Minister Wong: Govt to relax CPF loan rules to allow Singaporeans to buy old HDB flats

National Development Minister Lawrence Wong said in Parliament today (7 Mar) that the government is looking into relaxing CPF loan rules on the purchase of older HDB resale flats. He said details will be announced in May.

One issue is the restriction in CPF usage for flats with less than 60 years of lease remaining, Minister Wong said. Some banks also take reference from these restrictions when assessing how much loan to extend. As a result, both CPF and loan quantum are reduced for the purchase of older HDB flats, he said.

“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, a buyer of a 39-year-old flat can use full CPF; but just a year later, and the amount of CPF will be restricted,” he revealed.

“And there’s no good reason why this should be so just because the flat became a year older.”

“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,” he added.

“And if that is done, then we can relax CPF usage rules, even if the remaining lease is less than 60 years,” he said.

Sharp fall in value for old HDB flats with lease less than 35 years

Currently, analysts are warning that there would be a sharp fall in value when an HDB flat crosses 64 years of age (ie, with lease remaining less than 35 years). When the flats hit 69 years (30 years of lease left), CPF savings cannot be used to finance the mortgages.

Wong: Focus should not be on the remaining lease of HDB flat

Even though Minister Wong is telling Singaporeans not to focus on the remaining lease of flats when buying resale flats, it’s not known how many would listen to him.

ST Journalist Chua Mui Hoon wrote an opinion piece 2 years ago saying she would not consider buying an old 30 or 40-year-old HDB flat if she intended to resell later.

“If I were looking for a resale flat, I would buy an HDB flat that is under 20 years old, and hope to be able to sell it at a reasonable price (not a high profit) in another 10 years,” she said.

“I would not buy an HDB flat that is 30 or 40 years old if I wanted to resell it for some profit a decade later. I will buy an old HDB flat only if I view it as a consumption item, which means living in it into my old age. Its resale value in 20 years’ time won’t matter then.”

But of course, she failed to consider leaving the flat of some value left for her loved ones, should she pass away.

In any case, with the government allowing people to use their CPF funds to buy short-lease flats, it is probably hoping that it would help prop up the value of HDB flats, which is increasingly becoming an election issue.

But no matter how financing can be relaxed, the value of 99-year lease HDB flats can only reach 0 at the end of their lease. And this remains a fact.