New CPF usage rules disadvantage the young from buying resale flats

Image credit: Wikimedia Commons

The new CPF usage rules which was touted as being able to provide more flexibility for Singaporeans to buy a home for life, would disadvantage the young from buying resale HDB flats.

The Government said on May 9 that the new CPF usage rules will now focus on whether the remaining lease of the home can cover the youngest buyer until at least the age of 95.

Younger buyers who were viewing older resale flats for various reasons, including that of staying near their parents, are now reconsidering their decisions. Property agents said that the younger buyers of resale flats are put off by the higher cash quantum they would have to pay on top of their CPF outlay for the purchase of resale HDB flats. Being young, they may not have much savings for the cash component required for the purchase of such flats.

new cpf usage rules
Image credit: Wikimedia Commons

For example, a 4-room resale flat in Tampines is about $430,000, and a good number of these flats are built between the late 80s to the mid 90s. This means that some young families hoping to buy a flat in that estate to stay near their parents may be unable to do so with the new CPF usage rules, unless they come up with more cash upfront for the purchase.

Being a mature estate, the area is very popular and only a limited number of Build-To-Order (BTO) flats have been launched in the Tampines housing estate, since 2016. This estate may be out of reach for some young families even with top-ups from the proximity housing grants, unless they get cash gifts from their parents for the purchase.

Under the new CPF usage rules, the total amount of CPF that can be used for property purchase will depend on the extent the remaining lease of the property can cover the youngest buyer to the age of 95.

Remaining lease of property is at least 20 years and can cover youngest buyer until at least the age of 95 New rules on total use of CPF
(with effect from 10 May 2019)
Yes Buyer can use CPF to pay for the property up to the VL
No Use of CPF will be pro-rated based on the extent the remaining lease of the property can cover the youngest buyer to the age of 95. This will help buyers set aside CPF savings for their housing needs during retirement (e.g. a replacement property).

The authorities said to ensure prudent use of CPF monies, there will still be a minimum lease requirement for the use of CPF for property purchases.

Previously, buyers of HDB flats faced restrictions on the amount of HDB housing loan they could get to purchase flats with remaining leases of less than 60 years. With this update, buyers will now be able to take an HDB housing loan of up to the full 90% Loan-to-Value (LTV) limit , if the remaining lease of the flat can cover the youngest buyer to the age of 95.

If the remaining lease of the flat cannot cover the youngest buyer to the age of 95, they can still take an HDB loan but the LTV limit will be pro-rated from 90%, based on the extent that the remaining lease can cover the youngest buyer to the age of 95.

The new CPF usage rules, though, benefit middle-aged buyers as it gives them more flexibility to buy older flats. As the new borrowing rules on minimum property tenure is readjusted from 30 to 20 years, and pegged to the younger buyer’s lifespan, middle-aged buyers can now qualify for some developments that have otherwise been out of their reach.

The policy intention of the new CPF usage rules seems to be that of encouraging young families to buy BTO flats over resale flats, while expanding the demand pie of potential buyers, as well as the supply pool of potential sellers, thereby allaying the fears of people owning aging assets.

The new CPF rules makes a property in its 30th year of lease more viable, as they will likely see a drop in value much later.  Rather than a rapid decline after the remaining leasehold reaches 40, the new CPF usage rules would mean that the decline in value of such flats will remain sustained and flat. This could be another policy intention of the new rules.

The Government agencies said that the new rules are meant to ensure financial stability for retirement, where CPF members will now need to have a property with sufficient remaining lease to cover them until at least the age of 95, before they can withdraw their CPF savings above the Basic Retirement Sum.

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Written by Ravi Chandran

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