Restrictions on use of CPF for older HDB flats to be relaxed by May

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SINGAPORE – National Development Minister Lawrence Wong said in Parliament on Thursday morning (March 7) that his ministry is looking into relaxing Central Provident Fund (CPF) loan rules on the purchase of older Housing Board resale flats, and will announce the changes soon for implementation in May this year.

He referred specifically to the restriction in CPF usage for flats with less than 60 years of lease remaining. About 90,000 of the total stock of about one million HDB flats are more than 40 years old.

“Some banks take reference from these CPF restrictions when assessing how much loan to extend. As a result, both the CPF and loan quantums may be reduced for the purchase of such flats.

“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.

For example, if a buyer would like to buy a 39-year-old flat, he can use full CPF; but one year later, because you hit this less-than-60-years requirement, the amount of CPF will be restricted. And there is no good reason why this should be so just because the flat became one year older,” Mr Wong pointed out.

He said the Ministry of National Development and Ministry of Manpower have been studying the issue.

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

“I have explained the thinking behind how we intend to change the CPF restrictions,” Mr Wong said.

Ms Christine Li, head of research at Cushman & Wakefield, believes the government may be trying to boost the liquidity of older flats through the pending rule changes.

“So for those who have a need to unlock the asset, they can do it relatively easier. Older flats will therefore not be adversely affected by the limitations of the housing loans.

“Currently younger home buyers are not able to use CPF to buy older flats, because the age of younger home buyers and the remaining lease of the property need to be at least 80 years. … Hence, the requirement might be adjusted to a lower threshold.

“However, a fine balance needs to be struck as well, as it may lead to over-borrowing,” she added.

Further, Ms Li added that the proposed rule change should benefit both the HDB as well as private market because it could help narrow the price gap between the two markets, which bodes well for upgraders.

Mr Wong had said in August last year that his ministry is looking into how to let buyers of shorter-lease flats dip deeper into CPF funds for their purchase, without compromising their retirement savings.

The move aims to address growing concerns among flat owners over their older flats’ depreciating leases and the difficulty in selling these – partly because of the limitations placed on prospective buyers over the use of their CPF funds.

If there is more flexibility in the use of CPF funds to buy shorter-lease flats, it would help those who want to purchase flats in more mature HDB estates.

Administrative clerk Madam Chai believes this proposed change should help boost demand for older flats. “But it also depends on whether the buyer has a lot of CPF accumulated that they can use,” she added.