5% Conundrum

A sale is usually completed about three months after the STB order. 

On completion, the sale proceeds are deposited into the owners' accounts. The S&P should have a clause whereby the owners can stay in their apartments for up to 6 months before they have to vacate. This is the norm. The buyer will usually withhold 5% of the sale proceeds until vacant possession is given.

This is all well and good if, after the bank mortgage and CPF charge have been fully redeemed, there is sufficient cash left over to cover the 5%. Owners run into trouble when the remainder in cash is insufficient or zero* and they then have to scrabble to find extra cash to cover the 5%. Not an easy task if you are also house-hunting and need cash for the down payment / cash-over-valuation for your new home 

This letter was copied from the government's Reach Discussion Corner
Posted : 07/05/2007 4:42 PM (the thread closed July1)

“I am one of the co-owners of Waterfront View. I have just been informed by the lawyers today that CPF does not allow deductions for the various expenses related to the en-bloc sale of the property. We have already incurred CPF losses of close to $90,000.00. On top of that we now have to pay $19,000.00 in cash for the various legal, marketing expenses, compensation fund etc. Under the terms of the sale, $50,000.00 has to be withheld from the sale price until vacant possession is given. In our case, since there is a shortfall where the sale proceeds are fully utilised to pay the loan and CPF refund, we are told to pay the $50,000.00 in cash upon completion date if we cannot vacate the flat. We still have to incur significant cash losses, on top of our CPF losses. We were not aware that CPF will not allow deductions of the various expenses/required payments from the balance sale proceeds before the refund to CPF accounts. I am sure that there are other owners out there who suffer the same fate”

The solution here is to make sure your SC negotiate with the prospective buyer to waive the 5% if an owner suffers such a shortfall.

Of course, if owners find themselves in this situation to begin with then the sale price is definitely too low! No owner should ever walk away from an enforced sale of their homes in a collective sale with no cash to move forward.