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My Next House Must Definitely Be A Bigger HDB Flat

- Mr Lim, HDB 4-Room Flat Owner

Being a property agent for the past 10 years, I have always noticed this trend.

Majority of Singaporeans tend to upgrade from a smaller HDB flat to an 5-room, Executive Apartment or Executive Mansionette. That is their definition of upgrading. The main reason is simple – they start to have more children or have an older parent joining the, space and size is the main consideration. 

I will share a case study of my client Mr Lim, who wanted to upgrade from his 4-room HDB flat, to understand the implication for his decision. 

- Kelvin Tan, Property Adviser

Case Study on Upgrading from 4-rm flat to Executive Apartment Flat

The Most Common Choice of upgrading of typical Singaporean Family - Purchasing a larger HDB flat. 
In this case study, let's assume a couple with combined income of $8000 decided to upgrade from 4 room flat to Executive Apartment so that they can more space and will likely last them for the next 30 years.

Upgrade from 4rm flat to Executive Apartment Resale Flat

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The couple sold their 4rm flat and net $100,000 net proceed. They used their CPF refund $150,000 and $100,000 cash proceed to a bigger HDB flat with a remaining lease of 76 years at price of $700,000. They borrow the remaining $450,000 using HDB loan and pay off monthly instalment using CPF.  Since they are buying the Executive Apartment from resale, no resale levy applicable. If buyer choose to buy 5rm BTO flat from HDB, there will be a $40,000 resale levy and the net cash proceed will be $60,000. 

How will this affect the family 30 year later?

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After 30 years, at the age of 65,


(1) They will be holding a property with a remaining lease of 46 years. Buyer for property with lease less than 60yr face, cannot use CPF and have loan restriction. 

(2) $148,000 CPF balance used at the purchase, will grow at the rate of 2.5% per annum accrual interest, to $306,000

(3) $452,000 loan at 2.6% per annum interest, using CPF to pay monthly instalment $1810. The CPF used will grow 2.5% accrual interest to $953,000

(4) In total, the couple will have to have CPF used plus accured interest of $1,259,000. 

If the HDB flat were to be sold at the age of 65, it needs to be sold at $1,259,000 in order to make cash from it (break even). This price is highly unlikely to happen for a HDB with remaining lease of 46 year left. As long as the HDB flat is being paid via CPF, accrued interest will continue to build up. You are basically borrowing from your CPF at a rate of 2.5% per annum for as long as you hold on to the property. This is on top of 2.6% interest for the bank loan.

Now going back to the present – the question to ask yourself:

Will the HDB flat that you are planning to purchase be worth it?

You have to be aware that they are actually paying for interest for both sides – first to HDB and then to CPF.

  • The first interest is based on the 2.6% HDB loan you received.

  • The 2nd interest is based on the 2.5% CPF accrued interest – which will only be payable upon the sale of the flat.

The only way to offset this interest accrual is have property that will increase in value over year. However, HDB properties price will face limited asset price growth due to decaying lease tenure, lack of land ownership and aging of the property. 

Of course, there is never a right or wrong decision to purchase another HDB as your next housing because there are indeed many factors including income, family needs and current financial standing.


Before making of biggest financial decision in your life, you should explore and consider other options as well.


What happen in a Negative Cash Sale Situation?

When you hit retirement age at 65 yer old, the only way to cash out on your CPF funds that are locked in your HDB flat is to sell your HDB. But the amount that you can receive will depend on :

  • The age of the flat, HDB with less remaining lease tenure left are in general less attractive to newer flats due to CPF and loan restriction

  • The accrued CPF interest payable on the amount used will accrued at 2.5% per annum

What if the actual selling price actually is about $500K for a flat with 46 years remaining lease. Th CPF used and accrued amount to $1.2m. 

This results in a negative cash sale situation of $720K which you will have to refund to your CPF account upon sale of your HDB. 

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When is the best time to housing and retirement plans? 

At 35 years old, you are at your prime earning age. This is a crucial juncture that can determine your future retirement plans. For example, mortgage loans are alot easier to get at 35 years old as compared to when you are 45 years old.

You can also get a longer mortgage period, hereby paying smaller monthly affordable instalments.

What would be your plans when your income starts to slow down?

What would be your plans when your remaining HDB lease is only left with 40 years? A 40-year old HDB flat is hit with many restrictions that can affect the future selling price. 

There is such a thing called optimism bias. Optimism bias is a cognitive bias that causes a person to believe that they are less at risk of experiencing a negative event compared to others. 

If you would like to understand more on what you can do and other options available, please contact me. I have assisted many clients to get clarity on what they can do next property.

500 Terry Francois Street, San Francisco, CA 94158

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