The Housing & Development Board, or HDB as the agency is more commonly referred to, is the public housing authority of Singapore. This agency is in charge of housing and living space in Singapore. Between the planning and development of the housing estates in Singapore, HDB’s goal is to ensure Singapore presents maximal utility in commercial, recreational, and social environments for citizens.
In this article our objective is to discuss some of the hidden costs that accompany the sale of HDB properties. While common costs such as sales agent commissions are well known to property buyers around the world, the sale of an HDB property presents numerous other costs that are critical for every property owner to take into account before ultimately selling their property. We begin our discussion with an objective evaluation and walk-through of each of the steps necessary to sell your HDB property, in order to present the costs you may encounter at each step of the transaction.
The First Step to Selling Your HDB Property
First, you must go on to the HDB Resale portal. On that portal you will be able to view your eligibility to sell your flat. After confirming you are eligible to sell your HDB property, you must register an Intent to Sell. This step serves to inform the government of your possible upcoming sale. Be sure to complete this step yourself; even if you are enlisting a salesperson to sell your flat, you are still responsible for this initial step.
This Intent to Sell form must include accurate information that will stay the same throughout the transaction. Should any of the information change, you will have to create a new Intent to Sell. According to the HDB, the Intent to Sell only provides an update on your eligibility to sell your property, not an actual approval to sell your property.
The Next Step: Option to Purchase
Once the seller has registered their Intent to Sell, they must download a form called the Option to Purchase. This form contains the directed steps for the transaction to proceed. The buyer and seller begin the transaction by arriving at the determined resale price of the property. Do keep in mind that the Option to Purchase can only be granted to the potential buyer of the HDB property at least 7 days after the seller registers the Intent to Sell. This is a hidden time cost that can slow down your transaction.
Another hidden time cost in the sale of your HDB property is the Minimum Occupation Period, or MOP. According to this law, the sellers must occupy the property for a certain amount of time before they can sell it. The minimum amount of time is typically 5 years. Do keep in mind that if you owned the property for five years, but spent a year overseas in another country, you are required to live in the flat for one extra year before selling. The MOP is based on time spent living in the property, not simply time of ownership.
The Financials for an Option to Purchase
The next step is to negotiate the option fee and option exercise fees, which the buyer pays to the seller. The combined amount of the option fee and option exercise fee forms the deposit, and is payable by the buyer. The option fee is paid to the sellers in order to make official the option to purchase. Upon executing the option to purchase, the buyers will pay the seller the previously agreed upon option to exercise fee.
Beware of the potentially hidden opportunity cost of entering into this option to purchase though. Once the seller receives the option fee from the buyer, the seller is unable to sell the flat or make an offer to other buyers for 21 days. In that sense, the seller is sacrificing their ability to find a higher sales price for the cost of the option fee paid by the buyer.
Once the option to purchase has been exercised and the seller has received the option to exercise payment, the next step for certain HDB flats is to consider who is liable for payment of upgrades.
Who Pays for Upgrades?
Certain flats fall under the HDB’s Upgrading Programmes. A critical hidden cost to consider, for both parties, is who the flat owner is on the day of billing for the upgrade cost. If the date of billing occurs before the HDB flat resale completion date, the seller must pay the upgrading cost. And if the date of billing occurs after the HDB flat resale completion date, the buyer must pay the upgrade cost. Do ensure that this is something both seller or buyer is aware of before they proceed with an offer to ensure that there are no surprises for either party.
After The Buyer Exercises the Option to Purchase
After the buyer exercises the Option to Purchase within 21 days of paying the Option Fee, both the buyer and the seller must submit their respective portions of the resale application to the HDB. Do keep in mind that both portions must be submitted within 7 days of each other.
If your HDB flat is 1 or 2 rooms, the buyer and seller pay the resale application fee of $40. If the flat is a 3 room or bigger, the buyer and seller pay $80.
It is important to keep an open line of communication with the buyer of the HDB flat because if the buyer and seller’s respective portions of the resale application are not submitted to the HDB within 7 days of each other the application will be canceled without eligibility for a refund from HDB. This could present a previously hidden cost, and make the resale process start over again.
Next Steps After Submission of Resale Application to HDB
HDB advises applicants that review of applications can take up to 14 business days, which can be an additional cost of time and money for the seller to remain responsible for the property. Do keep in mind that the 14 business days estimate may be conservative; given the current market conditions, this timeline can exceed three weeks of review.
Once the resale application has been approved, both parties must endorse documents that the HDB presents on the resale portal.
Legal Fees Payable Upon Sale
After the documents have been endorsed, the sellers have the option of enlisting the HDB solicitor to act on your behalf in the sale if the current flat is currently on a HDB Mortgage loan or has no mortgage. We have included a table below with the commensurate costs for conveyance fees, registration and microfilming, as well as an additional miscellaneous fee.
If your flat is currently mortgaged with a Bank Loan, you will need to enlist the services of a Private Law firm and their conveyancing rates usually range from $1500 to $2500 on average. You will be responsible for a different set of fees, outlined in the table below, in addition to the fees charged by your solicitor.
A Possible Hidden Fee For Receivers of Property via Transfer
The vast majority of HDB sellers are not subject to the Seller’s Stamp Duty because the Minimum Occupation Period requires the seller to live in the property for at least 5 years, and the Seller’s Stamp Duty expires upon completion of the third year of ownership. However, if you received a flat by way of transfer, you may be liable for this tax. Do be sure to consult the IRAS website to see if you are liable for the Seller’s Stamp Duty.
Property Tax for the Seller
As the seller you are still liable for the flat’s property tax through the end of the year. Be sure to allocate this cost in your sale of your property. HDB advises sellers to pay this final tax payment before their flat sale completion appointment and submit the payment receipt on the day of completion appointment.
Service & Conservancy Charges
In addition to the final property tax payment receipt, the seller must also submit final payment for their service and conservancy charges. Do check with your Town Council website to find the schedule of fees so you don’t have an unexpected charge upon completing your sale.
The Resale Completion Appointment
After the HDB accepts the resale application from the buyer and seller, the resale completion appointment will be scheduled approximately 8 weeks from that date. Before the appointment is scheduled, HDB will send a representative to inspect the property and ensure no renovations have been made that affect the safety of the apartment and the building’s stability. And, the seller must vacate the flat at the latest 1 day before the resale completion appointment in order for the buyer to take delivery of a vacant flat.
One hidden cost that some sellers will run into is the cost of temporary accommodations after vacating the property, and before taking possession of their next property. Do calculate these costs before completing the sale, in order to form a fully accurate cost of selling your HDB property.
HDB does allow for buyers and sellers to come to a private arrangement whereby the sellers can stay in the flat for up to 3 months after the sale has legally been completed. In some instances, the sellers pay the new buyers of the flat in order to stay in the property for the agreed upon length of time.
Calculation of Your Profit From the Sale
When the seller finally receives the money from the buyer of the property, they are responsible for multiple costs. The seller receives the sale price, minus the following expenses.
Repaying the Outstanding Mortgage
Most HDB property holders have an outstanding mortgage loan at the time of sale. The proceeds from the sale pay off the outstanding mortgage loan.
Return of CPF Funds, if Applicable
Any funds from the seller’s CPF for the initial purchase of the property, or the monthly mortgage payments, must be returned to their account, plus accrued interest.
The Buyer’s Deposit
The cash deposit received from the buyer, up to the limit of $5000.
Grants and Levies Applicable to Certain Buyers
Any housing grants you may have taken out in order to purchase your property. The seller would have to refund these amounts to their CPF OA, with interest accrued.
Are You Liable for Resale Levies?
Another possible cost is a resale levy, if you are buying your second subsidised flat or Brand New Executive condos. If you are considering buying a second property, we recommend you review our article on buying two or more properties.
Below is the schedule of resale levy fees.
Another possibly applicable levy is the upgrading levy. The upgrading levy of 10% is based on the declared selling price of the flat, or 90% of the market value of the flat, whichever is higher. According to the HDB website, the following groups need to pay the upgrading levy: Singapore Citizen households who benefitted from the previous Main Upgrading Programme (MUP) (discontinued from August 2007) 2 times or more, or Singapore Permanent Resident households whose flats were upgraded under MUP (Batch 6 and before).
A Not-So-Hidden Cost of Selling Your HDB Property
A major potential cost to factor into your sale of your HDB property is the commission paid to a sales agent who assists you in selling your property.
There are two general perspectives on enlisting the services of a sales agent. The first perspective claims that a sales agent is adept at navigating the sales process so the seller doesn’t have to, can help the seller find qualified buyers, and ultimately help bring the highest sales price for the property. The typical commission for a sales agent to sell a property is generally 2% to 3% of the sale price plus GST which may vary depending on the scope of work of the marketing agent.
The second perspective claims the sales agent is an added cost, whose value can be replaced by the seller. Under this perspective, the seller ought to research the transaction process themselves, advertise their own property, handle negotiations and ultimately conclude the sale on their own.
One potential hidden cost of not hiring a reputable sales agent, or not working with one at all, is that a seller may make a mistake at some point during the transaction process and slow down the deal. Or, they may not negotiate a higher sales price as effectively.
A good sales agent will work in your interest as a seller to achieve the best price possible yet still taking into account the various nitty gritties attached with home selling such as the transitional period from home to home, pointing out potential pitfalls which might derail the transaction, etc.
Calculating Your Cash Proceeds from Your Sale
Below is an example of a possible scenario for the seller of a property, with CPF Funds used to help fund the purchase:
*Resale levy is only payable upon the purchase of 2nd subsidised housing from HDB.
Make Sure You Know Your Numbers
In closing, we want to recap that selling your HDB property can entail numerous costs. The process is not as simple as many sellers hope or expect, and a typical timeline ranges from 3.5 to 4 months from when you find a buyer for your flat.
Make sure you have properly reviewed the finances of your property to avoid being surprised by any hidden costs when it comes time to sell it. If you have questions about selling your property or would like advice on how to achieve the maximum value for your property, reach out to the PLB Team with any questions.
