Restrictions on use of CPF for resale flats worsens failed promise of ‘asset enhancement’

by Amiroh Binte Mukasan

I refer to the article ‘ST Forum: HDB flat as an investment for old age is no longer valid’ published by your site on 9 April. The problem is an acute one with a demand-supply mismatch, yet could be made much worse given the restrictions on the use of CPF monies for older flats.

The vast majority of Singaporeans use monies in their CPF Ordinary Accounts to fund their property purchases.

However, there is a huge reduction in the quantum of CPF monies that can be used for the purchase of properties which have less than 60 years remaining on their lease. The amount used has to be prorated in accordance to one’s age upon reaching 55.

For example, a married couple (M: 32, F: 30) purchases a property for $500,000 that has a lease of 57 years remaining. The lease remaining on the property when the younger party turns 55 (i.e. in 25 years’ time) is 32 years. This means that they are only eligible to use $280,700 from their CPF OA account (32/57 x $500,000) to pay for their property.

The remaining $219,300 must be paid for in cash. As such, the only pool of buyers that qualify are the cash-rich families (who would most likely prefer a private property) or private property owners who have downgraded. 

The situation is made worse when we look at the second criteria, that the age of buyer plus the remaining lease of the property must be less than 80 for one to use CPF monies to pay for the property. This means that a 32 year-old cannot use his or her CPF to purchase a property with 49 years of lease remaining and has to pay for it entirely by cash.

Given that the majority of HDB flats are 25-38 years of age, we will see a large number of 40-year old flats in the next decade or so that will have a limited market for purchase. 

Considering the necessity for most Singaporeans to downgrade for retirement, they may face a double whammy of not only face a demand-supply mismatch but possibly also almost zero demand for their flats.

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