Changes soon to CPF loan rules on buying older flats

Changes to the Central Provident Fund (CPF) loan rules on the purchase of older Housing Board resale flats will be announced soon for implementation in May this year, National Development Minister Lawrence Wong said yesterday.

At issue is the restriction on using CPF to buy 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,” he said.

While the CPF rule is intended to safeguard the retirement adequacy of those who buy older flats, its design has led to some unintended consequences, Mr Wong noted.

“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… 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,” he said in Parliament.

“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.”

He 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 concerns over the depreciating leases of older flats and the difficulty in selling them – partly because of the limitations placed on prospective buyers over using their CPF funds.

More flexibility on using CPF funds to buy such flats could help those who want to buy flats in more mature HDB estates, observers said.

Ms Christine Li, head of research at Cushman & Wakefield, believes the Government wants to boost the liquidity of older flats.

“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.

Ms Tricia Song, head of research for Singapore at Colliers International, said one possible change could involve “ensuring that the balance lease of the flat covers the buyer up to a certain age, in order to reduce the chances of a buyer outliving the lease.

“For example, the use of CPF funds may be fully allowed for buying flats with leases under 60 years as long as the remaining lease can cover the buyer up to the pre-determined age, say 90 or 95 years old. Failing which, a pro-rated formula can be applied on the use of CPF funds,” she said.

Currently, the use of CPF to buy units with less than 60 years of remaining lease is pro-rated, while it cannot be used at all for those with less than 30 years of lease.

ZACD Group executive director Nicholas Mak said: “On the whole, the Government may allow younger buyers to use more of their CPF funds to purchase flats with shorter remaining leases even if the remaining lease is less than 60 years, as long as the flats can last them until age 80 years or so.”

Ms Song said that the relaxation of CPF rules could potentially remove the overhang on older HDB flats and open them up to a larger pool of buyers.

Such HDB flats could become more liquid and achieve higher valuations, and in turn give the sellers an opportunity to upgrade to private housing, which could improve private housing demand.

But she added that private housing prices are unlikely to be directly impacted by this measure.

Adapted from: The Straits Times, 8 March 2019