Ravi Chandran
Home owners who want to buy a private residential property have to consider and look into many factors if they want to use their Central Provident Fund (CPF) Ordinary Account savings to buy or build private residential properties in Singapore for their own occupation or investment using the CPF Private Properties Scheme.
For example, if you own a HDB flat, a DBSS flat or an Executive Condominium, you have to fulfil the minimum occupation period set by HDB before you can purchase any private residential properties.There are many reasons why home owners should familiarise themselves with these considerations which may affect their purchase.
All CPF members who are eligible to buy a private property are eligible to use their CPF savings under the CPF Private Properties Scheme.
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Generally one will not be eligible to use the CPF Private Properties Scheme if the aspiring home owners are buying a private property with a remaining lease of less than 30 years; or if they are buying a private property with a remaining lease of less than 60 but at least 30 years, and their age plus the remaining lease of the private property is less than 80 years.
Before buying a property, private residential property owners should check the property prices in the areas of interest and compute their finances and fees payable, to ensure that they are buying within your financial means.What many may want to know is, how much CPF Savings they can use.
CPF is built in such a way to help one to set aside CPF savings for their retirement years, there are housing limits on the amount of CPF savings they can use to buy a private property. For example, there is a Valuation Limit (VL), which is the purchase price or the value of the private property at the time of purchase, whichever is lower.
One has also got to consider the Withdrawal Limit (WL) which is set at 120% of the VL. This is the maximum amount of CPF you can use for the private property.
To continue using your CPF beyond VL, up to WL, you need to meet the following requirements:
- Below 55 years old: To set aside the current Basic Retirement Sum (BRS) in your Special Account (SA), including the amount withdrawn for investment, and Ordinary Account (OA).
- 55 years old and above: To meet the BRS in your Retirement Account (RA), SA (including the amount withdrawn for investment) and OA.
- The amount of CPF you can use is lower if you are buying a private property with a remaining lease of less than 60 years but at least 30 years. Read more on buying a private property with a remaining lease of less than 60 years.
If you want to buy a private residential property using the CPF Private Properties Scheme with less than 60 years lease you can use the free CPF Calculator, or speak to our mortgage consultants to find out the amount you can use for such properties.
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One can also use the CPF Private Properties Scheme to buy their second or subsequent property with a remaining lease of at least 60 years after meeting certain conditions based on your age. If one is below 55 years of age, they need to set aside the current Basic Retirement Sum in their Special Account, including the amount used for investments, and Ordinary Account before they can continue to use their CPF savings.
If one is 55 years old or older, they need to set aside their Basic Retirement Sum in their Retirement Account, Special Account (including the amount used for investments) and Ordinary Account before they can continue to use their CPF savings.
Although using the CPF Private Properties Scheme to buy private residential properties is an option, one should consider if you want to use the CPF Ordinary Account (OA) savings to finance the private property instead of using cash.
One should be mindful not use all their CPF OA savings to finance their private property, because CPF is essentially for ones retirement. The more it is used for property, the less one may have for retirement. One also has to bear in mind the other items one is servicing with your CPF OA savings (such as children’s local tertiary education and insurance premiums; and the reduced CPF contribution rates as one ages).
An important consideration is, how do one determine a suitable loan amount, repayment period and repayment amount which is within ones financial means. This is where the services of a mortgage consultant becomes useful as the consultant, being a professional, will be able to estimate an affordable home price, taking into consideration your gross household income and expenses, as well as the repayment amount and repayment period.
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Written by: Phoenix Lee/Contributor iCompareLoan
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