Have you ever seen those advertisement in YouTube or Facebook talking about selling your HDB at a tidy profit, and using the profit to fund 2 private condos?
Well, I sure did. This makes me wonder, unless you own a HDB flat that is Pinnacle @ Duxton, or anywhere in the central region, how much exactly can you get back in cash or CPF to be able to fund your 2 private condo dream?
Let’s have a walk through scenario.
- You have a 4-room flat in a non-mature estate that you brought for $280,000
- You received a $50,000 CPF housing grant for the unit, which is used during the downpayment and to reduce the mortgage loan
- You took up a HDB loan with an interest rate of 2.6%
- Instalments are fully paid using CPF
- You spent $50,000 on renovation
- The flat have just reach the 5 years MOP
- Market price for your flat is $550,000
The Simple Story
At a quick glance, we would easily take that the profit from selling this flat as $320,000. The purchase price being $230,000 after the HDB grant and the selling price being $550,000
$550,000 – $230,000 + $50,000 = $320,000
That seems to be an almost 140% in returns!! With the earnings of $320,000, the deposit for 2 small condos does not seem that difficult to fork out.
Unfortunately, things are not that simple.
The Real Story
In the actual story, there are many more factors to consider. Read on to see a step by step calculation of how much you can actually earn from selling your HDB.
Step 1: Calculate the actual “take-home price” from selling your HDB.
Usually, most people engage a property agent to market their property for sale. As a guideline, the commission is about 2% of the selling price. This works out to about $11,000.
Agent Fee = $11,000
While it is true and plausible that you sell your flat without engaging an agent, majority people still would not go this path due to the logistic and administrative trouble.
Take-Home Price = $539,000
Step 2: Redeem your HDB loan
Usually, the proceeds that you received from the sales of your house is first used to pay off the outstanding loan. With the HDB grant, the total loan taken at point of purchase was $230,000. The outstanding loan after 5 years of instalment payment is $195,000.
Remaining Amount = $344,000
Step 3: Pay back principal amount + accrued interest of CPF taken (CPF grant included)
The purpose of accrued interest is to cover the interest you would have earn if you had kept your CPF untouched. You can actually login to the CPF portal to view the actual CPF amount you have used, both principal and accrued interest.
As an estimation, during the 5 years, you have taken almost $63,000 from your CPF to pay for the monthly instalments. Along with the grant of $50,000 given to you at the start of the purchase, the total amount you have to return to CPF, including accrued interest amounts to $125,000.
Remaining Amount = $219,000
Step 4: Calculate the actual “overall cost” you fork out for the purchase of your HDB. (Yes, that includes your renovation as well.)
In your initial purchase, there are a couple of large fees that you pay for, which does not goes toward paying off the house. They are mainly the stamp duty and the renovation costs.
Stamp Duty = $3,800
Renovation = $ 50,000
Buyer stamp duty is required for every property you purchase, and it can get pretty hefty as they are calculated as a percentage of the property price. Renovation is a sunk cost as you cannot really move your renovations around.
Remaining Amount = $165,000
Summary of Returns
In summary, this is the amount of cash and CPF you would received after selling your property.
| CPF | $125,000 |
| Cash | $165,000 |
This seems like a neat gain. But you do not have a roof over your head now. Can you now execute the grand plan of getting 2 small condo with your earnings?
Step 5 [Optional]: Use the profit on 2 small condos
The downpayment of a private condo is 25% of its purchase price. Between CPF and cash, you would have a total of $390,000 to use for the purchase of the condos.
Working backwards, you are able to afford the downpayment of 2 small condos around the price range of $750,000 to $800,000 with the proceeds of your sale of HDB.
However, you would have 2 mortgage loan to pay for, not forgetting the stamp duties, legal fees and renovations that you would now have to fork out of your own pocket.
Last Words
Unfortunately, reality does not always seem so rosy, and the gains you thought you will received does not reflect the actual situation. Regardless, before taking the leap of faith and selling your flat to achieve your private condo dream, always do your calculations carefully, and consult a property agent as necessary to work out the finances first.
Disclaimer: Do note that this is an estimated figures derived based on our calculations, and does not represent the actual values. You will need to refer to your respective property agents for advice.
