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How Right-sizing Your HDB Flat Can Help Your Retirement

byRyan Ong
  • Sep 30, 2022
  • 8 mins
For many Singaporeans, their HDB flat is their most valuable asset. It’s more than a roof over their heads – it can also be an appreciating asset, that helps them find a more comfortable retirement. If you’re ready to wind down, and your children have moved out, your big 5-room flat may feel a little empty. This is a good time to consider right-sizing: by moving to a smaller 3-room unit, you’ll spend less time cleaning; and you could enjoy greater security in your later years. Here’s how it works:

There are three main considerations, before right-sizing your home:
1. How much do you need for retirement?
2. What are the proceeds from right-sizing?
3. How does right-sizing fit with your other retirement plans?

Before you decide on right-sizing, it’s important to know how much you need to retire. According to a study in 2019, it’s been calculated that most Singaporeans will need around $1,379 per month after retirement, or roughly $16,548 per year.

Assuming you retire at 65, and live till 90, this could come to about ($16,548 x 25 years) = $413,700. This is before accounting for inflation and other needs. You can find a more detailed rundown of the planning process in this article.

Retirement is also a highly personal goal. D, you may need more or less for retirement. For example, consider factors such as:

  • Do you want to be able to travel abroad when you retire, and if so, how often?
  • How much do your hobbies cost? There can be a large price difference between a hobby like golf, and just long walks along the beach.
  • Do you have any medical conditions, that would require lifelong treatment?
  • Will you still have dependents to look after in your old age, such as family members with special needs, or a spouse dependent on you for continued income?

As you can see, no two persons’ retirements are exactly alike. You can use this retirement calculator, to determine an amount more appropriate to your needs.

Once you’ve set your retirement goals, you can determine how much right-sizing can help you:

You need to determine the amount you’ll have, after selling your 5-room flat to buy a 3-room flat. Here’s a quick example of how to do it:

First, let’s work out your net proceeds from selling the flat.

Say you manage to sell your 5-room flat, for $625,000*.

Out of your total sale proceeds, you will need to deduct the following:

  • Any outstanding amount in the home loan
  • Resale levies
  • CPF refund
  • Other related costs

*Assumes a flat size of 1,200 sq. ft., at the national average of around $521 psf as of June 2022 according to Square Foot Research.


Any outstanding amount in the home loan

If your HDB loan or bank loan (whichever you used to purchase your flat) is not fully paid off, you must pay the outstanding amount when you sell the flat.

In this example, let’s say you only owe a small amount on the flat, after many years of repayment. You have only $50,000 outstanding on the home loan, so your sale proceeds are reduced to ($625,000 - $50,000) = $575,000.


Resale levies

You’re required to pay a resale levy, if you sell a subsidised flat to buy another subsidised flat.

A subsidised flat refers to the following:

  • A Build-To-Order (BTO) flat
  • A Sale of Balance (SBF) flat
  • An Executive Condominium (EC) bought from the developer
  • Any resale flat that was purchased with the aid of CPF Housing Grants (but not the Proximity Housing Grant)

(Note that BTO flats, SBF flats, and ECs are considered subsidised even if you didn’t take a CPF Housing Grant, as the government has subsidised the cost to make them lower than the market rate).

Resale flats only count as subsidised if you used CPF Housing Grants, such as the Enhanced Housing Grant (EHG). If you only used the Proximity Housing Grant (PHG), which is given for living near your parents, the flat does not count as being subsidised.

Remember that the resale levy only applies if you’re selling a subsidised flat to buy another subsidised flat. So if you sell your 5-room flat to buy an unsubsidised 3-room resale flat (i.e. you don’t take CPF grants for the 3-room flat), then you don’t need to pay a resale levy. 

For our example, let’s assume that you buy the 3-room resale flat without grants (as you have more than enough cash from selling your 5-room flat), and don’t need to pay the levy.

(If you did choose to use CPF grants, you’d have to pay a resale levy of $30,000. You can view the cost of resale levies here).


CPF refund

When you sell your flat, you have to refund any monies used from your CPF Ordinary Account (CPF OA) to buy the flat. In most cases, Singaporeans will use their CPF OA to pay for the following:

  • The initial down payment on the flat
  • Any CPF Housing Grants that you used to buy the flat
  • Monthly loan repayments
  • The Buyers Stamp Duty (BSD)
  • Miscellaneous fees, such as legal fees

You will need to refund this amount, plus the accrued interest of 2.5 per cent over the years.

Unfortunately, there is no single figure we can give here, as everyone’s situation is different. Some people may have serviced their entire home loan using CPF for decades, thus having to refund a larger amount; others may even have used little or no CPF monies, and have to refund little to nothing.

To determine the amount of your CPF refund, you’ll need to log on the CPF website with your Singpass. This will specify the amount you need to return.

For the of our example, however, we will assume you used your CPF only for the initial down payment, and stamp duty, and serviced your home loan with cash. The amount you need to refund comes to $80,000, which leaves you with ($575,000 after full loan repayment - $80,000 CPF refund) = $495,000.


Other related costs

The most notable cost here would be the service fees for property agents. You can avoid this by selling the flat yourself on the HDB resale portal; but let’s say you use an agent for convenience, and pay two per cent* of the flat price as a fee. 

This comes to about $12,500, plus an added $817 for Goods and Services Tax (GST).

Besides this, let’s say you spend around $5,000 on other small related costs; such as doing some maintenance work to make the flat more presentable. There may also be small outstanding costs, like fees for former upgrading works.

This leaves you with $495,000 (after discharging the home loan and refunding CPF) - $18,317 (realtor’s service fee and other costs) = $481,683

*Realtors’ fees are negotiable. We use two per cent because it’s the most common amount charged.

Next, you need to buy your 3-room replacement home

Let’s say that, after much searching, you find a 3-room flat for $379,850*. This comes with a BSD of $5,995. This is a total of $385,845.

We’ll also add $15,000 for renovations**, for the 3-room flat (if it’s a resale flat, you’ll usually need to renovate).

(The BSD is based on the price or value of the flat, whichever is higher, rounded to the nearest dollar; use the IRAS stamp duty calculator to find out the BSD).

If you deduct the cost of the 3-room flat from your net sale proceeds, this leaves you with ($481,683 - $385,845) = $95,838. After $15,000 for renovations, this still leaves you with $80,838, to help your retirement.

* Assumes a flat size of 710 sq. ft., at the national average of around $535 psf as of June 2022 according to Square Foot Research

** Renovation costs are highly variable and depend on your needs. Some home buyers may spend as little as $10,000 or less; but if you want to get lavish, the sky’s the limit!

There are different ways to right-size your home, that can help with retirement. One example of this is to use the Lease Buyback Scheme (LBS): this will sell back a portion of your un-used lease to HDB, in exchange for topping up your CPF and a small cash bonus.

LBS is one possible approach, if your primary retirement tool is CPF, and you’re unlikely to move again (as you cannot sell your flat on the private market once you use the LBS scheme).

Another alternative is the Silver Housing Bonus (SHB), which tops up your CPF and gives you some bonus cash, when you right-size to a three-room or smaller unit. This may also be a viable option if, again, your main goal is just to top up your CPF. There are also some limitations on the kind of flat you can buy when right-sizing, so check out the terms and conditions first. HDB has also provided guidelines that prepares you on your selling journey about the consideration and steps involved in selling a flat.  

These options aside, let’s look at how we could use the above amount ($80,838), to fund your retirement. A simple way is just to add this lump sum to your funds; but there could be a better approach.

If you started retirement planning late, for example, right-sizing can provide the funds you need to catch up fast. Or if your retirement planning is already underway, right-sizing can help you reach new aspirations – perhaps you’d prefer to travel every year, rather than have a bigger but emptier home.

Above all, right-sizing can yield a significant sum, which can be used to generate future income streams. If it’s placed in a balanced, well-diversified portfolio, it could help to generate income for the rest of your life.

Do find advice from qualified financial experts, on how best to use your funds from right-sizing. By using the right insurance products, you can ensure the best chance for a happy retirement.

(Ps. While you’re at it, be sure to have sufficient home insurance, to help with the upkeep and value of your property over the years!)


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