As a real estate agent in Singapore, I am aware that many homeowners find the decision to downsize to be challenging. Downsizing to a smaller HDB home might, however, have numerous advantages as you age. I'll explain the math in this blog post so readers can better comprehend how downsizing from a 5-room to a 3-room flat can help them financially.
I recently worked with a couple, whom I will refer to as Mr. A and Mrs. A, who purchased a fully paid 5-room flat over 20 years ago. They are now both over the age of 70.
Due to the location of their flat, its selling price is on the higher end at $750,000, and they do not have any outstanding loans. When they sold their flat, Mr. A received $350,000 from his CPF housing refund, which included both the principal and accrued interest. Meanwhile, Mrs. A received $150,000 from her CPF housing refund.
It's important to note that every time an individual uses CPF money to purchase a house, they are required to return the amount when they sell their house.
How to calculate the cash proceeds
Selling price ($750,000) - Outstanding loan ($0) - Mr. A CPF Refund ($350,000) - Mrs. A CPF Refund ($150,000) = Cash Proceeds ($250,000)
Six-figure cash proceeds are considered very healthy.
We need to figure out if the proceeds from the sale of their five-room flat are enough for them to buy a three-room flat and still have money left over for savings.
Are the proceeds enough to buy a 5-room flat?
After the completion of the sale of their 5-room flat, the CPF amount used for the purchase will be returned to Mr. A and deposited into his CPF account by HDB. However, his Retirement Account will need to retain $53,000, while the remaining surplus of $297,000 will be given to Mr. A as a cash payout into his bank account a few weeks after completion. Similar to Mrs. A the CPF amount used for the purchase will be returned to Mrs. A and deposited into her CPF account by HDB. $53,000 will be retained for her Retirement Account and the remaining surplus of $97,000 will be deposited into her bank account.
After my client receives the cash proceeds, we will deduct $20,000 to cover the administrative fees, legal fees, valuation fees, and agent fees. As a result, the amount left over will be $230,000.
Now let's calculate the total cash that Mr. A and Mrs. A receive after deducting the necessary fees and the amount to top up their Retirement Account.
Calculate the total cash for Mr. A and Mrs. A
Mr. A CPF ($297,000) + Mrs. A CPF ($97,000) + Cash Payout ($230,000) = $624,000
Let's calculate the balance after purchasing the 3-room flat. $624,000 - $360,000 = $264,000
You can get a 3-room flat at this pricing at Bedok, Toa Payoh, Marsiling, Choa Chu Kang, Teck Whye, and Bukit Batok.
With the balance of $264,000 cash, it can be used for Mr. A and Mrs. A's savings and retirement fund.
Moreover, Mr. A and Mrs. A have expressed a desire to live in close proximity to their recently married children. They are eligible to apply for the Proximity Housing Grant, which provides a government subsidy of $20,000 if they purchase a home within a 4km radius of their children's residence.
Let me know your opinion. Should Mr. A and Mrs. A make this move?
Watch the video explanation here
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