What the changes means to us?
In simple terms, what I see is the changes are implemented to ensure we still have a roof over our heads when we are old and also slow down the depreciation of properties which have lesser lease remaining. The changes starts from Friday 10 May 2019 which is today.
When we buy a property, especially for HDB flats, most of us do not look at the remaining lease thinking that even if the lease goes to 0, we will still get to keep our house or the government will pay us to get another flat or we may get an en bloc on the flat. This is not true at all. The government has said multiple times that if the lease goes to 0, the HDB flat asset value will depreciate to zero.
With the above concern, a new rule of making sure the remaining lease covers the youngest buyer up to 95 years old is implemented. Previously, this was at 80 years old. If the remaining lease does not cover the youngest buyer up to 95 years old, they will be offered a loan on a pro-rated basis.
The updated rules will apply to:
- HDB flats: Flat applications received on or after May 10, 2019
- Private properties and executive condominium units: Option to Purchase or Sales & Purchase Agreement signed on or after May 10, 2019
- CPF withdrawals: Applications received on or after May 10, 2019
Read more at https://www.channelnewsasia.com/news/singapore/hdb-loan-cpf-rules-buy-property-flats-home-11518170
Young Couples will be affected negatively
Let's see how this affect a young buyer who wants to purchase a resale flat:
Gabriel and Rachel intends to get married in 2019 and plans to purchase a resale flat. They are age 25 currently. They shortlisted 3 HDB properties in Boon Keng, Bishan and Seng Kang. Previously under the old rules before 10 May 2019, they could get full HDB loan up to 90% loan to value.
Let's see how the new rules will affect them:
| Boon Keng (Remaining lease 55 years) | Bishan (Remaining lease 65 years) | Seng Kang (Remaining lease >75 years) | |
|---|---|---|---|
| Maximum CPF usage | 70% Valuation Limit | 90% Valuation Limit | 100% Valuation Limit |
| HDB housing loan | 63% Loan-to-Value | 81% Loan-to-Value | 90% Loan-to-Value |
As we can see, the couple can only take 63% loan for their Boon Keng property as the remaining lease is only 55 years and they are still young at 25 years old. The remaining lease does not cover them to age 95 so their maximum CPF usage and HDB housing loan is pro-rated. Even if they want to purchase a Bishan property which has remaining lease of 65 years, they can only take a maximum HDB housing loan of 81%.
For newer estates such as Seng Kang with remaining lease more than 75 years, they can still get the full 90% loan if they take the HDB housing loan.
Let's put some property price numbers into the above scenario for better visualisation:
| Boon Keng (Remaining lease 55 years) | Bishan (Remaining lease 65 years) | Seng Kang (Remaining lease >75 years) | |
|---|---|---|---|
| Property Price | $700,000 | $640,000.00 | $416,000 |
| Maximum CPF usage | 70% Valuation Limit ($490,000) | 90% Valuation Limit ($576,000) | 100% Valuation Limit ($416,000) |
| HDB housing loan | 63% Loan-to-Value ($441,000) | 81% Loan-to-Value ($518,400) | 90% Loan-to-Value ($374,400) |
If we look at the Boon Keng property, for a 4 room flat price of estimated $700,000, the couple has to fork out $210,000 cash as the maximum CPF usage is only 70% of the valuation of the property. Even for the Bishan property, the couple has to also fork out additional $64,000 cash as the maximum CPF usage is only 90% instead of the previous 100%.
In this case, for young couples who are age 25 to 30, the wiser choice is to ballot for a BTO or look at HDB properties with lease remaining of >75-80 years. Just make sure the HDB remaining lease can cover you at least to age 95 years old and you're safe from the changes of the new rules.
Older buyers will benefit from this changes
Good news for older buyers who want to move house to live near parents or live in a better location in Singapore. With the new changes, older couple and buyers will be able to purchase HDB flats with shorter lease and still able to use their CPF for the purchase. Previously, they may only be able to use up to maximum 80% of their CPF for HDB purchase with lesser remaining lease.
Let's look at one example below:
Gorden and Chloe are both 45 years old. They are thinking of purchasing a resale HDB flat to live near their parents. Their parents live in an old estate with most of the flats only with remaining lease of 50 years. With the revised rules, they will be happy to know that they can use more CPF to purchase the HDB flats with lesser remaining lease.
Let's look at an example below:
| Before 10 May 2019 | From 10 May 2019 | |
|---|---|---|
| Property Price | $430,000 | $430,000 |
| Maximum CPF usage | 80% Valuation Limit ($344,000) | 100%* Valuation Limit ($430,000) |
| HDB housing loan | 90% Loan-to-Value ($387,000) | 90% Loan-to-Value ($387,000) |
*Applicable limit for buyers who have not set aside the BRS. Usage beyond the Valuation Limit (up to applicable limits) is allowed if the property buyers have accumulated their BRS.
Note:
1. Banks also take reference from CPF restrictions when assessing how much loan to lend.
2. Actual loan amount is subject to credit assessment which takes into account, among others, buyer’s income and age.
With the revised rules, this couple who are 45 years old can use $86,000 more of their combined CPF savings to buy the flat. Their HDB housing loan does not change. This is because even when the remaining lease is at a low of 50 years, it can cover them till at least 95 years old (45 years old + 50 years).
Changes to CPF withdrawal rules
Previously, CPF members above the age of 55 could withdraw their CPF savings above the Basic Retirement Sum (BRS) if they owned a property with a remaining lease of at least 30 years. This will change with the new CPF withdrawal rules.
CPF members will now need to have a property with sufficient remaining lease to cover them until at least the age of 95, before they can withdraw their CPF savings above the BRS
Summary of changes
Changes to CPF withdrawal rules
Previously, CPF members above the age of 55 could withdraw their CPF savings above the Basic Retirement Sum (BRS) if they owned a property with a remaining lease of at least 30 years. This will change with the new CPF withdrawal rules.
CPF members will now need to have a property with sufficient remaining lease to cover them until at least the age of 95, before they can withdraw their CPF savings above the BRS
Summary of changes
While some will be worse of with this changes, others will benefit especially for the older people who are looking to move house. Here's a summary of the changes:
- Property remaining lease should cover youngest buyer up to 95 years old else maximum CPF usage and HDB housing loan LTV will be pro-rate.
- No CPF can be used if the remaining lease is less than 20 years. This has been lowered from 30 years currently.
- CPF withdrawal above basic retirement sum is only allowed if remaining lease on property covers until at least age 95.
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