Dear Reuel: I Would Like To Fully Pay My Flat With My CPF

Dear Reuel,

“My boyfriend and I are settling down soon and are thinking of applying for a $250k, 3 room BTO flat in Punggol. We are thinking of fully paying the flat with our CPF. What do you think?”

– Girlfriend

Dear Girlfriend,

First of all, congratulations! Oh wait, he hasn’t propose right? Anyways, why are you considering a 3 room flat instead of a 4 room flat? Because it’s cheaper? Please do your family planning before firming up your decision. Unless you are telling me that you heart dogs over babies, then I second your decision!

Next, you will be a fool if you fully pay your flat with your CPF, at your age. Since you are still young and probably won’t stay here forever (you know what I mean), there is a high possibility that you will get promoted and get better salaries, upgrade to a bigger house or better yet – move to a private property.

By dumping all your CPF monies into your flat, you are reducing your opportunity cost to nil. Assuming five years from now, you would like to buy a brand new EC like Rivercove Residences for example but because you are short of the same $250k which you put into your flat, now you are stuck with your 3 room flat. Not very smart, is it?

And worst of all, by the time you want to sell your flat to net a cool $150k cash proceeds, you would realise that your cash proceeds has been reduced by $50k due to the CPF accrued interest which you could have earned have you left them in your CPF account to generate free interest.

Of course there are some exceptions. If you draw a huge salary, and can afford to pay the option and down-payment for a private property regardless of the ABSD, you can keep your fully paid flat and buy a condo on top of your flat. By the way, I would like to be your friend (and maybe entice you with some properties I am promoting).

But if you don’t fall within the above category, do me a favour dear. Take a maximum bank loan (pay 5$ option in cash), and keep your CPF monies in the CPF Ordinary Account. Let them earn the 2.5% accrued interest, or invest them in some unit trust or whatever. Just don’t be silly to put all your CPF monies in your flat immediately. RW

Update: The above scenario is on the assumption that the buyer has the ability to fully pay the flat with their CPF monies or has accumulated more CPF monies through years of work while already owning a HDB flat. For buyers buying with HDB loan, they will have to use all their monies in their CPA OA to offset the purchase price before taking a HDB loan.


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Disclaimer: While the author Reuelwrites is a certified real estate agent with Huttons Asia, the above thoughts represents his own and is in no way representative to that of Huttons Asia.