Cautious approach needed in letting buyers use more CPF money for older HDB flats: Analysts

Cautious approach needed in letting buyers use more CPF money for older HDB flats: Analysts

The Government will need to tread carefully in allowing buyers to use more of their Central Provident Fund (CPF) savings to buy older flats, as there could be a risk of them over-dipping into their retirement savings parked under the national social security savings scheme, some analysts said in response to the latest Housing and Development Board (HDB) announcements.

Mr Lawrence Wong, Minister for National Development, wrote in a blog post on Monday (Aug 20) that “there is scope” to let buyers of shorter-lease public flats use more of their CPF money for the purchase, “without compromising their retirement savings”. His ministry is working with the CPF Board to review and update the rules.

The review may also look into letting buyers use their CPF savings to pay for HDB flats that are older than 69 years.

Right now, CPF members cannot use their savings to buy a flat if its remaining lease is less than 30 years.

While CPF money may be used to buy older HDB flats, this is subject to some conditions, which kick in when the remaining lease is less than 60 years. A homeowner may use his CPF money if his or her age plus the number of years left on the remaining lease of the property is at least 80 years, but subject to restrictions.

The 99-year lease of HDB flats and the diminishing value of older flats have been a recent talking point among homeowners in Singapore. As flats with less than 60 years’ lease left start to depreciate, prospective buyers also have limited use of their CPF savings to finance the purchase of these public housing units. Financing options from HDB or banks become more limited as the flats age.

Property analysts told TODAY that the review by the Ministry of National Development is an attempt by the Government to reassure HDB flat owners that their ageing properties still held value.

They stressed the need to safeguard the interest of CPF members and ensure retirement adequacy, given that old flats have limited resale value.

Mr Colin Tan, director of research and consultancy at Suntec Real Estate Consultants, said: “Over the past year, the issue that HDB flat buyers were lessees, not owners, was constantly brought up (by the public).

“The Government simply had to address this worry that leases might run out and the fear that assets would depreciate quickly.”


International Property Advisor’s chief executive officer Ku Swee Yong agreed, saying that the Government is “kicking the can down the road” and wants to “placate today’s owners who are afraid that their old flats can’t sell”.

“But today’s buyers will face a steeper price depreciation within the next 20 years,” he said.

He warned that it is not wise to allow buyers to put “more and more of their CPF savings to an older property that is essentially depreciating to zero (value)”.

Mr Ku pointed out that most buyers keen on buying an older flat would rather “keep their cash for daily necessities” and would usually foot a large proportion of the bill with their CPF money.

Mr Desmond Sim, CBRE’s head of research in Singapore & South-east Asia, said: “The biggest worry is if (a buyer) uses too much of his or her CPF savings and locks it up in a real-estate asset, then the original intention of having CPF as a pension fund would be lost.”

There must be “a cap and limit” when the review is done, so that there will still be money for retirement and medical expenses, he added.

Still, it is “timely” for the Government to review the use of CPF funds in buying older flats, Mr Sim noted. “Rules were made initially, but at that time, the flats have not reached a certain age. It is a good time to review (the rules now), since we haven’t reached that drastic stage where tenures have maxed out.”


Some prospective buyers and owners of ageing flats are already welcoming the Government’s move to make wider considerations on longstanding housing schemes.

One flat owner, who wanted to be known only as Mr Kow, said that he is “now less worried” that he will not be able to sell his five-room flat in the Choa Chu Kang area.

Both the CPF review and the extended Lease Buyback Scheme under the HDB will give him “more options” to liquidate his asset.

The 57-year-old, who is semi-retired, said: “It’s better to have the option now, just in case I don’t have enough for retirement or if I have unexpected medical expenses, I can always turn to this scheme.”

Mr Kow admitted that just a few months ago, he was thinking that he will have difficulty selling his flat. “That was one of the reasons why I was looking at the Lease Buyback Scheme.”

On Monday, the National Development Minister also announced that the Lease Buyback Scheme will be extended to all HDB flats, including five-room units and executive mansionettes, though no date was mentioned on when it will take effect.

Under the present scheme, eligible homeowners living in four-room flats and smaller sell back part of the tail-end of the lease to the Government and use the proceeds to top up their CPF retirement account. After the top-up, any excess proceeds may be withdrawn in cash, up to a maximum of S$100,000.

The scheme, introduced in 2009, has seen a relatively low take-up rate. As of Nov 30 last year, about 2,500 families have signed up for it. The proceeds they received average about S$146,000.


Mr Ku said that one reason for the low take-up rate was that families who studied the option found that they would remained “cash poor” after topping up their CPF retirement account, “so they’d rather not sell the lease because that would lead to lower flat values”.

Mr Tan also said: “The popularity of the scheme depends on the compensation. At the moment, some homeowners feel that the price value of the lease they are selling is not proportional to what they are getting.

“Even if the Government were to extend the scheme to the bigger homes, that issue will still be there.”

Generally though, the property analysts agreed that the Government’s move is a “fair” one, to ensure that all HDB flat owners are able to monetise their flats.

Mr Nicholas Mak, executive director of real estate investment firm ZACD Group, said that the extension of the scheme levels the playing field. “It also allows more homeowners the option of ageing in place.”

Madam Pow Soh Liew, 61, who owns a five-room flat in Tampines, said that she would take a wait-and-see approach before deciding on the scheme.

The executive in a Japanese multinational company added: “At this moment, I don’t have any intention of taking up the scheme. I’m still working now. Perhaps I will start to think of it when I’m closer to retirement, and I realise that I don’t have enough in my retirement fund.”

Mdm Poh, who has more than 70 years left on the lease of her flat, said that her decision will also depend on “how much cash payout” she will receive.

Source: Today – 21 Aug 2018