consolation, if the amount you have to refund CPF exceeds your cash proceeds, CPF will write off the excess amount (i.e. you’ll not be required to refund CPF beyond the HDB sale proceeds you receive). But take note that this is only in the case when you sell at or above your property’s market value*.

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Here’s the thing: If you sell below market value and the amount owed to CPF (plus accrued interest) exceeds your cash proceeds, you’ll have to return 100% what you owe CPF to your account by default, even if it means having to pay cash out of your own pocket. That said, sellers can appeal to the CPF Board to waive this ‘debt’, and have their cases assessed on a case-by-case basis.

So what should you do?

First, find out how much CPF can take from your HDB sale proceeds

 

To calculate how much money you “owe” CPF at a given point in time, log in to CPF Online Services using your Singpass, click ‘My Statement’ on the sidebar, and scroll down to Section C. Under the ‘Property’ tab, the principal amount you need to refund CPF is the ‘Net Amount Used’, while the accrued interest is under ‘Accrued Interest’. The sum total of ‘Net Amount Used’ and ‘Accrued Interest’ is what you need to return to your CPF account when you sell your property.

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A step-by-step example to computing your HDB sale proceeds:

In order to figure out how much cash proceeds you’ll get from the sale of any given flat, you’ll need to know and factor in your sale amount, CPF principal amount, CPF accrued interest, HDB resale levy, agent commission fee, and legal fees. (For simplicity, the refundable option fee—from the buyer of your existing flat—has not been factored into the calculation.)

The illustrative example:

>Say you’re selling your 4-room HDB flat that you bought for $150,000 in 2001, with a $15,000 CPF grant and $15,000 downpayment from CPF-OA. All mortgage installments paid using CPF, with outstanding loan amount at $50,000.

(A) Sale amount = $550,000 (If you’re not sure what your property might sell for, refer to HDB’s past transacted prices)

(B) Outstanding loan amount = $50,000

(C) CPF principal amount used = $130,000 (consisting of $100,000 mortgage payments + interest paid using CPF and $30,000 grant plus downpayment)

(D) CPF accrued interest = $97,000 (this has been rounded off for easy calculation)

Note that (D) is calculated based on principal amount compounded yearly up till the point of sale, not until the end of the loan tenure.

(E) HDB resale levy = $40,000 for a 4-room flat, assuming you’re buying an EC or another flat directly from HDB (e.g. BTO or SBF)

(F) Sale proceeds = (A) – (B) – (C) – (D) – (E)

$550,000 – $50,000 – $40,000 – $130,000 – $97,000 = $233,000

**(You may also estimate your sale proceeds using HDB’s Sale Proceeds calculator)

(G) Agent commission fee = $5,885

This is typically 1 to 2% of the sale price, with GST (currently 7%) tacked on separately.

(H) Legal fees = $2,500

Generally, legal fees cost between $2,000 to $3,000.

Cash proceeds = (F) – (G) – (H)

$233,000 – $5,885 – $2,500 = $224,615, which may or may not be sufficient to finance your next home purchase and/or fulfill other objectives for selling the home.

IMPORTANT: For those who are aged 55 or above…

Assuming you’re 55 years old in 2020, your Full Retirement Sum will stand at $181,000. If the combined balances of your CPF-OA and Special Account fall below this threshold, the amount refunded to your CPF-OA from the sale of your flat will automatically go into your Retirement Account. This means you’ll no longer be able to tap on these funds for housing above a certain age!

Note that if you are still working, contributions to your CPF-OA can still be used to pay for your outstanding home loan. This is even if you don’t meet the Full Retirement Sum.

Also, if your CPF savings can exceed the Full Retirement Sum, the excess can be set aside to pay for your home loan.

The bottom line? Unfortunately, the vast majority of folks who pay for their homes with their CPF savings won’t be getting the cash proceeds they initially expect after they sell their HDB flat. The accrued interest that you must refund to CPF will really take a chunk your HDB sale proceeds, constraining your ability to upgrade or use the cash proceeds to start a business/pay for your child’s university education/set up a retirement fund*.

*Unless, of course, you plan to migrate after selling your flat, whereby you can withdraw your full CPF balance anyway.

Protip: Reduce accrued interest by making a cash refund to CPF

 

That said, there is a way of making sure that your sale proceeds don’t go to CPF upon selling your flat, or at least reduce this amount. Simply perform a cash refund to your CPF account (details in this link). This refund can be done either partially, or in full.

Subsequently, use cash as much as possible to pay your home loan installments for the remainer of your tenure.

Note that you’ve only got enough to make a partial refund (either a partial principal amount, or the full principal amount without accrued interest), then your accrued interest will still snowball, but at a slower rate. You’ll still have to put money back into your CPF account after selling your flat, but the amount would be lower.

In short, if you’ve got enough cash on your hands to make a full cash refund (principal + accrued interest) and pay off your home loan from then on, you won’t have to put any money back into your CPF account after selling your flat.

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Other ways to lower CPF accrued interest (and possibly increase the cash you’d receive from your HDB sale proceeds in the future)

• Do not touch grants with a ten-foot pole
• If you’re taking a HDB loan with a 2.6% interest rate, refinance to a bank loan with a lower interest rate
• If you cannot afford to pay all of your mortgage in cash, consider paying part of it in cash
• Take a shorter loan tenure or shorten your loan tenure (no penalties for doing so for HDB loans)
• Selling your flat will stop the amount owned to your CPF account from increasing, but make sure you have a solid plan to give yourself a secure roof over your head!

6 days ago · 9 min read · by Elizabeth Tan

Source: 99.co (25 Sep 2020)

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Here’s proof that BTO prices are getting more and more expensive - 99.co

 

Build-to-Order (BTO) HDB flats are supposed to be generally cheaper than resale flats. But at some point, chances are that you or someone you know—likely a first-time homebuyer—have complained that BTO prices seem to be getting higher and higher. Even with the provision of housing grants for those earning below a certain income, are BTO flats are less and less affordable in 2020.

In this article, we’re looking to answer the question “Are BTO flats getting more and more expensive?” once and for all. To do this, we’ll be comparing BTO prices over time within various locations in Singapore. Within each location, we’ll also compare BTO prices with prices of resale flats, because according to the government, BTO flats are priced using a methodology that takes into account prices of comparable resale flats in the vicinity, as well as the specific attributes of the flats, such as storey height and design.

Because amenities, such as MRT stations, also factor towards the pricing of BTO flats, we’ll also be taking this into consideration in some of our case studies.

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BTO prices case study #1: Woodlands

Let’s start with a non-mature estate that has consistently seen plenty of BTO sales exercises over the past 10 years: Woodlands.

	Woodlands	BTO Starting Prices (excluding grants)
Launched	Project Name	3-room	4-room	5-room	Distance to MRT	Average 4-room resale price in preceding quarter
May 2011	Woodlands Peak	$167,000	N.A.	N.A.	Near	N.A.
September 2012	Treetrail @ Woodlands	N.A.	$248,000	$308,000	Within walking distance	$394,801
May 2013	Woodlands Pasture I and II	$133,000	$223,000	$276,000	Quite far	$418,811
Novemeber 2013	Admiralty Grove	$156,000	$238,000	$307,000	Within walking distance	$413,172
January 2014	Woodlands Glen	$145,000	$234,000	N.A.	Within walking distance	$402,080
May 2014	Admiralty Flora, Marsiling Greenview	$144,000	$229,000	$308,000	Within walking distance	$393,257
May 2017	Marsiling Grove, Woodlands Spring	$145,000	$236,000	$312,000	Within walking distance	$351,301
February 2018	Woodlands Glade	$140,000	$225,000	$279,000	Quite far	$339,235
May 2019	Champions Green	$165,000	$244,000	$336,000	Within walking distance	$332,216
August 2020	Champions Bliss, Urbanville @ Woodlands	$184,000	$276,000	$405,000	Near	$346,667

 

Chart: 99.co | Data source: HDB

 

For Woodlands, let’s narrow the focus to BTO projects built within walking distance or near an MRT station as there is more such projects for us to chart a price trend over time.

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Overall, for 3-room, 4-room and 5-room BTO projects in Woodlands that are within walking distance of an MRT station, we found that prices increased by 12%, 9% and 21% respectively over the seven-year period of 2013 to 2020.

This is significant because, during this period, resale prices—which are often thought to correspond with BTO prices—fell by up to 25% during the same period. If one of the key factors to determine BTO prices was prices of resale flats in the vicinity, then why did BTO and resale prices move in opposite directions?

What’s even more significant is that when Woodlands HDB resale prices finally bucked the downtrend recently, BTO prices increased by an even greater magnitude in the August 2020 BTO sales exercise.

In short, it’s reasonable to conclude that when HDB resale prices fall in Woodlands, BTO prices would increase. And if resale prices increase, BTO prices would increase even faster!

Granted, the projects launched in August 2020 are slightly nearer to the MRT station, but that alone cannot justify the crazy $32,000 increase in 4-room flat starting prices (more than 13%) between May 2019 and August 2020—a period of just 16 months!

BTO flat prices have surged to a new high in Woodlands, for the August 2020 sales launch. Image: HDB

 

BTO prices case study #2: Tampines North

Now, let’s take a look at Tampines North, a planned extention of Tampines New Town that will have its own MRT station on the Cross Island Line by 2029. The BTO flats that have been progressively launched here since May 2015 share largely similar attributes, because the area is so undeveloped.

	Tampines North	BTO Starting Prices (excluding grants)
Launched	Project Name	3-room	4-room	5-room	Average 4-room resale price in preceding quarter (Tampines New Town)
May 2015	Tampines GreenWeave	$183,000	$281,000	$375,000	$427,770
August 2016	Tampines GreenView, Tampines GreenVerge	$202,000	$289,000	$398,000	$424,152
November 2017	Tampines GreenCourt	$216,000	$323,000	$438,000	$435,561
February 2018	Tampines GreenDew, Tampines GreenFoliage	$205,000	$296,000	$417,000	$432,283
May 2018	Tampines GreenVines	$210,000	$312,000	$422,000	$430,743
September 2019	Tampines GreenGlen	N.A.	$312,000	$418,000	$427,343
August 2020	Tampines GreenCrest, Tampines GreenGlade	$205,000	$311,000	$423,000	$412,189

 

Chart: 99.co | Data source: HDB

 

For BTO prices in Tampines North, we can see a discernable ‘bump up’ in BTO prices in November 2017 with the launch of Tampines GreenCourt, followed by an abrupt reduction in the subsequent sales exercise.

At the same time, there was a corresponding increase in 4-room resale prices in Tampines New Town, which could’ve prompted HDB to set their BTO prices higher in 2017, in line with their “methodology”.

Well, the November 2017 BTO sales exercise was a disaster. For a ‘mature estate’ project, Tampines GreenCourt was uncharacteristically undersubscribed by first-time buyers for 3-room and 4-room unit types. But this was no surprise, seeing as HDB had decided to jack up the price of 4-room flats by nearly 12% in a span of 15 months, when prices of resale flats had only increased by 2.7% in the same period.

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This overreach prompted HDB to moderate the prices of Tampines North HDB flats from then on. But still, 4-room flats in Tampines North cost about 8% more now (in the latest August 2020 launch) than in 2016.

We feel that HDB might have went and increased prices further, had Tampines resale flat prices not fallen by 2.8% from 2016 till now.

HDB aggressively pushed the envelope in pricing BTO flats in Tampines North, resulting in lacklustre demand in the November 2017 sales launch. Image: HDB

 

BTO prices case study #3: Brickworks/Tengah

Before Tengah was announced as Singapore’s latest New Town in 2018 with plenty of bells and whistles such as parks everywhere and car-free transit corridors, HDB released thousands of BTO flats at the neighbouring Brickworks area in Bukit Batok from 2013 to 2017.

As Brickworks was also an undeveloped area back at the time, releasing a flurry of BTO flats there allowed HDB to calibrate the pricing for the eventual BTO projects at Tengah.

Based on the demand for Brickworks’ BTO flats, HDB could also better understand how to make Tengah, a brand new town, appear more attractive to Singaporeans.

It might seem cynical, but if the Brickworks’ BTO flats had sold like hotcakes (which they didn’t), there would conceivably have been far fewer amenities planned for Tengah, and Tengah BTO flats might cost even more than they currently do. Anyway, here’s the price analysis:

	Brickworks/Tengah	BTO Starting Prices (excluding grants)
Launched	Project Name	3-room	4-room	5-room	Average 4-room resale price in preceding quarter
November 2013	West Ridges @ Bukit Batok	$169,000	$284,000	$373,000	$451,068
May 2014	West Crest @ Bukit Batok, West Valley @ Bukit Batok	$164,000	$265,000	$371,000	$446,527
September 2014	West Terra @ Bukit Batok	$167,000	$269,000	$361,000	$440,097
February 2015	West Edge @ Bukit Batok, West Rock @ Bukit Batok	$160,000	$259,000	$350,000	$436,907
November 2015	West Quarry @ Bukit Batok	$161,000	$272,000	N.A.	$406,052
February 2016	West Plains @ Bukit Batok	$163,000	$266,000	$367,000	$404,432
August 2017	Sky Vista, West Scape	$171,000	$265,000	$353,000	$408,438
November 2018	Plantation Grove	$193,000	$290,000	$397,000	$401,126
May 2019	Garden Vale @ Tengah, Plantation Acres	$192,000	$309,000	$415,000	$367,699
November 2019	Plantation Village, Plantation Grange, Garden Vines @ Tengah	$208,000	$302,000	$409,000	$376,530
August 2020	Parc Residences @ Tengah	$198,000	$303,000	$418,000	$353,896

 

Chart: 99.co | Data source: HDB

For resale prices, we used the two nearest neighbourhoods to Tengah (Yuhua West and Bukit Batok West) for accuracy. First thing we can see is that the decline in value for 4-room resale flats in these two neighbourhoods have been drastic throughout the period of our comparison—exceeding 20%.

The constant fall in the value of resale flats in the vicinity should have, according to HDB’s BTO pricing methodology, resulted in cheaper BTO flats in Brickworks over time, but we can see that wasn’t the case.

With superior amenities such as the future Jurong Region MRT Line and centralised cooling technology in units, Tengah’s BTO starting prices are, quite understandably, set at about 10 to 15% above the BTO prices seen at Brickworks. Since the launch of the first Tengah BTO project, Plantation Grove, in 2018, prices in Tengah have also shown an increase of 3%, 4% and 5% for 3-room, 4-room and 5-room unit types respectively.

As Tengah takes shape, we expect its BTO prices to continue its upward trajectory. Conversely, prices of resale flats at Yuhua West and Bukit Batok West, which were built in the mid-1980s, will likely continue to decrease. This can be attributed to the natural outcome of a dwindling 99-year lease, and also competition from flats in Tengah and Brickworks from buyers.

Tengah’s BTO flats also come with a revolutionary cost-saving central cooling system, which has a high upfront cost that is factored into the prices of units here. Image: HDB

 

BTO prices case study #4: Bidadari

Bidadari, which is technically part of Toa Payoh New Town and considered a mature estate, arguably the second most publicised endeavour by HDB after Tengah, due to its proximity to the city.

Being sited on a recently exhumed cemetery hasn’t dimished Bidadari’s demand; all of its projects so far have been highly oversubscribed.

Here’s a snapshot of prices since the first Bidadari BTO project was launched in 2015, and 4-room resale flat prices in the nearby Potong Pasir neighbourhood:

	Bidadari	BTO Starting Prices (excluding grants)
Launched	Project Name	3-room	4-room	5-room	Potong Pasir 4-room resale price in preceding quarter
November 2015	Alkaff Courtview, Alkaff Lakeview, Alkaff Vista	$297,000	$433,000	$544,000	$495,125
February 2016	Alkaff Oasis	$303,000	$440,000	$546,000	$431,250
November 2016	Woodleigh Glen, Woodleigh Village	$335,000	$468,000	N.A.	$467,750
May 2017	Woodleigh Hillside	$328,000	$475,000	$579,000	$541,143

 

Chart: 99.co | Data source: HDB

 

Without a doubt, we can see that HDB has been steadily raising prices for BTO flats in Bidadari for the past half decade. (Note that every BTO project at Bidadari is arguably within walking distance of a MRT station, be it Bartley, Woodleigh or Potong Pasir, so the ‘proximity to MRT’ factor in varying starting prices for Bidadari BTO flats should be minimal.)

Also, for the Bidadari projects, we are even seeing starting prices for BTO flats exceed that of average resale prices for nearby flats (unlike higher resale prices seen in non-mature estates). This is an indication that a higher land cost may have been factored into BTO flats at Bidadari.

Since the first Bidadari BTO project in November 2015, starting prices of 4-room BTO units there have increased by 9.7%. Starting prices of 3-room flats increased by an even greater magnitude, by 10.4%.

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Potong Pasir’s flats were, similar to the resale flats in the previous case study, built in the mid-1980s. Despite being almost four decades old, the resale flats here have experienced value appreciation in the last few years. This is likely due to an increase in amenities surrounding Potong Pasir MRT, which includes the recently completed The Poiz Centre neighbourhood mall.

Considering buoyant resale prices in nearby Potong Pasir, we feel that HDB would have priced the Bidadari BTO flats even higher, or increased prices at a higher rate, if this wasn’t a former cemetery. And with at least two upcoming BTO launches in Bidadari in November 2020 and February 2021, we expect HDB to continue increasing prices for new flats here, regardless of how Potong Pasir’s existing flats perform in the resale market.

Bidadari’s former life as a cemetery has likely kept BTO prices low. Image: HDB.

 

BTO prices case study #5: Boon Keng

Just minutes away from Orchard Road and the CBD by train, Boon Keng (in Kallang/Whampoa New Town) is home to the priciest BTO flats launched in Singapore. In the May 2019 launch, Kempas Residences set the record for the priciest 3-room and 4-room flats ever launched:

	Boon Keng	BTO Starting Prices (excluding grants)
Launched	Project Name	3-room	4-room	5-room	Average 4-room resale HDB price for preceding two quarters (flats built before 2000)	Average 4-room resale HDB price for preceding two quarters (flats built 2000 or later)
November 2014	St. Georges Towers	$328,000	$459,000	N.A.	$498,222	$676,000
February 2019	Towner Breeze, Towner Crest	$374,000	$523,000	N.A.	$463,214	$664,556
May 2019	Kempas Residences	$387,000	$562,000	N.A.	$435,429	$709,632

 

Chart: 99.co | Data source: HDB

 

For our analysis of Boon Keng, we’ve spilt up older flats and newer flats, since housing here wasn’t built up at one go. There are a handful of 1970s flats, as well as blocks that are built after 2000. Due to differences in age, their resale value is quite far apart, as the chart above shows.

Even though BTO flats in Boon Keng are the most expensive BTO flats that HDB has launched, its starting price still pales in comparison to those of newer resale flats, which are fetching more than $650,000 for a 4-room unit.

BTO prices not a straightforward correlation with resale prices

You might also have noted that when prices for newer resale flats at Boon Keng increased while prices for older resale flats fell, BTO prices somehow ‘chose’ to follow the price spike of the newer flats.

This seems unreasonable at first, but it’s important to realise that when HDB says they “take into account prices of comparable resale flats in the vicinity” when pricing a BTO flat, they don’t mean literally following the price trends of ageing resale flats.

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Rather, what happens is likely this: HDB considers the age of nearby flats and applies calculations based on remaining tenure to find a hypothetical price as if the flats were brand new with a fresh 99-year lease, just like a BTO flat.

This explains why BTO prices will always lean towards the pricing of newer flats in the open market, while seemingly appearing to ignore the price trends of older resale flats in the vicinity.

But, even after taking into account tenure, it’s likely that HDB is still deliberately raising BTO prices across the board, with a mandate to slowly reduce the prized ‘BTO discount’ while gradually bridging the price gap between BTO and resale.

That’s because it’s ultimately hard to pinpoint a reason why starting prices for 4-room BTO flats near Boon Keng MRT increased 13.9% from November 2014 to February 2019, even as newer resale flats there had recorded a 1.7% price decrease.

This translates to a massive 15.6 percentage point price gap that tenure alone can’t explain, because the decrease in capital value for a 99-year leasehold property in the first 20 years of its lifespan is only 5%, according to Singapore Land Authority’s official leasehold table. (More in this article.)

Perhaps it’s the elusive land cost. Perhaps HDB realised on hindsight that the first project was priced way too low (the opposite of how the November 2017 Tampines North BTO project was priced too high).

Time for more transparency in BTO pricing?

Actually, there was a time when HDB published cost breakdowns of new flats. The detailed breakdowns would appear in its Annual Report.

Cost breakdown of a new 3-room HDB flat in the 1968 HDB Annual Report. Noticed that land cost is not a component of the selling price.

 

Sometime in the 1990s, the HDB stopped publishing these breakdowns, which was about the time when the government started factoring in land costs into the selling price of HDB flats.

No one has ever revealed, or ever managed to obtain, more information about the land cost component, or how prices of individual BTO flats are determined, even though the matter is legitimately of public interest. (Our sympathies to the parliamentarians over the years who have attempted this fool’s errand.)

In any case, as long as HDB and the government keeps its cards close to themselves and BTO prices keep increasing, Singaporeans will keep speculating: Perhaps there’s no methodology at all, only calculative madness.

7 days ago · 13 min read · by Kyle Leung

Source: 99.co (25 Sep 2020)

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