Government to relax CPF rules for purchase of older resale HDB flats

Image credit: Wong's Facebook CPF rules restricting purchase of older HDB resale flats to be revised in May

Minister for National Development, Lawrence Wong, said in Parliament today that the Government intends to relax CPF rules for the purchase of older resale HDB flats. Speaking at the 2019 Committee of Supply Debate in Parliament, Mr Wong acknowledged that the revised CPF rules for purchase of older resale HDB flats may have disadvantaged owners of such flats.

CPF rules
Image credit: Wong’s Facebook – 
CPF rules restricting purchase of older HDB resale flats to be revised in May

The Minister said in his speech:

“One issue with regard to the purchase of older HDB flats is CPF rules, specifically the restriction in CPF usage for flats with less than 60 years of lease remaining. Some banks also take reference from these CPF restrictions when assessing how much loan to extend. As a result, both the CPF and loan quantums may be reduced for the purchase of such flats.

The CPF rule is intended to safeguard the retirement adequacy of buyers who purchase older flats, but its design has led to some unintended consequences. For example, if a buyer would like to buy a 39-year-old flat, he can use full CPF; but one year later, because you hit this less-than-60-years requirement, the amount of CPF will be restricted. And there is no good reason why this should be so just because the flat became one year older.

MND and MOM have been studying this issue. In fact, the focus should not be on the remaining lease of the flat. What we want to ensure is that buyers purchase flats with leases that are long enough to last them for life. If that is done, we can relax CPF usage rules, even if the remaining lease is less than 60 years.

I have explained the thinking behind how we intend to change the CPF restrictions. The details are being worked out, and we will announce them soon, for implementation in May this year. “

Most owners of older HDB flats have now come to accept that the value of their 99-year-leasehold property is not going to keep on increasing forever and ever – one major reason for this being the revised CPF rules.

There are several government policy restrictions which suppresses the attractiveness of older HDB flats for buyers.

These are some restrictions:

  • From 1 July 2013, CPF (Central Provident Fund) usage and HDB loan was restricted for purchase of flats with remaining lease less than 60 years.
  • For flats that are 64 years old, banks are unwilling to extend loans to finance the purchase of these flats.
  • For flats which are 69 years old (or less than 30 years of lease remaining), CPF money cannot be used for down payment or to service the monthly mortgage.
  • From the 79th year onwards, the property has to be paid for in cash.

Years ago, Singapore’s first Prime Minister Lee Kuan Yew urged Singaporeans not to sell their flats, and assured them that they assets that would grow in value; but the reality is, flat owners with less than 60 years left in their leasehold, will find it hard for them to sell their flats if they decide to cash out.

A report by Credit Suisse released in September last year, said that private apartments are a better store of value than HDB flats. The report pointed out that an established collective sale process for owners of private apartments accentuates the difference as to why these are better store of value to HDB flats.

“We believe it will likely take some time for residents to understand the evolving narrative on the nature of HDB flats — from one where HDB flats are a good store of value and attractive investment class that will continue to appreciate, towards one where we are likely to see a steady diminution in value as we approach the end of the 99 year lease, following which the flats will revert to the government,” said Credit Suisse research analysts Louis Chua and Nicholas Teh.

The Credit Suisse report pointed out the gaps in the government’s assertion that Housing and Development Board (HDB) flat is a “good store of asset value” and the uncertainty over Voluntary Early Redevelopment Scheme (VERS).

The report further noted that “critical details” of VERS, particularly relating to compensation, were missing at the introduction of the scheme and said that a a key concern was that VERS is “not applicable” to the entire existing HDB stock of about 1 million units today.

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Written by Ravi Chandran

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