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.

 

Editor’s note: Every week, Reuelwrites dishes out uncensored, practical advice to friends, family members or strangers regarding real estate. Got a question for Reuelwrites? Email it to eugenetayhy@gmail.com.

Consultation: There is no one-advice-fits-all solution. For more in-depth advice, contact Reuelwrites at eugenetayhy@gmail.com or call +65 9833-6450.

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.

Advertisements

The Government’s Stand On SERS And How It Matters To You

National Development Minister Lawrence Wong has cautioned home buyers not to assume that all old Housing Board flats will be automatically eligible for the Selective En bloc Redevelopment Scheme (Sers). – The Straits Times, 24 March 2017

On 24th March 2017, the collective voices of Singaporeans could be heard all the way up in the heavens as they tore their garments and cussed. Okay, a little over-dramatic there.

As we all know, every statement released from the Government is loaded and carries a lot of subtle messages. The Straits Times published an article on 24 March 2017 capturing the key essence from the ‘controversial’ blog entry by our National Development Minister Lawrence Wong. So how does this affect aging flat homeowners and buyers? Reuelwrites gets to the bottom of the matter.

But first, what is SERS?

Image result for singapore hdb flats

PHOTO: sbr.com.sg

 

What is Selective En bloc Redevelopment Scheme (SERS)?

According to HDB website, SERS was introduced in 1995 to redevelop the existing land for better use and to ‘inject vibrancy into the area’. Residents of flats selected for SERS will be compensated with the market value of their flat paid by the Government, and can enjoy the following rehousing options:

  1. Purchase a new 99-year lease flat at replacement site
    Basically you bao jiak (sure get) a new flat at subsidised price, no need to compete with the rest of Singapore for a new flat. You will also be eligible for a SERS grant of up to $30,000* credited to your CPF.
  2. Apply for a new flat elsewhere
    Don’t like the replacement location? Apply for a Build-To-Order (BTO) or Sale of Balance Flat with HDB. 10% of the flats offered in BTO or SBF exercises for priority allocation under the Resettlement, Relocation, SERS, and Tenants’ Priority Scheme. There is still competition but less. You will also be eligible for a SERS grant of up to $30,000* credited to your CPF.
  3. Buy a private property
    Want to upgrade instead? Rather than take the SERS rehousing benefit, you can opt to receive a ex-gratia payment of $30,000 (half transferred to your CPF ordinary account). However, you will only receive this money after you have returned the SERS flat to HDB.

Points to note:

  1. The SERS grant (amount depending on your household status) can only be used to buy a replacement flat and nothing else.
  2. Flat owners who have enjoyed the SERS grant benefit have to return (with interest) to their own CPF ordinary accounts if the replacement flat is subsequently sold or transferred.
  3. You cannot enjoy the SERS grant benefits more than one. So if you’re thinking of buying another flat with SERS potential with the desire to earn again, the government is telling you to dream on.
  4. One should also note that only 4 per cent of HDB flats have been identified for Sers since it was launched in 1995. How many more flats will be chosen is anyone’s guess.

There are a lot of other terms and conditions tied up to SERS and its accompanying benefits which is really too many to write down here, so do read through the contents on the website carefully before you make any decision relating to a SERS flat.

Related image

PHOTO: straitstimes.com

Why did Minister Lawrence Wong make such a strongly worded blog entry?

I try to put myself in the Government’s shoes to understand the reasoning behind why they do things, so here goes. To grasp the full weight of Minister Lawrence Wong’s entry, we have to first understand the intentions that supported the decision and announcement. Right from when the first HDB flat was completed in 1960 to solve a housing crisis, we know that public flats are heavily subsidised (and can be further subsidised with additional grants) with taxpayers’ monies so that the lay Singaporean can afford a roof over their heads. It was never really meant to be a money-making device.

Stated clearly on the title of HDB flat lease agreement which we all agreed and signed on reads that our flat will be returned to HDB after 99 (or 999 years for some flats) who will in turn surrender it back to the State, which will then be re-purposed. The reasons for implementing a lease policy will be debated and challenged (until the cows come home) so it will not be discussed.

Granted that not all Singaporeans are literate and adept in money management (like you), there are limitations to buying flats using CPF monies, and approval of HDB/bank loan for properties with lease of less than 60 years or will expire before the home buyer reaches 80 years of age. Whether you believe in this or not, this is the Government’s blanket policy to ensure Singaporeans still have enough money for themselves when they are old and wrinkly.

While the Government allow our flats to appreciate on the (resale) free market with *light-touch regulations, it is also the Government’s intention for flat prices to go down as the lease shortens. The Government is not obligated to bail home owners out when they choose to hold onto their property for donkey years, or pay a high price for a flat with not much years left on its lease for the sake of profit-making. Then why don’t the Government just enbloc every flat when it gets old? You might as well tell the Government to make all flats freehold right? That’s another topic altogether.

Simply put, if we choose not to sell our flat after it appreciated in value and choose to hold onto it indefinitely – with hopes of enbloc – until the lease expires, we can effectively treat our HDB purchase as paying the monthly rental (which is still fair). There might be a possibility of a lease buyback scheme kicking in in future but just like waiting for the enbloc, the risk is on us to pray that HDB lets us top up our lease or choose our flat for enbloc. The odds are not really in our favour.

Now to address the next question,

  1. What does this mean to me as a HDB flat owner?
  2. What does this mean to me as a HDB flat buyer?
Image result for hdb model straits times

PHOTO: straitstimes.com

What does this mean to me as a HDB flat owner?

You probably received calls and messages from real estate agents (I could be one of them, Laughs) informing you of the SERS article, telling you to consider selling your (ageing) flat. Before you put up your flat for sale or write it off as a marketing gimmick, what and how does the recent news relate to you as an existing flat owner, especially if you are holding onto a property with a lease of around 60 years or less?

Most HDB flat owners fall within these categories stated below:

  1. Don’t want to sell because waiting for enbloc
  2. Don’t want to sell because house got sentimental value leh
  3. Don’t want to sell because rental yield is *high

There is really too much to address so I will just address the first topic to stay on point. As mentioned above, by holding onto an ageing property you are really 守株待兔ing, (guarding a tree-stump waiting for rabbits). Don’t cry foul when the Government don’t choose your flat for SERS.

The second group of people are the ones who believe their flats are super valuable because it will be enbloc-ed. However, unless your property has been slated for enbloc, there is a chance that it won’t be as stated by our Minister. In my real estate career, I have met sellers before who have given me an unrealistic asking price to sell their flat (eg. recent transactions are around $400k-$415k but the price seller wants is $460k) because they believe their flat has “enbloc potential”.

Notice, the enbloc is only a ‘potential’, not ‘confirm plus chop’. If you want to sell your flat at a high price because you believe that your flat has enbloc potential, what you are essentially doing is you are passing the risk to your buyer. Selling at high price also means the Cash-over-value portion will be high. The question to ask is, would the average flat buyer have so much cash on hand? Never mind that a investor has to sell all his properties to buy your flat, they would have bought a private property with more potential capital upside (see MoneySmart.sg article and statistics).

Image result for first timer hdb

PHOTO: channelnewsasia.com

What does this mean to me as a HDB flat buyer?

After all that is said and done, I’m not saying one should never buy an ageing HDB flat. It also depends on your needs and how old you are. Ageing flats have their own charms. Ageing flats are usually (much) bigger, are located in a mature estate with many amenities, are in prime locations, or are very accessible (near or next to MRT, shopping malls, et cetera). At the end of the day, how you view your flat purchase matters – is it for convenience or for profit? The prospective buyer should not expect to buy an ageing flat with the intention of making a profit in the future.

If you are getting on with age and am just looking a retirement place to settle down, an ageing flat with its many amenities within a stone’s throw away might just be your solution. If you are still young (in your 20s), an ageing flat with a lease less than 50 years should not be in your consideration since financing your flat using CPF monies and loan will be challenging – unless you’re cash-rich? But why would you buy an ageing flat then? RW

 

Like what you see?

Share this article with your friends! The above review represents the writer’s honest opinion and does not reflect the sentiments of any Government organisation and bodies, any real estate agency or stakeholders. If you are a home owner or looking for a flat and you want to know how to proceed from here, you can reach me at 9-833-6450 or eugenetayhy@gmail.com. Disclaimer: The author is a licensed real estate salesperson with Propnex.