CPF Refund distribution in HDB Negative Sale

When we sell a HDB flat, it usually entails a couple of “refunds” to be returned back from the sales proceeds. Unless you have originally paid for the HDB flat using cash, which would mean that you can take back all the sales proceeds in cash and not make any refunds (lucky you !).

Else there are two “refunds” that are needed :

Refund 1 : Your existing home loan. This could be to HDB or it could be a private bank loan from the local banks. This is the first refund that needs to be made and it is paramount above all other claims. It has the first charge.

Refund 2 : Your CPF monies utilised for paying for the HDB property as well as the accrued interest on these CPF monies utilised. This will be after you have paid off the existing home loan above.

HDB negative sale means sales proceeds are all returned back to CPF

When a HDB flat is sold and the proceeds are not even to cover the outstanding loan and the CPF refunds needed, this is a negative HDB sale. We covered the issue of the need to “return” the $5,000 option money back to the CPF recently and I encourage you to read that article again in conjunction with this.

In a HDB negative sale, all your sales proceeds will go back to your CPF accounts AFTER paying off the home loan. You will then be subjected to all the rules in CPF after the monies go back to the accounts (one example is the need to put aside Full Retirement Sum if you are 55 years and above). Hence, it is important not to assume you have all your CPF funds for use in your next purchase. Your housing agent should be able to advise you on this.

The concept of “negative sale” already meant that even if you have to make all the sales proceeds back to CPF, it also meant that you don’t have enough to return all the CPF proceeds needed. That means, you will not be able to return every single cent of CPF monies utilised and the CPF accrued interest.

(If you could, it will not have been a negative sale already)

Working through an example of CPF refunds for a negative sale

Mr and Mrs Tan (who are both 40 years old) are selling their 5 room HDB flat.

The market at the time of sale is not too rosy.

The selling price is $400,000 (and the market valuation is also $400,000 so they are selling at market price).

The outstanding loan is $100,000 (owed to HDB).

Their CPF accounts showed the following monies to be refunded. Mr Tan’s refund needed for both principal and accrued interest is $200,000. Mrs Tan’s refunded needed for both principal and accrued interest is $150,000.

First, let’s start to see why this is a negative sale.

The sales proceeds less outstanding loan less both owners’ CPF refunds is $400,000 (selling price) less $100,000 (home loan) less $350,000 (sum of all CPF refunds needed) = -$50,000. Hence it is a negative sale as the final cash proceeds amount is negative $50,000.

Second, do the owners need to “cough” up the negative $50,000 ?

The answer is NO. CPF board rules are that “upon the sale of a property, if the selling price (including the option monies) after paying the outstanding housing loan is not enough to make the required CPF refund, sellers do not need to top up the shortfall in cash provided the property is sold above or at market value”.

(The above is important. The property must be sold at fair market value. HDB will decide what is the fair market value. In my experience, as long as you do the right things eg selling in the open market, doing your best with your agent to market the property, adequate viewings and offers etc, you will be fine).

Finally how much monies will go back to the CPF accounts of the owners ?

In the case above, the amount going back to the CPF accounts is $300,000 (that is the selling price of $400,000 less the existing housing loan of $100,000).

Pro-rating the CPF refunds in a negative sale

From the example above, we know that

(1) The amount of sales proceeds going back to the two owners’ CPF accounts is $300,000

(2) The expected amount of monies to be refunded is actually $350,000. Mr Tan’s CPF refund is $200,000. Mrs Tan’s CPF refund is $150,000.

$300,000 is available for refund. $350,000 is needed. What is the distribution needed ?

CPF board rules are : “The refunded amounts will be returned to all the sellers’ CPF accounts in proportion of the amount of CPF they had used towards the property”.

In layman’s term, “share share la. The one who gave more gets more lo”.

So in Mr and Mrs Tan’s case, the distribution is as follow :

Mr Tan’s share = ($200,000/$350,000) * $300,000 = $171,428

Mrs Tan’s share = ($150,000/$350,000) * $300,000 = $128,572

So. Mr Tan, instead of getting back $200,000, he can only get back $171,428. Mrs Tan, instead of getting back $150,000, she can only get back $128,572.

That is the reality of a negative sale.

The numbers above is really just an example. In my real life’s experience, the gap between the CPF amounts needed to be refunded and the actual refunded amounts can be rather big.

Take note that as all the sales proceeds have been “used” to pay off the housing loan and then the CPF refunds amounts, there is NOTHING left to pay for the rest of sale expenses such as legal fees, stamp fees and agent’s fees 🙂

So do talk to a professional agent before you sell your HDB flat to better understand the financial sums.