10 May 2019
New CPF rules to expand pool of buyers for older homes
The changes to CPF rules for purchasing older public and private leasehold homes will likely lift demand for such properties because the pool of buyers will widen, analysts said.
Prices of older homes are also expected to stabilise as a result, with some market watchers suggesting that they could even rise.
Home buyers will now have greater flexibility to use their Central Provident Fund (CPF) savings to buy older homes, provided the remaining lease of the property covers the buyer until he or she turns 95, said the Ministry of National Development (MND) and the Ministry of Manpower (MOM) on Thursday.
Before this change, the rules focused on the remaining lease of the home, and CPF restrictions applied when the property has between 30 and 60 years left on its lease.
With the change, if the remaining lease of the property is at least 20 years and covers the buyers until they turn 95, they can tap their CPF savings to pay for the property up to the valuation limit of the property. This applies to both HDB flats and private property.
There will still be a minimum-lease requirement for the use of CPF for property purchases, but this will be lowered to 20 years from 30.
Another change to the rules is that buyers eyeing older HDB flats will be eligible for a HDB housing loan of up to the full 90 per cent loan-to-value (LTV) limit if the remaining lease of the flat can cover the buyer up to the age of 95.
If the remaining lease does not do so, the buyer can still take a HDB loan but the LTV limit will be pro-rated.
Prior to this, there were restrictions on the size of the HDB housing loan if the property in question had fewer than 60 years left on its lease.
The revised rules kick in on Friday.
MND and MOM said in their statement: “Put together, these changes will give buyers more flexiblity when buying a home for life, while safeguarding their retirement adequacy.”
The move comes amid rising life expectancy in Singapore.
For example, a middle-aged couple buying a resale HDB flat with a lease that covers the younger buyer till age 95 will be able to use their CPF money to pay 100 per cent of the valuation limit of the property, up from 80 per cent. This means they will not need to stump up as much cash.
But a younger couple eyeing a resale HDB flat where the lease does not cover either of them till at least age 95 will have to use more cash as they will now be able to use a smaller portion of their CPF monies and are eligible for a smaller HDB loan.
About 98 per cent of HDB households and 99 per cent of private property households already have a home which covers them to age 95 or beyond.
However, last year, about 9 per cent of buyers did not purchase a resale flat which covers them to 95 years of age, said MND. Among buyers of private residential properties, about 1 per cent did not purchase a private residential property with a lease covering them to that age.
Christine Li, Cushman & Wakefield’s head of research for Singapore and South-east Asia, said that overall, the changes to the rules “will certainly boost the liquidity of older flats and apartments in the market”.
She commented that the changes are timely amid slower economic growth and uncertainties in the global economy.
Previously, property values of flats or apartments would fall sharply when the remaining leases reached 60 years.
“We could therefore see prices of older flats and apartments stabilising,” she said.
She also suggested that the new policy could smoothen the pace of upgrading, because those selling their HDB flats will be able to land a buyer more swiftly.
Eugene Lim, ERA Realty’s key executive officer, said: “Older buyers who wish to right-size their homes, or children who wish to live near their parents will now have the added option of older apartments, whereas previously, they could have faced financing difficulties due to restrictions in their CPF usage.”
With potentially more attention from buyers, now that buyers have the option of using more CPF monies, “there may even be a slight increase in prices of these old flats”, Mr Lim said, although large price jumps are unlikely and that prices would still hover around valuation.
CBRE’s head of research (South-east Asia) Desmond Sim noted that existing owners of developments with 30 to 40 years left on their leases have received a 10-year extension to their properties’ saleability.
He said: “Apart from unlocking additional value to older properties, this will also allay the fears of people owning ageing assets.”
To ensure CPF members secure a basic level of retirement income, CPF members will need to have a property with sufficient remaining lease to cover them until the age of 95 before they can withdraw their CPF savings above the basic retirement sum (BRS).
Previously, CPF members above the age of 55 could withdraw their CPF savings above the BRS if they owned a property with a remaining lease of at least 30 years.
From Friday, CPF members without a property covering them until age 95 will need to set aside the full retirement sum before using excess monies from their CPF Ordinary Account to buy second or subsequent properties. Currently, they need only set aside the BRS.
Adapted from: The Business Times, 10 May 2019
Younger HDB buyers likely to be more prudent: Observers
Younger people may not be able to get as much in Central Provident Fund (CPF) monies or Housing Board loans to buy ageing flats, but they still benefit from policy changes announced yesterday, observers said.
“The younger generation might not be thinking about retirement when they buy a house,” said OrangeTee & Tie research head Christine Sun. “The changes will make them consider whether they might outlive their flat and have insufficient funds to retire on later.”
Yesterday, the Government announced that home buyers can use more CPF savings and get bigger HDB loans – as long as the flat’s remaining lease covers them till age 95. Before, these depended on the remaining lease of the property.
Most home buyers will not be affected by the new rules. But younger buyers who buy ageing flats must now be prepared to fork out cash and get smaller HDB loans.
The changes are likely to nudge younger buyers to go for Build-to-Order (BTO) flats or newer resale flats, said Huttons Asia research head Lee Sze Teck.
Under the changes, those who buy homes that do not cover them for life cannot withdraw more than $5,000 when they turn 55, unless they have saved up to the Full Retirement Sum (FRS). They can still withdraw 20 per cent of their Retirement Account savings when they hit their payout eligibility age. Previously, they could withdraw any savings in excess of their Basic Retirement Sum, which is half that of the FRS.
Besides encouraging prudence among young buyers, the policy tweaks should also see obvious winners in sellers of ageing flats and buyers, who now have more options to pick from, observers said.
ERA Realty key executive officer Eugene Lim said the changes upend the traditional way of buying homes since financing options are not automatically limited once a flat has less than 60 years left on its lease. “A potential buyer no longer has to be fearful of buying older properties,” he said.
How buyers received yesterday’s news depended on their age.
Engineer Ranon Mak, 27, who is looking to buy a resale flat in Tampines to be near his parents, said he is now limited to a smaller pool of flats if he does not want to use cash to buy his future home.
But procurement analyst Teresa Wang, who is looking to upgrade to a larger flat near to the city next year, rejoiced.
“I do not mind buying older flats, and it is good that I can do so using all my CPF,” said the 42-year-old.
Sellers of ageing flats are hopeful the changes can spark some offers.
Housewife Susan Teo, 47, who lives in a four-room Bukit Merah flat with 55 years left on its lease, said: “If I can get more viewings, we can sell our place and buy the house to retire in.”
HOW NEW RULES AFFECT CPF USAGE
Withdrawing CPF funds at age 55
When CPF members turn 55 years old, some may wish to withdraw their CPF savings. Previously, they could withdraw any amount above the Basic Retirement Sum (BRS) if they pledged a property with a remaining lease of at least 30 years.
From today, this remaining lease will be raised to at least 40 years, to ensure that their flat covers them to age 95.
This change is not expected to affect most CPF members, as all HDB flats and the vast majority of private properties have leases that can last a 55-year-old till age 95.
Buying multiple properties using CPF
Previously, CPF members had to set aside the BRS before excess Ordinary Account (OA) monies could be used to purchase subsequent properties.
From today, members who do not have a property that covers them till age 95 will need to set aside the Full Retirement Sum – twice the BRS – before they can use excess OA funds to buy other properties.
Members who have a property whose remaining lease covers them till age 95 will not be affected.
Using CPF funds after age 55
For purchases from today, the remaining lease of the property must cover the buyer till he is age 95 in order for him to use Retirement Account savings above the BRS to pay for his property.
Members approaching age 55 can ask the CPF Board to reserve their OA savings so they may continue servicing their mortgage payments after their 55th birthday. Those facing difficulty servicing their housing loans can approach the HDB or CPF Board for assistance.
Adapted from: The Straits Times, 10 May 2019