Monday, June 30, 2008

Revising The Resale Levy

Currently the HDB requires homeowners who sell their flat and buy another new one, to pay a $40,000 resale levy.

The rationale behind the imposition of such a levy is simple: To prevent 2nd time new flat buyers from benefiting equally with the 1st timers and thereby reducing the chances of 1st timers getting a flat of their choice.

$40,000 is quite a hefty amount and may not be fair for homeowners who buy a new flat from HDB for the second time.

The reason is simple: The amount of cash every homeowner gets to pocket after the sale of his flat can be vastly different. Depending on location and floor, etc. A homeowner who sells his flat can pocket anything from between just $80,000 to $400,000 and beyond after paying back the housing loan.

If the flat, which a homeowner sells is over 30 years old, chances are: The housing loan is likely to have been paid off a long time ago. This is especially so if the flat was bought brand new over 30 years ago at a very low price, directly from HDB. This means the homeowner gets to pocket all of the cash without having to repay any outstanding loan to either CPF, HDB or the bank. Furthermore, if the flat hails from a hot location like Toa Payoh, Bishan or Queenstown, it could possibly have even fetched a very high price between $600,000 to $800,000.

Paying a $40,000 levy in cash only amounts to 6.7% if the sales proceeds is $600,000, provided the homeowner gets to pocket all of the proceeds since his housing loan has already been paid off years ago.

But paying a $40,000 cash levy amounts to a hefty 48% if the net cash proceeds is only a mere $83,000 after another homeowner has paid off the outstanding loan amount to HDB and CPF.

So fixing the cash levy for 2nd time flat buyers, who opt for a new flat, at a flat $40,000 can be rather unfair afterall.

To solve this problem of disparity, fixing the resale levy at a percentage of say 10% of the net cash proceeds from the sale of a homeowner’s flat would be more equitable.

This means that if the sale proceeds of a flat amount to $600,000, the homeowner would have to pay a 10% levy of $60,000 if he chooses to get another new HDB flat for the second time. Of course if the levy is capped at a maximum of $40,000, this homeowner would have saved $20,000.

Similarly, if the net cash proceeds from selling one’s flat amount to just $83,000, having to pay a 10% levy of $8,300 would be more bearable than having to fork out $40,000.

The bottom line is: HDB should revise the levy amount to be imposed, based on the net cash proceeds amount that a homeowner has pocketed after the sale of his flat. If the proceeds are $400,000 or below, fixing the levy at 10% would certainly be more equitable for such homeowners.


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