If you’re currently looking to buy a HDB flat, chances are you’re planning on making use of your Central Provident Fund (CPF) money and an HDB housing loan to make the purchase. Which is why you should take note that on May 10 2019, the rules for using your CPF, and getting HDB housing loans were updated.
These changes will apply to HDB flats, private properties and executive condominiums, and are aimed at shifting home-buying rules to focus on whether the property can last you, the homeowner, for the remainder of your life.
Now, it may seem a little daunting at first, but we’ve broken it down for you so it’s easier to understand.
Before the changes
Previously, the amount of CPF you could use to pay for your residential property, and the amount you’d get in your HDB loan was dependent on the length of the property’s remaining lease.
This meant that if you were eyeing any flats that had less than 60 years remaining on their lease, your CPF usage would be throttled to a maximum of 80 percent of the valuation limit. If you really wanted that particular flat, you’d have to come up with more cash to pay for it upfront.
Property’s remaining lease is at least 60 years
Property’s remaining lease is less than 60 years
Remaining lease is at least 30 years and can cover youngest buyer till 80 years old
CPF useable at a pro-rated Valuation Limit
Remaining lease is at least 20 years and can cover youngest buyer till 80 years old
Up to a 90% Loan-To-Value (LTV) limit for HDB loans
The Valuation Limit (VL) is based on the lower of these two:
- the price of the property after being assessed
- purchase price
The new rules for the CPF and HDB housing loans mean that the purchased property’s remaining lease is no longer the only criteria that determines how much CPF you can use, or HDB housing loan amount you can get.
It’s now based on whether the property’s lease can cover the youngest buyer till they’re at least 95 years old. This means your CPF usage is no longer restricted – as long as the flat still has at least 20 years of lease left, you can use your CPF to pay for it. Previously, the minimum duration was 30 years.
If the property can cover you till you’re 95, you can use your CPF to the maximum Valuation Limit, and get up to 90% of the LTV on your HDB loan. If it doesn’t, you get pro-rated amounts for both your CPF and HDB loan.
Updates to CPF usage
Property’s remaining lease is at least 20 years and covers youngest buyer till 95
CPF useable up to the property’s Valuation Limit (VL)
Maximum CPF useable based on a pro-rated amount
There are also additional changes to CPF withdrawal rules if you’re over 55.
If you want to apply to pledge your property to meet the Full Retirement Sum, and withdraw your CPF above the Basic Retirement Sum, you’ll need a property that has enough lease left to cover you till you’re at least 95 years old.
Otherwise, you can withdraw only the first $5,000 when you turn 55, and 20% of your Retirement Account savings from your Payout Eligibility Age.
The previous CPF rules were meant to ensure that you could retire comfortably with a home and a basic level of retirement income – but having a permanent roof over your head wasn’t a guarantee.
The new rules today ensure that individuals have a home to last them for life, and also a basic level of retirement income.
Updates to HDB Housing Loan
Can the property cover the youngest buyer till 95?
HDB Housing Loan limits
In the case of HDB flats, point of purchase will refer to the date you applied for the flat.
If you’re purchasing a private property or executive condo, the point of purchase is the date you exercise your Option to Purchase, or Sale and Purchase Agreement.
An additional change that affects all scenarios is that you can’t use any CPF or HDB housing loans if the property you’re interested in has less than 20 years left on its lease.
Do these rules affect me?
A good majority of homebuyers aren’t likely to be affected according to the Ministry of National Development. About 98% of HDB households and 99% of private property owners already have a home that is expected to last them until they are 95.
If you bought your property before 10 May 2019 and are still servicing the existing housing loans, then you won’t be affected.
For CPF changes, if you bought your property before 10 May 2019 and are already 55 years old, you can continue to apply to the CPF Board to withdraw your CPF savings based on the previous rules.
If you’re in the middle of a property purchase, you can approach the CPF Board or HDB for help in the matter.
However, these changes may affect a certain group of Singaporeans – namely, younger couples or co-owners in their early twenties planning to buy older resale flats. If you fall into one of the former groups and the flat you’re eyeing has less than 74 years or so, you won’t be able to use your CPF to the full Valuation Limit.
Benefits of the new CPF and HDB housing loan rules
Analysts predict that the new rules will make older flats more attractive to buyers. Older properties haven’t exactly been very hot commodities, and these changes may help add to their appeal. If the leases were less than 60 years, prices tended to be fairly “depressed”.
Owners of existing properties that have 30 to 40 years left on their leases basically got a 10-year extension to the saleability of their property. Since the remaining lease is no longer the sole factor of whether or not you can use CPF funds, older homes may now be more appealing prospects to future homebuyers.
For some prospective home buyers, they may also find it more financially viable to purchase older properties in order to live nearer to their parents.
These changes will also cater for future homeowners, who may want to buy from a growing stock of properties that have shorter leases.
Older home buyers will also benefit from the change. With some previously unable to buy a flat using their CPF, more will be able to do so now.
Middle-aged buyers can buy ageing flats with fewer restrictions on their CPF usage.
For example, a 40-year-old couple can pay for a resale flat with a 55-year remaining lease by using more of their CPF savings.
What’s more, the new rules will likely benefit their retirement planning. By using their CPF to purchase property, they will be able to set aside cash for future expenses.
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