Housing Grants – Do They Really Help Singaporeans?

By Edmund Lim

With reference to Grant for Low-Income Housholds Enhanced, see here and here.
The Additional CPF Housing Grant (AHG) and Enhanced Grant Scheme, introduced in March 2006, is meant to help citizen families with a steady household income to buy their first subsidised HDB flat. Supposedly, the Grant is to reduce the monthly installment for the buyer.
I was a property agent. From what I observed, buyers who took these housing grants will usually sell their flat at a loss with no money coming out from their sale. The longer they wait to sell their flat, the bigger their paper loss from their CPF account.
This is the true picture. Initially, the grant will be disbursed into you & your co-applicant’s CPF Ordinary Accounts and it will be deducted from your CPF Ordinary Account in one lump sum on that day of purchase.
However, when you sell your HDB flat, you are also required to use the sale proceeds to pay back whatever is outstanding in the HDB loan and followed by the housing grant that was given to you initially in CPF.
Therefore, if you sell your flat at $500,000 and you have an outstanding HDB loan of $200,000 followed by a CPF refund of $100,000. If you have taken a housing grant of $40,000, you are also required to make good of whatever is left sale proceeds to replace the $40,000 in your CPF with the accrued interest over the years.
CPF interest rates are 2.5 per cent per annum. If you waited 5 years to sell your flat, your accrued yearly interest on the housing grant would be 2.5% of the $40,000.
It is no wonder that many sellers who had taken housing grants would sell their flat without any cash proceeds coming out from their sale.
Of course, if the seller sells at valuation, CPF doesn't require the seller to top up the paper loss but then again, without any cash proceeds, the seller has to use his/her own money to fork out the cash to pay for his agent's commission. In some cases, under-the-table money and under declaration will occur.
I have observed how some buyers circumvent this loophole.They simply refused to take the housing grant but instead willingly forked out their own cash for higher installments.
Their rationale is that since banks' annual interest rates are lower than CPF interest rates of 2.5%, they are willing to use their own money cash from the bank to pay for the slightly higher monthly installment.
These buyers are usually Singapore PR who want to stay in Singapore for a few years before they decamp to greener pastures elsewhere.
A letter from one of our readers.