Are You At Risk Of A Negative Sale?

This is a topic that many homeowners need to be made aware of, especially if they have been staying for many years. Before diving deeper, let's find out what I mean by Negative Sale followed by the implications and points to look out for!

Negative sales usually does not happen for BTO units as it is quite subsidized already and have a higher price appreciation, but there are higher chances of happening for HDB resale, Sale of Balance (SBF) and private properties as they are not priced at entry level prices with subsidies unlike BTOs.

Negative Sale

When a homeowner sells their property but does not receive any cash proceeds from the transaction. This happens when the total outstanding loan amount, along with the accrued interest on CPF used for the down payment, monthly installments, and buyer stamp duty, exceeds the sale price of the property.

Those who used their CPF savings to purchase their property will have to refund the principal withdrawn, plus accrued interest, to their CPF account after they sell. Any housing grant received, and accrued interest will also have to be returned to their Ordinary Account.

Since our CPF savings are meant for our retirement purposes, it is compulsory to refund the amount used together with the accrued interest after the sale of our home. Otherwise, the more CPF funds we use, the lesser the amount is available for our retirement.

Most of us would have the idea of purchasing a property selling it for a profit, and upgrading to a better home. However, there are homeowners who do not see a positive cash flow after selling their property. i.e. homeowners do not see their cash proceeds.

Let's visualize it with an example. 

Note that numbers are for illustration purposes only and do not represent the latest market figures.

Selling price a HDB resale: $700,000 

Outstanding loan: $325,000

Total CPF used + accrued interest: $510,647  

Sales proceed: -$135,647 

Notice there's a shortfall? What will happen now? There will be two outcomes.

• If the property is sold at market value or above, you will NOT be required to top up this shortfall of -$135,647 cash back to your CPF. One fine example that is already happening can be read from this article - "More people couldn't fully repay CPF after selling property in 2020, but none required to top up in cash"

"As mortgage loan terms usually shorten with the age of buyers, it will be more difficult for senior households to use CPF to help partially finance their home purchases, as they would need to use more cash for mortgage loans. They may need to pay higher monthly debt services if their loan terms are shorter"

• If the property is sold below market value, you WILL need to top up this shortfall in cash back to your CPF.
  

Next, if it happens that you are upgrading to another home, which is a condo, a 5% cash downpayment is required. In this scenario, you do not see the cash proceeds from your HDB sale and would need to find a way to fork out this downpayment.

How to avoid or minimize a Negative Sale?

Planning ahead and having a rough idea of how long you should stay and how much CPF to utilize would help. Here are a few solutions:

• Try to pay for your mortgage in cash instead of CPF so that you do not have to refund back so much accrued interest in the future. Eg. you could try 50/50 category split, full cash etc.
  

• Get a bank loan with lower interest rate and do a Refinancing (switching to another bank for a new mortgage package) or Repricing (switching to a new mortgage package within the same bank) after the lock in period. With a lower mortgage repayment, CPF usage and refunds will be lowered as well.
  

• Keep abreast of the property market trends, bank interest rates, and how much your property is valued at today's market. Check in with a real estate agent - I would be able to advise you on the current market trends with supported data and share an indicative home valuation report for you. Should you be keen, check out the Online Booking link here in my site and book a slot to your convenience.
  

• Psst, homeowners who are buying their 2nd property has a higher likelihood to reach Negative Sale faster depending on how long will they be staying as they will utilize the CPF refunds from the 1st sales to make upfront payment in order to reduce the loan for 2nd property.
  

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 About The Author

Giselle has eight years of diverse industry experience, bringing a fresh perspective to the real estate landscape whether you're a first-time homebuyer, a seasoned investor, or looking to sell your property. As an excited first-time homeowner, she is also planning her property portfolio. She is also a dog mom of 2 adorable dogs (Shiba Inu and a Rottweiler mongrel mix), a theme park lover, a soft spot for Mandapop, and a carbs lover. For non-obligation consultation, feel free to reach out at 8298 5005 or hit her up at hi.gisellelow@gmail.com