New CPF rules for purchase of older flats to kick in by May

SINGAPORE — Homebuyers looking to purchase older flats from May onwards will be able to benefit from new Central Provident Fund (CPF) rules, National Development Minister Lawrence Wong said on Thursday (March 7).

Speaking during a debate on his ministry’s budget in Parliament, Mr Wong said the Ministry of National Development (MND) and the Ministry of Manpower have been studying the issue and will announce details of changes to CPF rules soon.

“Actually 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 said.

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

Mr Wong was responding to Bishan-Toa Payoh Group Representation Constituency Member of Parliament Saktiandi Supaat who asked if the MND can facilitate the sale of flats to seniors who face difficulties, be it due to market sentiment or the Ethnic Integration Policy.

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EXISTING CPF RULES

Currently, certain restrictions on the use of CPF funds will kick in when a buyer is purchasing a flat with less than 60 years left on its lease.

He can use his CPF money for the purchase if his age plus the number of years left on the remaining lease is equal to 80 or above, but this is also subject to restrictions.

If the remaining lease of a property is less than 30 years, the buyer cannot use CPF funds to pay for it at all.

“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,” said Mr Wong.

He cited how there is “no good reason” why a buyer should be able to finance the purchase of a 39-year-old flat with CPF in full, but face restrictions just a year later.

He noted that some banks also take reference from CPF rules when assessing how big a loan to disburse to such buyers.

As a result, both CPF and loan quantums are reduced for the purchase of such older flats, limiting the pool of buyers who can afford them.

RETAINING THE VALUE OF OLDER FLATS

ERA Realty key executive officer Eugene Lim said the move will be welcomed by many, especially owners of older flats who are looking to sell them.

"Ageing owners who are looking to right-size would also benefit from this as it would make it easier for them to sell their flat. This could boost the prices of older flats once implemented," he said.

When Mr Wong first signalled in August last year that CPF rules will be tweaked for the purchase of older flats, analysts told TODAY the move could help reassure flat owners that their ageing properties still held value.

But the experts also called on the Government to take a cautious approach in letting buyers use more CPF funds to purchase such units, given that old flats have limited resale value.

Mr Wong then said in a blog post that “there is scope” to let buyers of shorter-lease public flats use more of their CPF money for the purchase “without compromising their retirement savings”.