Singapore’s real estate scene is really busting in the seams. There is an ample amount of opportunities to sell old property and purchase a newer one.
So as sellers and potential buyers, we all need to be vigilant about the process of selling your property and acquiring a new one.
But when talking about the sale and purchase of property, one topic notoriously pops up in conversations which most often causes confusion.
This is why it’s more than necessary to go over this to avoid making any mistake and maximize the potential of your real estate experience.
I’m talking about the CPF Refund.
Often, the question is “Why is the CPF refund with accrued interest?” Or others may be wondering, “How do I know how much is my CPF refund afer selling my HDB?”
So buckle up your seatbelt as we attempt to answer these and other burning questions. We’ll take you for a ride to properly understanding why you need to refund your CPF, the BSD and ABSD, and other basics for your real estate sale and purchase.
The ABC’s of CPF
As may be well known by all Singaporeans, the CPF or Central Provident Fund is the country’s mandatory social security scheme. It has four components: the Ordinary Account (OA), Special Account (SA), Medisave Account, and Retirement Account.
The former three are funded by you – assuming you are a working Singaporean – and your employer. The latter is your combined OA and SA that is transferred to that account when you reach 55.
When you purchase a property, you use the fund from your OA. You can use it to purchase an HDB flat under the Public Housing Scheme; buy a private property under the residential properties scheme; or service the monthly payouts.
Now, why is knowing the basics important? Because to achieve the Science of Real Estate or the most optimal real estate experience, you have to be able to know all that there is to know in order to make your decision.
Why do I need to refund my CPF?
The question is fairly simple to answer. Your CPF is your retirement fund. So every time you take out money from your OA to purchase a property or pay for monthly loan amortization, that fund decreases.
Once you are able to sell your property, you will have to refund the equivalent CPF contribution to replenish your retirement fund. The CPF is not just for our housing needs. Moreso, it is to ensure that we have ample savings for our retirement.
So to ensure that you have enough retirement fund or savings to go about, the principal amount withdrawn for the purchase of property must be refunded to your CPF.
It’s important to understand this simple concept to avoid any conundrum later on.
Just to be clear: the government is not out to get you. The CPF is not a scam, as some previously thought.
This is your own money that has been set aside for your retirement. So it is just right to replenish it because you also withdrew from it upon purchasing your previous property.
What about the CPF refund with accrued interest?
Now, another question arises, and this is the CPF accrued interest. There are those who ask why they have to pay interest. And the answer is fairly straightforward as well.
You should always consider the time value of money. That CPF OA fund should have earned interest when it was set aside for your savings or retirement.
But since you withdrew it for the purchase of your property, it is only right that you refund the CPF accrued interest as well.
CPF Refund and The REI Method
Upon knowing the reason for refunding your CPF, and why there’s accrued interest involved, you have simply applied part of the Review phase of the REI Method.
The Review phase allows you to carefully asses your situation. And in this particular case, your situation accounts for the CPF refund with accrued interest before you determine how much money you will have left for the purchase of your next property.
Imagine if you just went ahead with the sale of your property without thoroughly reviewing first, or even trying to find out about your required CPF refund. What would happen then?
You might not have enough funds left for buying your new home. Or you may have overcommitted a particular portion of the property sale without considering the CPF refund.
Either way, it would have been a disastrous ordeal.
The Hows and Whys of CPF Refund for Property Sale
Okay, now that that’s out of the way, let’s try to look at your path to paying your CPF after selling your HDB flat.
First of all, it’s important to consider that it may take about two to three months for the proceeds of your property sale to come in. This will help you anticipate expenses and prioritize which costs to pay off first.
So say you have agreed to sell your home and have successfully found a willing buyer. The order of paying off obligations and expenses is as follows:
- Settle the outstanding amount of your home loan.
- Refund the P + I to your CPF OA. Again, the CPF accrued interest must be accounted for and settled as well. From the time you purchased your property and during the period that you were paying for the monthly amortization, you were using your CPF contributions. Therefore, once the sale of your property has pushed through, you are to refund both the downpayment and the total of the repayment for the monthly loan amortization.
- Settle other ancillary costs such as agent’s commission or fee and administrative and legal costs entailed by the sale of your property. Click here for a more detailed discussion on the step-by-step process of selling or transferring your property.
Selling Your Property at Age 55 or Beyond
So maybe you are in your sunset years when you decided to sell your property. That’s more than fine.
After all, maybe it’s only now that you have found a better property. Or maybe you are moving to a better location that is more appropriate for a calmer, quieter, and more relaxed life of retirement.
As earlier stated, your Retirement Account is created once you reach the age of 55. This is the combination of your OA and SA amounting to $166,000.
Remember that you can only use your funds above that sum for the purchase of your next property.
Pledging Your Property, Topping Up, and Other Related Issues
After determining the total CPF refund after selling my HDB to include the CPF accrued interest, there are other salient points to be considered.
There may be instances when you may pledge your current property to withdraw your OA in cash. In this case, the amount you will refund will also include that the pledged amount.
The more senior CPF members may also be wondering if they still need to top up their Retirement Account upon the sale of their property if they did not use their CPF savings for its purchase. The answer is no.
And finally, there is also no need to top up the difference to your CPF if the sale of your property is lower than the total P + I to be refunded.
For FAQs on the CPF refund and, you can check out CPF’s official webpage page. You can also check the amount to be refunded first before proceeding with the sale of your property so that you can be fully informed in making your real estate decision.
