New rules on CPF use, HDB loans to nudge buyers towards homes they will not outlive

SINGAPORE — Most younger buyers of resale flats with leases that expire before they turn 95 will be able to use less of their Central Provident Fund (CPF) savings for housing, said the authorities on Thursday (May 9).

They will also be eligible for a smaller Housing and Development Board (HDB) loan than under existing rules.

But older couples will be able to draw more from their CPF savings and get a larger HDB loan for older resale flats, under changes announced by the Ministry of National Development and Ministry of Manpower.

The new rules reflect the “changing needs” and “higher life expectancy” of Singaporeans, said both ministries.

The changes, which take effect on Friday, mark a shift in focus in public housing rules on the use of CPF and HDB loans.

Instead of centering on the remaining lease of a flat, the rules will now focus on whether the leases can cover buyers until the age of 95.

Under the changes, a minimum lease requirement will still apply. HDB flats must have at least 20 years left on their leases (down from a minimum of 30 years) in order for CPF monies to be used for the purchase. This is to ensure prudent use of CPF funds, the ministries said.

CPF members aged 55 or older will also need to have properties with leases that cover them until age 95 (instead of a remainder of at least 30 years) before they can withdraw their CPF savings in excess of the Basic Retirement Sum. 

DEPLETING LEASES A HOT TOPIC 

The announcement comes after much public debate and concern over the depleting leases of older Housing and Development Board (HDB) flats, following a blog post in March 2017 by National Development Minister Lawrence Wong. He cautioned that not all old flats will be eligible for the Selective En Bloc Redevelopment Scheme (Sers).

At the National Day Rally last year, Prime Minister Lee Hsien Loong addressed the issue and announced several measures for older precincts, such as the new Home Improvement Programme II for ageing units at the 60- to 70-year mark, and the Voluntary Early Redevelopment Scheme, which will be rolled out in about 20 years.

Mr Lee also said 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”.

Public flats are sold with 99-year leases because the government has to be fair to future generations and guard against Singapore becoming a society of haves and have-nots, said Mr Lee.

In March this year, Mr Wong said his ministry was looking at relaxing CPF loan rules on the purchase of older Housing Board resale flats.

He referred to the restriction in CPF usage for flats with less than 60 years of lease remaining.

Last year, nearly one in 10 buyers (9 per cent) bought a resale flat that will expire before they turn 95. About 1 per cent of private homebuyers did so.

The majority of Singaporeans will not be affected by the changes, said the ministries on Thursday. Ninety-eight per cent of HDB households have homes that will cover them until age 95 or beyond, while for private property households, the proportion is 99 per cent.

Homebuyers who are not able to tap the maximum CPF usage and HDB housing loans will have the respective amounts pro-rated, said the ministries.

An online calculator is available on the websites of the CPF Board and HDB for prospective buyers to work out the allowable amounts.  

The authorities illustrated the changes with examples:

EXAMPLE 1: MORE FLEXIBILITY FOR SOME

John, 48, and Jane, 45, want to buy a four-room HDB resale flat that costs S$430,000 with 50 years remaining on its lease. The lease will cover the youngest buyer, 45-year-old Jane, until age 95.

Under the existing regulations, they can use their CPF savings for up to 80 per cent of the property’s valuation limit, which amounts to $344,000. The valuation limit is the lower of the purchase price or the value of the HDB flat at the time of purchase.

The couple can also take a HDB loan of up to 90 per cent of the property’s value, which translates to S$387,000.

Following the changes, the couple can tap on their CPF for up to 100 per cent of the property’s valuation limit (S$430,000, or up to S$86,000 more than before), if they have not set aside the Basic Retirement Sum. There is no change to their HDB loan cap.

EXAMPLE 2: MORE LIMITS FOR OTHERS

Nick and Cheryl, both 25, want to buy a four-room HDB resale flat that costs S$430,000 with 65 years remaining on its lease. The lease will not cover the couple until age 95.

Under the existing regulations, they can use their CPF savings for up to 100 per cent of the property’s valuation limit as the lease of the flat exceeds 60 years. They can take a HDB loan of up to 90 per cent of the property’s value, which amounts to $387,000.

Following the changes, the couple can tap their CPF for up to 90 per cent of the property’s valuation limit (S$387,000, or S$43,000 less than before). Their HDB loan cap is reduced to 81 per cent (S$348,300, or S$38,700 less than before).

DEPLETING LEASES: THE FIGURES

• As at Dec 31 last year, around 140,000 HDB flats (or about 15 per cent of the public housing stock) have less than 60 years remaining on their leases. The oldest flats are 52 years old, with 47 years’ lease remaining.
• About 7,000 private housing units have remaining leases of less than 60 years. This is 1.5 per cent of the total stock of private housing and 3.2 per cent of the stock of 99-year leasehold private housing.