Why you should not sell your HDB flat below valuation

It seems like many people do not know what happens to the money after the sale of your HDB flat, and why you should not sell your HDB flat below valuation.

First, some definitions:

• Outstanding HDB/Bank Loan - The amount that you still owe HDB or the bank due to the purchase of the HDB flat.
  
  
• Required CPF Refund - The principal amount withdrawn from CPF that is used to pay off your loan, plus the accrued interest of that principal amount. You can see this amount when you login to CPF.
  
  
• Accrued interest - The interest that is charged to the amount you have withdrawn from your CPF to pay for your HDB flat. The interest equals to the CPF-OA interest rate. This amount can be substantial, and can go up to even 20% of the principal amount withdrawn to pay for your flat.
  

The proceeds from the sale of your HDB will be used to pay off the following, in this order, depending if you have taken the HDB or Bank loan:

HDB Loan:

1. Outstanding HDB loan
2. HDB resale levy (if any)
3. Required CPF Refund
   

Bank Loan:

1. Outstanding bank loan
2. Required CPF Refund
3. HDB resale levy (if any)

For HDB and Bank loan, you will not need to top up the shortfall for the Required CPF Refund if you have sold your flat at market value. Market value is the valuation of your HDB flat.

If you have sold the flat below valuation, you will need to pay CPF the full amount of the Required CPF Refund, even if your sale proceeds isn't enough to cover the amount. You will need to come up with the cash and pay CPF. Translated: You will not receive any proceeds from the sale of your HDB flat, and instead, you will need to cough up cash to refund CPF.

Click here to see examples provided by CPF.

I'm surprised few people know about this rule. I remember reading about this when I was looking around for HDB flats.