HDB flats form the bedrock of residential housing for most Singaporeans. It is also commonly the first residential property for many young couples. Despite the large investment amount, it is generally accepted that purchasing subsidised flats (i.e. HDB flats, DBSS, EC) directly from the Housing Development Board (HDB) has a high potential to make a healthy profit. This is mainly due to the generous subsidies given by the government.
It should then come as “double joy” for most Singaporeans, as we are allowed two bites of the (subsidised property) pie. Yet, while some second-time buyers may have aspirations to either upgrade to a bigger unit or move to a newer development with better facilities and amenities, certain misconceptions regarding the resale levy, which is charged on second-time buyers, could hold them back from doing so.
Here are four misconceptions that Singaporeans may have about the HDB resale levy and what you need to understand about them.
#1 I Need To Pay Back The CPF Housing Grants That I Received For The Purchase Of My First HDB Flat As The Resale Levy
The CPF housing grants, along with the various other schemes, such as the Enhanced Housing Grant (EHG), and Proximity Housing Grant (PHG), which will be collectively known as “Housing Grants”, might be wrongly lumped together as part of the resale levy that needs to be paid to the government upon the sale of your first subsidised HDB flat.
In truth, the repayment of housing grants is different from the payment of your resale levy. While both schemes/rules may apply to first-time flat buyers, they are not one and the same.
The repayment of the housing grants is applicable only when you have used it to either offset the purchase price of the flat or use it to reduce the mortgage loan. In such an event, you will be required to return all your CPF monies used for the purchase of the flat to your CPF account. This refunded amount belongs to you and is equivalent to the sum that would have compounded had you not used it for the purchase of the flat.
On the other hand, the resale levy is applicable only when you purchase a flat directly from HDB for the second time. This fee is charged to reduce the subsidy that the buyer will get with the purchase of the second subsidised flat. This is to ensure a fair distribution of subsidies between first-timers and second-timers.
Read Also: HDB Resale Levy: What Second-Time Flat Buyers Need To Understand Before Buying Another Flat
#2 I Only Need To Pay The Resale Levy When I Upgrade Immediately From My Current BTO Flat To Another Subsidised Flat
There can be a misconception that you are only required to pay a resale levy if you change from one subsidised flat immediately to another.
A few of us could have been made to believe that to avoid paying the resale levy, we should first upgrade to a resale flat upon the sale of our first subsidised flat. We could then subsequently apply for the second subsidised flat without having to pay any resale levy.
There is a half truth to this misconception.
First the truth.
Yes, you would not need to pay the resale levy if you sold your first subsidised flat and moved to either a resale flat or a private residential property.
Now, for the false portion of the misconception.
You cannot avoid the payment of the resale levy as a second timer, even if you bought your current dwelling, a resale unit, from the open market. However, you may defer the payment of the resale levy from when you sell the first subsidised flat till the collection of the keys to the second subsidised flat, whichever happens later.
The reason is that HDB takes into account your first direct HDB purchase in determining your resale levy payable on the second HDB flat. This is regardless of the number of other HDB transactions that you may have made on the open market.
Read Also: What Happens To Your Money After You Sell Your Flat In Singapore
#3 I Bought My First HDB Flat Under The Old Scheme. If I Sell Now, I Need To Pay A Percentage Resale Levy.
The amount of resale levy payable can be a misunderstood, particularly amongst seniors who purchased their first subsidised flat a long time back. Some seniors may believe that they are liable to pay a percentage grade resale levy if they were to upgrade to another subsidised flat for the second time now.
This confusion is understandable as there are two types of resale levy schemes; one that is based on a percentage grade and the other on a fixed amount. Which resale levy scheme would be applicable depends on when you sell the flat and the type of flat that you own.
If you have sold your first subsidised flat any time before 3 March 2006, then the percentage grade resale levy scheme would apply. The resale levy amounts are as follows:
Source: HDB
If you sell your first subsidised flat on or after 3 March 2006, then you will need to pay a fixed resale levy amount. The fixed resale levy amounts are as follows:
Source: HDB
You may wonder how this change in scheme affects or benefits you if you are currently holding on to a subsidised flat as a first-timer. To compare the differences in the resale levy payable between the two schemes, we will use the median resale price (based on 1Q 2022) of a 3-room flat in Queenstown, amounting to $360,000.
Assuming a second time buyer sold their first subsidised flat at $360,000, they would be liable to pay 20% of the resale price sold under the (previous) percentage grade resale levy, or $72,000. On the other hand, they only need to pay $30,000, based on the current fixed resale levy. This amounts to a savings or difference of $42,000.
| Purchase Price | Applicable Scheme | Levy Amount Payable |
| $360,000 | Percentage Grade Resale Levy | $360,000 x 0.20% = $72,000 |
| Fixed Resale Levy Amount | $30,000 | |
| $180,000 | Percentage Grade Resale Levy | $180,000 x 0.20% = $36,000 |
To take the comparison a notch further, we assume that the average selling price of a 3-room flat in Queenstown in 2006 (i.e. before the introduction of the fixed resale levy amount) was $180,000. In that case, the percentage grade levy would have amounted to $36,000. This is also comparatively higher than the current resale levy amount payable under the fixed resale levy amount, even though the selling price is higher now.
This shows that a second-time buyer could benefit from the current fixed resale levy scheme by paying a lower resale levy compared to the old percentage grade scheme.
Read Also: Second-Timer HDB Buyers: What Are The Grants and Subsidies Available For Your Second HDB Flat?
#4 I Can Defer My Resale Levy Without Any Additional Cost To Me
This final misconception regarding the (lack of any) additional costs when deferring your resale levy depends on when you sell your first subsidised flat.
The understanding is correct if you sell your first subsidised flat on or after 3 March 2006. Given the fixed amount for the resale levy, there will be no interest accrued on the deferred resale levy.
However, if you sold your first subsidised flat before 3 March 2006 and deferred payment of the resale levy, you will be charged interest at the prevailing rate of 5% per annum until you purchase your second subsidised flat from HDB.
If you are in a situation where your resale levy has accrued high interest, you could request assistance from HDB on a partial waiver of the resale levy. In cases where the buyers lack the cash to pay for the resale levy, HDB would help this group by incorporating the resale levy into the purchase price of the second subsidised flat so that it can be paid in instalments.
Read Also: BTO Vs Resale: Which Should You Choose?
The post 4 Misconceptions Singaporeans Have About HDB Resale Levy appeared first on DollarsAndSense.sg.
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