Changes to the CPF home buying schemes – What they mean for you

It’s no surprise that there has been plenty of chatter on social media regarding the changes that have been made to the CPF with regards to its usage for home buying purposes.

It seems that the recent rash of concerned discussion stems from the fact that people are unsure about what those changes explicitly mean for their finances and long-term housing prospects. We’re here to break it down for you.

Teck Whye Lane, HDB. Picture: iProperty

The Old Rules

Before we launch into the new rules, we should review the original rules that were used by the authorities.

  • If the property to be bought has 60 years or more remaining on its lease: Buyers can use CPF to pay for the property up to the Valuation Limit (VL).
    Some of you might be asking: By the way, what is a Valuation Limit? It’s the price of the property, or what the property is valued at, whichever is lower. Valuation Limits affect your Withdrawal Limit, which is the maximum amount you can take from your CPF to pay for your property.
  • If the property has 30 – 59 years left on its lease: Buyers can only use CPF if the lease lasts the youngest buyer till the age of 80 or more.

The New Rule

Let’s contract the older rules with the new, simpler rule which starts with this one question:

Is the remaining lease on the property at least 20 years, AND can does it cover the youngest buyer until at least 95 years of age?

If Yes: The buyer can use CPF to pay, up till the VL of the property.
If No: The use of CPF is pro-rated to the extent that the remaining lease can cover the youngest buyer to the age of 95.

They have not released a table as to what the pro-rated extent is, but they did update the CPF Housing Usage Calculator to help potential buyers with their calculations and give them a good idea of what the pro-rated VL would be.

Bukit Batok East Ave 4, HDB. Picture: iProperty

See moreChanges in use of CPF funds for HDB housing loan

Protecting Older Folk

The authorities’ new rules seem to have to do with safeguarding senior citizens.

With our higher standards of living and our life expectancy being one of the highest in the world, this move clearly an act to ensure that they have a roof over their heads as they get older.

No CPF Usage Scenario

There is one specific scenario where buyers will not be allowed to use their CPF: If the property has less than 20 years left on its lease. For older folk that just want to purchase a home at a cheaper price because of the low lease amount left, this might cause problems.

Additionally, younger people who want to limit their cost by buying homes with a short lease lifetime will no longer be able to do so unless they have enough cash on hand.

See moreShould you maintain the $20k balance in your CPF OA?

So, Who Will Be Affected?

HDB, 457 Hougang Avenue 10. Picture: iProperty

Let’s start with an interesting scenario: Young couples that want to buy an older flat.

There is a sentiment that BTOs are smaller, and therefore less value for money as opposed to older flats of the same size classification. While the price appreciation of resale flats might put some people off, there are young couples who have decided to go for a resale.

Let’s say that both parties in this young couple are aged 24, and want to buy a resale flat. They would have to ensure that the house they are buying has at least 71 years on its lease left. Before this rule change, they could have bought a house that has only 56 years left on its lease.

What this means is a potential for the young couple to be forced to either buy a BTO or pay more for a resale than they would have had to before the rule change.

Another probable scenario is the single child who buys a home with an elderly parent.

Assuming the youngest buyer is 35, then the home must have a remaining lease of at least 60 years.

Before this change, they could have bought a house that only had 45 years left on its lease. Again, this means that there is a potential for them to be railroaded into a BTO purchase, or otherwise purchase a home at a higher than the desired price.

See more: CPF rule-changes help buyers and sellers of HDB flats with shorter leases

Reconsidering Home Purchases

Big ticket purchases like a HDB flat need to be planned out in advance.

One of the key issues with this change was that many people did not see this coming, and it is clear that the authorities should have made the announcement of this change earlier.

That said, long term financial planning and thinking ahead about housing arrangements will really help smooth out the financial burdens that come with purchasing a big-ticket item like a house.

Amidst all these changes, one thing is clear: BTOs and younger resale flats seem to be the safest bets in this policy and financial environment.

See more: What’s next after applying for a BTO?