As a property agent, I have run into various interesting situations involving HDB transactions. One of the most difficult transaction to handle as a property agent in Singapore is the situation of the HDB negative cash sale.
I really hate it when I encounter such a case – the amount of paperwork and calculations as well as the back & forth with HDB & CPF – can really stress out anyone.
The HDB negative cash sale usually happens to 2 types of people:
- those who are ignorant of their financial numbers in terms of CPF usage and HDB loan
(it happens. Life happens and we forget)
- those who jump to certain conclusions too fast without consulting an experienced agent first (when you ask for advice from people who have no right to give you advice)
Let me introduce you to this interesting case I encountered a few months back.
I met up with 2 different homeowners who stayed in Bishan – the same block actually – and looking to sell their HDB flat.
Let me introduce to you – Homeowner A.
Homeowner A switched to paying the monthly installments in cash since 2007 – paying $1050 per month.
From 2007 to 2017, they paid via cash.
After various deductions, the sale of the flat resulted in total cash proceeds of about $190K.
The amount of cash proceeds is not surprising – considering they paid via cash (NOTE: The agent’s commission has not been deducted
Paying via cash resulted in less CPF monies being used and of course, lesser CPF accrued interest to be refunded back.
Pretty straightforward due to the decision to pay via cash.
Now, let me introduce to you Homeowner B.
Homeowner B lives in the same block as Homeowner A. So their selling price will be about similar.
Assuming both homeowners sold @ same price, the final calculations from my excel spreadsheet:
As you can see, the potential cash proceeds for this case was about $20,000 – a far cry from the $190K cash proceeds for Homeowner A.
Bear in mind – Both Homeowner A and Homeowner B lives in the same HDB block.
Why the stark difference?
In both this cases, you can see a positive cash sale.
Homeowner B has a larger outstanding loan. Homeowner B also has a larger accrued interest to be refunded back.
Can you see how easily this could have become a NEGATIVE cash sale?
How a Negative Cash Sale Happens
For Homeowner B, they decided not to proceed with the sale of their Bishan flat due to the small amount of cash proceeds.
Basically they are actually very close to having a negative cash sale.
A few possibilities that could have upset the equation to become negative:
- Depressed Selling Price (as more HDB flats are released or poor market sentiment)
- Continuously increasing CPF accrued interest (which will continue to happen as they continue to use CPF to pay for their outstanding loan)
How much they bought the flat for is moot at this point actually – it has no significant impact whatsoever.
What are the consequences for Homeowner B?
For Homeowner B as they decided to not proceed further – they might be stuck with their HDB flat for the rest of their lives.
Their CPF accrued interest will continue to build up as they hold on the HDB flat.
It could reach a point that the CPF accrued interest could exceed and wipe out all cash gains – especially if the selling price was to remain stagnant.
This results in a missed opportunity to get cash out from their HDB flat.
At the same time, if the rate of increase of the CPF accrued interest is higher than the rate of appreciation of the HDB flat, this also results in a situation where it is possible to lose money!
My Advice to HDB Homeowners
Please take the time to sit down with your spouse and login to your CPF account to check how much accrued interest has built up since the purchase of your HDB flat.
Alternatively, you can contact me for a consultation session to find out what are the next steps for you.