Case Study

Mr & Mrs Teo (both 35) are staying in a 4-room HDB flat in Punggol, valued at about $500,000. The unit has already been fully paid for.

 

They have a combined income of about $8,500 per month. CPF Refund for Mr Teo is $150,000 and Mrs Teo CPF Refund is $120,000. Mr Teo has $80,000 in his CPF Ordinary Account (OA), and Mrs Teo has $70,000 in her CPF OA.

 

They are thinking of upgrading. 

 

What options do they have?

Option 1: Keep the HDB and buy a new condo

2 Bedroom Condo - $850,000

Option Fee (5% Cash) = $42,500

Downpayment (15% CPF/Cash) = $127,500

Stamp Duty (3% CPF/Cash) = $20,100

Additional Buyer Stamp Duty (12% CPF/Cash) = $102,000

Legal Fees (CPF/Cash) = $3,000

>> Total CPF needed

= $127,500 + $20,100 + $102,000 + $3,000

= $252,600

*In 2020, the Basic Retirement Sum (BRS) to be set aside in your CPF OA + SA is $90,500. Any excess can then be used to fund the second property purchase.​ Read more here: Basic Retirement Sum

Assume each have $30k in CPF SA, they can use:

Mr Teo: $80,000 + $30,000 - $88,000

= $22,000

Mrs Teo: $70,000 + $30,000 - $88,000

= $12,000

>> Total CPF needed - Mr Teo's utilisable CPF - Mrs Teo's utilisable CPF

= Top Up in Cash

= $252,600 - $22,000 - $12,000

= $218,600

>> Total Cash needed

= 5% Option Fee + Top Up in Cash

= $42,500 + $218,600

= $261,100

Monthly Installment $2,688 (Assumed 75% LTV, 3% interest and 30-year loan tenure)

Option 2: Sell the HDB and buy a new condo

Sales Proceed (Cash)

= Selling Price - Outstanding Loan - CPF Refund

= $500,000 - $0 - ($150,000 + $120,000)

= $230,000

Combined CPF

= Mr & Mrs Teo's CPF Refund + Current OA

= ($150,000 + $120,000) + ($80,000 + $70,000)

= $420,000

3 Bedroom Condo - $1,200,000

Option Fee (5% Cash) = $60,000

Downpayment (15% CPF/Cash) = $180,000

Stamp Duty (4% CPF/Cash) = $32,600

Legal Fees (CPF/Cash) = $3,000

>> Total CPF needed

= $180,000 + $32,600 + $3,000

= $215,600

>> Cash Balance

= $230,000 - $60,000

=$170,000

>> CPF Balance

= $420,000 - $215,600

= $204,400

Monthly Installment $3,794 (Assumed 75% LTV, 3% interest and 30-year loan tenure)

Option 3: Sell the HDB and buy 2 condos (for own stay & investment) 

 

Sales Proceed (Cash) = $230,000

Mr Teo buys a 3 Bedroom Condo - $1,200,000 (own stay)

Option Fee (5% Cash) = $60,000

Downpayment (15% CPF/Cash) = $180,000

Stamp Duty (4% CPF/Cash) = $32,600

Legal Fees (CPF/Cash) = $3,000

>> Total CPF needed

= $180,000 + $32,600 + $3,000

= $215,600

>> Cash Balance

= $230,000 - $60,000

=$170,000

>> CPF Balance

= $230,000 - $215,600

= $14,400

Monthly Installment $3,794 (Assumed 75% LTV, 3% interest and 30-year loan tenure)

Mrs Teo buys a 1 Bedroom Condo - $680,000 (investment)

Option Fee (5% Cash) = $34,000

Downpayment (15% CPF/Cash) = $102,000

Stamp Duty (3% CPF/Cash) = $15,000

Legal Fees (CPF/Cash) = $3,000

>> Total CPF needed

= $102,000 + $15,000 + $3,000

= $120,000

Mrs Teo's Total CPF

= CPF Refund + Current OA

= $120,000 + $70,000

=$190,000

>> CPF Balance

= $190,000 - $120,000

= $70,000

Monthly Installment $2,150 (Assumed 75% LTV, 3% interest and 30-year loan tenure)

>> Total Cash Balance

= $230,000 - $60,000 - $34,000

= $136,000

>> Total CPF Balance

= $14,400 + $70,000

= $84,400

Conclusion: 

- Option 1 will see Mr & Mrs Teo own a HDB and a 2-bedroom condo (jointly). However, as the condo will be their 2nd property, they will need to pay an ABSD of 12%. They will also need to set aside a Basic Retirement Sum of $88,000 each before using the excess CPF to fund the 2nd property, and fork out $261,100 in cash.

- Option 2 will see Mr & Mrs Teo own a 3-bedroom condo (jointly). In total, they will have an excess of $170,000 in cash and $204,400 in CPF. It is good to have cash savings by their side, but they would have lost the opportunity to have their CPF monies work harder for them. CPF monies are often regarded as 'dead cash' as it is locked in your CPF accounts until you reach the payout eligibility age, and has limited areas of usage. 

- Option 3 will see Mr & Mrs Teo own two properties, a 3-bedroom condo for own stay and a 1-bedroom condo for investment. They have upgraded their lifestyle and have an investment vehicle generating a passive income for them. As they purchased the properties in a single name, they did not pay any ABSD. They also have an excess of more than $130,000 in cash. Not only that, they see a surplus in their CPF accounts while having their CPF monies work harder for them.