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Downsizing Your HDB: How to Do It Right

Withdrawable trading bonus
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Have you ever looked at the BTO launches released every
quarter and wondered why there are some 2-room Flexi flats being offered? You are
probably not the only one who is left wondering. The fact is, they are launched
for a specific reason —
to cater the senior Singaporeans/PRs who are looking to downsize their HDB.

Check out: Lease Buyback
Scheme: Everything You Need To Know And Considerations You Need To Make

What is HDB downsizing?

Downsizing, or rightsizing (as HDB puts it), is the concept
of converting your HDB flat into a size that is optimum for you. If you are a
senior Singaporean/PR who is aged 55 and above, you might consider downsizing
your flat as you no longer need a big flat given that your kids are already
starting their own family.

Why should you consider downsizing?

While most people who
have considered downsizing (or downsized) did it out of financial consideration,
there are social considerations to support this idea too.

Read also: 6
Questions Every Singaporean Wants To Ask About VERS

The financial consideration

Downsizing
is one of the ways you can unlock value from your property. When you downsize
your property, you will make a net sale proceed which can be used to fund your
retirement.

Let’s
say you sell your current property (a 5-room HDB) at S$500,000. After which,
you decide to downsize to a smaller unit (e.g. a 3-room HDB) that costs S$300,000.
This translates to a net sale proceed of S$200,000. This S$200,000 can be used
to pay off any or all of the following:

  1. Your existing home loan
  2. Accrued interest if you borrowed from CPF
  3. Resale levy if you bought a subsidized
    flat as your first property (non-resale)
  4. Deductibles of up to S$15,000 for
    ancillary costs

After
paying off all the levy, accrued interest, existing loan and ancillary costs, you
may be left with some funds for your retirement.

Read also: Should You Pay off
Your HDB Home Loan in Advance If You Can?

The social consideration

Let’s
also look at the social perspective for downsizing. In recent years, HDB has
been experimenting with the idea of a Kampung. HDB wants to recreate the days
of Singapore’s Kampung life when neighbours used to be close to each other and did
everything together, leading to the creation of Singapore’s first retirement
community at Kampung Admiralty.

Kampung
Admiralty is made up of 100-plus studio apartments that are elderly friendly. Every
studio apartment is fitted with a range of elderly-friendly features such as
retractable clothes-drying racks. But more than just being fitted with elderly-friendly
infrastructure, Kampung Admiralty encourages active interaction among
residents.

Kampung
Admiralty comes with a multitude of facilities to drive social cohesion. For
example, Kampung Admiralty has a community farm for residents to grow food
crops with their neighbours.  There is
also an NTUC Active Aging Hub with day care, home care, and rehabilitation services
for those who need the services. A community plaza is also there for residents to
organise activities for fellow residents and socialise with each other.

Related: Is HDB Loan
Refinancing a Good Idea?

What options do you have when you downsize?

If you are starting to give downsizing a serious thought, you
should know that there are two options for you: Buying on the resale market or applying
for a new launch.

1. BTO: 2-room Flexi flats with short lease

Under HDB’s 2-room Flexi scheme, you can apply for a
short-lease 2-room flat during the quarterly BTO launches. You can choose from
leases that range between 15 to 45 years to ensure that you have a roof over
your head till age 95. This option typically gives you the best outcome if you
are downsizing to unlock value from your home. It is no wonder why 90% of senior
flat buyers opt for these 2-room Flexi units with a shorter lease.

Related: BTO Launch
Series: 5 Interesting Facts About Nov 2018 Launch

2. SBF: 2-room Flexi flats

Apart
from the BTO option, there is the option of buying a balance flat during the
sale-of-balance (SBF) flat offering exercise. The SBF exercise takes place
twice a year in May and November in conjunction with the BTO exercise. SBF gives
you an additional option to find the right HDB for downsizing. However, there
is a tendency for SBF flats to cost slightly more than BTO flats, especially if
there is a short waiting time to the flat’s completion.

(P.S. If you are
thinking of buying a 2-room Flexi unit from the SBF exercise, make sure you check
the lease period before committing).

3. BTO, SBF: Other types of flats

If you feel that the 2-room Flexi units aren’t for you, then you also have the
option of applying for other types of flats. This can be done through either the
BTO or SBF exercise. There is no restriction on the room type or location for
your downsized flat.

4. Resale market

Besides BTO and SBF, there is also the resale market. You can
buy a smaller HDB unit from an existing owner who is planning to let go of
his/her unit. One drawback, however, of this option is that the price of your new
home will be on the higher side. After all, the price of flats on the secondary
market is pegged to the market value of recently transacted flats in the
vicinity.

Downsizing your home through the resale market might mean
that you end up with limited money due to the relatively higher selling price of
your new home compared to BTO or SBF flats.

Related: Getting a
Resale Flat? Here’s a Guide to the Considerations, Regulations and Grants

Tips to know when you are downsizing your flat

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1. HDB Silver Housing Bonus

If you are planning to downsize to a small HDB flat (3-room
or smaller), then be sure to check if you can tap onto the Silver Housing Bonus
(SHB).

Silver Housing Bonus is a scheme that was introduced by HDB to
encourage elderly homeowners to downsize their HDB flat. The idea is simple. If
you downsize your HDB and use the net sale proceeds to top up your CPF
retirement account, you will receive a cash bonus of up to S$20,000 from HDB.

Who qualifies for the HDB Silver Housing Bonus?

In
order to qualify for HDB’s SHB, there are three criteria that you need to meet:

Criteria Description
Age, Citizenship At least one of the homeowners need to be Singaporean and above the age of 55 years
Income Your combined household income needs to fall below S$12,000
Existing Property You cannot own more than one property at the moment
For HDB flat, the Minimum Occupation Period (MOP) needs to be met
For private property, the annual value needs to be less than S$13,000
Downsizing You need to purchase an HDB that is smaller than your existing property. The maximum size you can buy is a 3-room flat
The property you are buying cannot be more expensive than your current property

How to calculate how much cash and HDB Silver Housing Bonus you will get?

Net Sale Proceeds CPF
Top-up Requirement
Net Sale Proceeds (Kept In Cash) Silver Housing Bonus Total Cash In Hand
Less than $60,000 All net sale proceeds
*To be topped up into either flat owner’s CPF retirement account
S$0 S$1 for every
S$3 top-up
E.g.Net sale proceed = S$50,000 S$50,000 S$0 S$15,000 S$15,000
   
S$60,000 to S$160,000 S$60,000
*To be topped up into either flat owner’s CPF retirement account
If your net sale proceeds exceed S$60,000, the surplus will be kept as cash S$20,000 Surplus after top-up + S$20,000
E.g. Net sale proceed = S$100,000 S$60,000 S$40,000 S$20,000
 
S$60,000
 
More than S$160,000 S$60,000 + Further top-up (i.e. Net sale proceeds – S$60,000 – S$100,000) *To be topped up into CPF retirement account of the owner with a lower CPF retirement account to hit the prevailing Full Retirement Sum (FRS) S$100,000 + Remaining cash after further top-up S$20,000 S$100,000 + remaining cash after further top-up + S$20,000

2. Watch out for the resale levy

If
the current property that you are staying in is a subsidised flat, then this
applies to you. When you sell your HDB, DBSS or EC that comes with the CPF
Housing Grant for another subsidized HDB, you will be charged a resale levy.
However, if you buy a resale flat instead, you will not be charged a resale
levy.

First
Subsidised Housing Type
Resale
Levy Amount
  Households
2-room
flat
S$15,000  
3-room
flat
S$30,000  
4-room
flat
S$40,000  
5-room
flat
S$45,000  
Executive
flat
S$50,000  
Executive
Condominium
S$55,000  

You
may also like:

  • The Ultimate Guide to the Best Home Loans in Singapore for 2019
  • All You Need to Know About Using Your SRS Funds to Buy Singapore Savings Bonds
  • How Much to Save for Retirement + Steps to Figure out Your Needs
  • 6 Questions Homeowners Must Ask Before Buying a Property

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