New Rules On CPF Usage: How Will This Affect Homebuyers?

TL;DR: How Will New Rules On CPF Usage Affect Homebuyers?

Singaporeans will now have more flexibility in using their Central Provident Fund (CPF) when purchasing older properties

• Can draw more from CPF to buy ageing flats
• Can use maximum HDB loan of 90% of property price or valuation

Only if the remaining lease covers the youngest buyer until the age of 95.

As a result of these changes:

• Unlock additional value for older properties
• Allow older buyers to use more CPF for home purchases

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Updates To CPF Usage

From 10 May 2019, home buyers will be able to draw more from their CPF to buy ageing flats, provided that the property’s remaining lease covers the youngest buyer until the age of 95.

Homebuyers would also be entitled to the maximum Housing Board loan of 90 per cent of the property price or valuation if they are buying resale HDB flats, according to a joint statement by the ministries of Manpower (MOM) and National Development (MND).

This comes as the Government shifts the rules to focus on whether a property can last a homeowner for life, rather than its remaining lease.

“Rules on CPF usage and HDB housing loans have been updated to provide more flexibility for Singaporeans to buy a home for life while safeguarding their retirement adequacy,” the ministries said.

Updates To CPF Withdrawals

The rules on CPF withdrawals after the age of 55 have also been changed. CPF members wanting to withdraw their CPF savings above their Basic Retirement Sum (BRS) should now have a property with a remaining lease to cover them until at least 95 years of age.

The change is aimed at encouraging CPF members “to have a home for life and to secure at least a basic level of retirement income”, explained the ministries.

However, 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 member until the age of 95.

What Does This Mean For Homebuyers?

According to Desmond Sim, Head of Research for CBRE South-East Asia, the new rules on buying properties using CPF or HDB housing loans is a move to expand the demand pie of potential buyers, as well as the supply pool of potential sellers.

“As the new borrowing rules on minimum property tenure are readjusted from 30 to 20 years, and pegged to the younger buyer’s lifespan, potential buyers can now qualify for some developments that have otherwise been out of their reach,” says CRBE’s Sim.

“At the same time, existing owners of developments with 30 to 40 years left have effectively received a 10-year extension to their properties’ saleability. Apart from unlocking additional value to older properties, this will also allay the fears of people owning ageing assets,” says CBRE’s Sim.

Older buyers may also benefit from these changes, says Christine Sun, head of research and consultancy at OrangeTee & Tie.

“Previously, older buyers may not be able to use CPF for flat purchases but with the new regulation, some will be able to use CPF for their home purchase. It also helps the retirement plan for older buyers as many may want to use more CPF for home purchase and have more cash for daily expenses or for retirement,” Sun explains.

Potential Positive Impact For Older Leasehold Properties

The new policy changes are also expected to have a positive impact for older leasehold properties, says Eugene Lim, Key Executive Officer at ERA.

“Though it may take some time for buyers to get used to the changes, we believe the expanded options that it now accords to buyers will have a positive impact for older leasehold properties over the longer term,” says Lim.

Older flats may see 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, Lim adds. However, as transaction data is readily available for both public and private homes, we expect that transacted prices will still hover around valuation, and large price hikes are unlikely.

“Taken together with VERS and HIP ll, older HDB flats are likely to still attract buyers, given their spaciousness and convenient locations,” Lim concludes.

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