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

TODAY file photo

By WONG PEI TING

TODAY


When National Development Minister Lawrence 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.

07 MARCH, 2019
[Note date]


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.

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.

[So if the lease has only 59 years left, the buyer cannot be younger than 21. 
Pffftt! As if anyone below 21 can buy a flat with CPF.
Okay, say a newly wed couple age 25. The lease must be at least 55 years. 
35 years, the lease must be at least 45 years left.

But of course the problem is the pool of buyers will be severely limited. And that makes it a buyers' market.

Hence, the price falls.]

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

[But note that HDB is selling 

“The CPF rule is intended to safeguard the retirement adequacy of buyers who purchase older flats, but it’s 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.

["No good reason"? Er... adequately funding their retirement is NOT a good reason? Good grief! Also it is not that you can use CPF in full for a 39 year old flat, and CANNOT USE CPF AT ALL for a 40 year old flat. There are restrictions. And these restrictions are to... "remind" the buyers that they should not squander their pension savings on an ageing flat.] 

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

[alternative sub-heading: Continuing to artificially prop up the value of ageing 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”.

[The problem with this solution, is that the problem analysis is incorrect. 

The "problem analysis" process went something like this:

1) Older flats with remaining leases of less than 60 years are losing market value.
2) One reason is that the pool of buyers are increasingly restricted because of CPF rules regarding the use of CPF for purchase of flats with less than 60 years of lease remaining. That means only buyers who do not need to use their CPF can afford the flats, and because there are few buyers like them, they can bid low or drive the price down.
3) Therefore the answer is obvious - liberalise the rules so that more people can use their CPF to buy these older flats, the pool of buyers increases, and the value of these older flats do not suffer an "artificial" fall in price because of CPF policies.

4) Possible problem 1: Would this not mean that the buyers of these lease-decayed flats would have "pawned" their retirement/savings for their flat, with little hope of redeeming their retirement later in life?

5A) Possible answer 1: Not our problem. That's for the next generation of leaders/government to resolve.
5B) Possible answer 2: We will tweak the policy so that that does not happen. Buyers will have to show that their retirement savings or plans are on track before they are allowed to use their CPF.

6) Possible Problem 2: Isn't this "solution" just "kicking the can down the road"? By the end of the lease, the flat's value will effectively be zero. No changes to CPF policy will change that fact.
7) Possible answer: Yes, but the buyers are now walking into this with their eyes wide open and they know this. Perhaps, they just need a short lease because they are elderly and just want a flat with enough lease to last until their last day.

The starting point of the problem analysis tells you about their assumptions and the depth of their analysis. 

And the short-sightedness of their "solution". 

There is a need for a longer term solution.]