New CPF Usage & HDB Loan Rules: A Boon or Bane?

The new policy for buying residential properties using Central Provident Fund (CPF) monies and Housing Development Board (HDB) housing loans that were updated on 10 May 2019 now gives home buyers more flexibility and makes old flats more attractive to purchase.

Authorities say the change is a reflection of “changing needs” and “higher life expectancy” of Singaporeans. As with the old policy, the aim of this rule is still to encourage buyers to buy homes that will last as long as their lifetime.

A quick reality check — the HDB homes that we live in are sold by HDB with a 99-year leasehold tenure. The message from the Government is loud and clear: at the end of the lease, occupants will have to vacate the unit and it will be returned to HDB, which will then surrender the land back to the state.

Previously, the policy was centred on the remaining lease of a flat. For flats with a balance lease of less than 60 years, buyers of any age up to 55 years would have their maximum CPF usage automatically capped at a percentage of either the purchase price or the value of the property at the time of purchase (whichever is lower). In order to continue buying old flats, they will have to pay a significant percentage of the property price in cash. Also, a property owner is eligible to use his CPF to purchase the property if his age plus the remaining lease of the property is at least 80 years.

With the change, as long as the remaining lease covers the youngest buyer to the age of 95, home buyers will now be eligible to take an HDB housing loan of up to the full 90% Loan-to-Value (LTV) limit. This is even if the flat has less than 60 years left on its lease.

The latest update focuses on whether the leases can cover buyers until the age of 95. Young buyers that choose to buy resale flats with leases that expire before they reach the age of 95 can use less of their CPF monies and be eligible for a reduced HDB loan for the purchase.

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The announcement comes after much public uproar and concern over the depleting leases of old HDB flats, following a particular blog entry in March 2017 by National Development Minister Lawrence Wong. As the nation is now reaching a more matured age, he reminded  flat owners that not all old flats will be offered the Selective En Bloc Redevelopment Scheme (SERS). Prime Minister Lee Hsien Loong also addressed the issue in last year’s National Day Rally and mentioned that the Ministry of National Development is looking at how to “improve the liquidity of the resale market, making it easier for people to buy and sell old flats.”

Previously, older buyers are at a disadvantage if they buy any flat with a balance lease of less than 60 years.

In my opinion, the new policy is much welcomed and fairer to older buyers. Those looking to buy older properties near their parents will also benefit. This helps older buyers use their CPF for their property purchase as some may prefer to set aside cash for future expenses or retirement.

Real estate agents and owners of older flats can rejoice as it will further help flats to sell in the already slow resale market. However, some buyers in the middle of transactions are stuck as the following examples will show.

Rizal and Liza (not their real names), both 31, are in the midst of their transaction in purchasing a ‘4A’ flat in the  mature estate of Woodlands where the  balance  lease is 62 years old (or the age of the flat is about 37 years). The total of their age and balance lease (31 + 62 years) only comes up to 93 years.

In the previous policy, they would have no usage limits on the use of CPF monies and HDB loan. In the new policy, the maximum CPF monies they can use will be capped and their HDB loan may be reduced.

At the time of writing, the buyers and their real estate agent are appealing to HDB for the purchase to be considered under the old scheme as they had placed the deposit and entered the Option to Purchase (OTP) contract before the day of the announcement.

Nor and Hana (not their real names), 41 and 42 respectively, are just about to purchase a five-room corner flat in the pioneer HDB town of Toa Payoh. The unit has a balance lease of 57 years (or age about 42 years).

They truly wish to live in this neighbour­ hood as it is near the desired school for their children and close to the home of Nor’s elderly parents. The couple and the sellers have agreed on the price of $465,000, which is also the formal valuation of the property. In the old scheme, they may only use CPF monies up to 75°/o of the property price which works out to be $348,750. Once their CPF payments have accumulated to reach the said limit, the balance unpaid amount of $II6,250 will have to be forked out in cash.

The sellers have also listed the house on the market with their housing agent for over eight months with only a few viewers and zero offers.

Fortunately, with the new policy in place, the buyers are eligible to fully pay for the flat with CPF monies. The age of the youngest buyer (41) and the balance lease (57) add up to 98 years. It has fulfilled the requirement that the purchased flat reaches the age of 95 years.

In this example, both the buyers and sellers benefit from the new announcement.

Newly married young couple Zul and Nadiah (not their real names), both 2 5, wish to buy a four-room HDB resale flat that costs $330,000 with a remaining lease of 65 years (or age 34 years).

Based on the old regulations, they can use CPF monies up to 100% of the property valuation limit as the balance lease of the flat exceeds 60 years and they can be eligible for a HDB loan up to 90% of the property’s value.

With the new regulation, they do not fulfil the requirement as their age and balance lease only total up to 80 years and very much short of the 95 years target. The couple can only use CPF monies up to 90% of the property value, which amounts to $297,000. The remaining portion of $33,000 will be in cash. The HDB loan amount that is allowed is reduced to 81%.

As their real estate agent, I helped them to avoid this huge cash trap and advised them to go for much younger four-room flats of about 20 years in age. They will not face this problem by purchasing younger flats as it will accommodate them past the age of 95.

This change will also set the younger generation thinking about their old age. The message is clear: when buying a home, consider the balance lease and whether there is a chance you or your spouse may outlive it. If you still wish to buy a home with a shorter remaining lease, do weigh the financial consequences that come with it. ⬛


Risdian Isbintara is an award-winning real estate agent with ERA Realty Network, with a decade experience in the industry. Having helped clients over 500 transactions, Risdian utilises his unique, dynamic marketing to help him and his clients home stand out.

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