What is a HDB Negative Sale and why should you care?

Or in other words, “Why did my flat price increase but I did not get ANY cash from selling my flat?”  

It’s a strange situation to think that you don’t get ANY profits from selling your flat – despite putting thousands of dollars in it every year, but yes it is happening AND it can happen to you. 

Putting money into a stagnant property is like pouring into a leaking bucket - HDB Negative sale

Is your own property a leaking bucket? 

How does a negative sale happen? 

A hdb negative sale happens when the flat prices increases at a rate that is slower than the amount of interest you paid to HDB (2.6%) or the bank (check with the bank for the amount you paid, 1.3 – 3%) AND  the CPF accrued interest of 2.5%.

To get any cash profit from the sale of your flat, its roughly estimated that your flat needs to have an annual capital appreciation that is more than the HDB interest rate and the CPF accrued interest rate i.e. an annual capital appreciation of 5.1%. If this doesn’t happen, your returns may get locked into your CPF. In addition, because of the minimum sum requirements,  usage for the next flat might also be limited (*this happens if you are planning to do downgrade after 55)

Singaporeans have the assumption that they can easily cash out on their HDB flats as source of retirement income when they sell their bigger flat and downsize to a smaller one. However this has not been the case recently.

Because of the stagnant market, quite a number of HDB homeowners have discovered that they do not get any cash profits from the sale of their flats and they are sometimes unable to down grade to a smaller resale flat due to the lack of funds. Their only option is sometimes a limited lease 2 room BTO from HDB, which takes times since it can only be purchased at BTO launches and SBF sales, although there are more options at ROF selections now.

What is a negative HDB sale

This is the sales cycle of HDB prices since 1989. If you are counting on holding on your flat until the next wave, you might be waiting for a very long time. Will your flat reach the 40 year depreciation dive then? 

Who has profited the most from their HDB?

  1. People who bought flats in the good old days and flats have appreciated 200 – 300%.  This is fairly common for those who purchased flats 20-30 years ago. However, it would be illogical to think that HDB flat prices can increase to more than 1 million. 
  2. People who pay for their flats in cash. If cash was used to pay for the flat, the returns would also be in cash. They are also not subjected to 2.5% accrued interest in CPF.
  3. People who focused on growth properties (Both HDB and private). There are some people who selected their home based on how the property can appreciate.
  4. People who accepts that their own home can never be an investment, but a rental property definitely is.  

How does this affect you?

What should i do if my flat is experiencing a negative sale? 

There is no one size fits all step for everyone experiencing a negative sale. If your flat has reached MOP or is about to reach MOP, you can read more about your options here.

 It's important to understand what you are going to do next before rushing to sell your flat.  While some people can benefit from asset progressions and focusing on growth properties. Some might benefit from cutting their losses and fully paying off their loans. 

We provide free consultations for those who are unsure about what to do next. Please text us at 96918885 to book an appointment today.

Buying a HDB resale property: Does $0 COV really mean no cash upfront?

 

Resale HDB Prices : $0 COV

Do you need cash to buy a HDB Resale Flat?

On 10 March 2014, HDB revised the procedure for buyers to purchase a resale HDB property from the open market. Since then, prices of HDB flats have been going down, with one very obvious change  being the drop in the asking COV (Cash -Over-Valuation)  prices.

With the change in procedure, sellers are no longer able to dictate how much COV they want but instead have to “package it” into the total asking price for the flat.

What does this mean for buyers? Does this mean that there will not be any COV payable? Does this mean that buying a resale flat does not require any cash up front?

Not quite. There might be COV involved AND there is still some cash involved in the purchase.

Before we explain the COV portion and the cash involved in the process, buyers should first understand the old and new HDB resale procedures, and how it will affect how much cash you need for that resale HDB.

Old Resale Procedure

Prior to 10 March 2014, when the seller of a flat decides to sell, they would purchase a valuation report from a valuer through HDB. The valuation report will give the seller the ‘starting price’ of the flat, and the seller would add on to it by placing a cash premium on top of the selling price.

This cash premium was known as Cash over Valuation or COV and you cannot take a loan to cover this amount. Note that the banks or HDB will only grant buyers a loan based on the official valuation of the flat.

It got to a point where COVs went up to $100 000 and finding a flat with low COV was almost like hitting the jackpot.

New Procedure

When a seller decides to sell his home, he can no longer get an official valuation of the flat. Instead, he can review HDB’s recent transaction of flats in the area or use various tools available online for example on SRX online to make an estimate of the value of his flat.

With the estimated valuation in mind, the seller can then invite buyers to view his flat based on his selling price, which includes the COV if any.

If the buyers are interested in the flat, they will put in an offer.

The negotiation process starts and once both buyers and sellers arrive at a mutually agreed price, the seller will grant the buyers an option to purchase (OTP). The buyer will then put a deposit (also known as option money), of up to $1000.

With this option to purchase, buyers will proceed to apply for a valuation of the flat via the HDB website. HDB usually doesn’t disclose to the valuers the agreed selling price of the flat.

The valuation company will then send the report directly to the buyers, which means the Seller will not be informed about the valuation of the flat. Whether or not the Seller finds out about the valuation, he will not be able to adjust his selling price.

Only with this valuation report, will the buyers be able to determine if they need to top up any cash for the flat based on the following scenarios.

  • If the valuation matches the agreed selling price, the flat is considered to be sold at valuation . Buyers They do not have to top up any cash for the flat)

 

  • If the valuation is more than the selling price of the flat, the flat is considered to be sold below valuation. Buyers do not need to top up any cash for the flat.

 

  • If the valuation is below the selling price of the flat, the flat is considered to be sold above valuation. Buyers would have to top up cash to make up the difference between the loan granted (i.e. the valuation) and the selling price.

However, at this stage, the buyer has not confirmed the purchase. If they find that the COV is too high, they are still allowed to back out of the deal but they will not be able to get back the initial deposit made to the sellers.

What are the other costs involved in buying a resale flat?

Apart from the Cash over valuation (if any), there are also other costs, which you would need to pay when purchasing a resale flat.

Costs Payable by CPF

(If your cpf is insufficient, you would need to top up by cash.)

  • Stamp Duty (This is about 3% of the value of the flat)

 

Costs Payable by Cash only

A) Option fee

This is the ‘deposit’ you pay the seller to kickstart the buying process.

This amount is between $1 to a maximum of $1000. The current market practice is $1k but this is negotiable.

B) Exercise option fee.

This is the fee you pay to the seller to confirm your purchase. after you have received the valuation report and have arranged for a loan with either HDB or a bank. This amount is also negotiable but the current market practice is $4000, which is also the maximum amount legally.

C) Valuation Cost

  • $140.40 for 1-2 room flats and
  • $199. 25 for 3 room and bigger.

D) Resale Application Fee

  • $40 –for 1-2 room flats and
  • $80 for 3 room and bigger

 

E)Property Agent’s Commission.

For a HDB flat, the market rate is typically 1% of the flat price excluding GST.

In contrast, buying a BTO from HDB is substantial cheaper but has disadvantages like a long waiting time.

If you are still undecided, you might want to read our article comparing a BTO and a Resale HDB Flat .

HDB Resale Flats Property Singapore

 

You can read up on the costs involved when buying a BTO direct from HDB here.

 

Good Luck with your home search!

 

How to sell your house for a higher price in a slow market? Home Staging : An additional Perk or a Must Have?

How to Sell my home at a high price

How to set up your home to appeal to the buyers.

At the point of writing this article, the Singapore Property Prices have faced consecutive quarters of price decline. This may be a result of the various Government cooling measures which have been effective in cooling the red hot market.  With the impending massive supply of BTOs and Private Housing entering the market in 2014- 2018, you might be keen to sell your unit now before the prices drop much further.

However, you may have heard that it is a currently a buyers market. Coupled with the TDSR (Total Debt Servicing Ratio) that has limited affordability, Buyers are also adopting a wait and see approach before purchasing a unit.

How then can a property owner take control of the selling process to ensure he can command a high price when the demand is low?  One way is to stage the home to ensure that it appeals to every buyer that walks through the door.

[Read more…]