Sunday, June 12, 2011

Is asset enhancement really useful?

Asset enhancement happens when the value of your asset increases in value. However, it is not considered an enhancement unless you cash out the value of your property.

Here's an example. An old couple bought a 4 room HDB flat (98 sqm) in town area for $27,000 in 1980, when they were 40 years old. They have been staying there till now. The value of the flat is now at about $420,000. The value of the property has increased over 31 years. The couple is now in their 70s.

If they continue to stay in the flat, they will not enjoy the cash that is locked in the property.

If they are to sell it at $420,000, there a a few points to take note.
1. They are already in their 70s, no bank will want to approve their loan application.
2. Their combined CPF account will have only about $30,000. This is because they have spent every single cent in the CPF ordinary account on this flat, they were from a low income family.
3. They cannot buy a brand new flat from HDB within 30 months.
4. They have to pay levy to HDB if they downgrade to a smaller flat, which must be bought from the resale market (more expensive).

Hence, if they are to sell their HDB flat now, a same 4 room resale flat costs about the same price, and without ample CPF monies in the ordinary account, they still have to come up with cash to buy the house, as no bank will want to give them a loan, due to their ages. Therefore, in the end, they are left with little or no moeny at all.

Where is the asset enhancement in this case?


  1. On point 4 - my understanding is that unless one buys a brand new flat (downgraded size) from HDB then a levy will be imposed. If buying from resale market, no levy imposed. Kindly clarify which understanding is correct at the present time? thanks. Also, if the couple downgrade to a smaller flat, wouldnt there be ample cash left for them since their 4-room flat would have fetch a tidy sum? Same time, they can pay off with the sale money of their 4-room flat thus no loan needed. No?

    1. For point 4, what I mean is if they were to buy a new flat from HDB, then they need to pay a resale levy. Hence they have to buy from resale market which is more expensive. Yes, if they buy a smaller flat from resale market that is about $300,000, then they will be left with about $100,000. How long can $100,000 last? Anyway, under current rulings, the elderly can buy a new studio from HDB BTO and there is no levy.