Written By: Evelyn Eng | Updated: June 2019
Thinking of buying an old resale flat? Wondering how much CPF funds you can use and the amount of HDB loan you could take up? Well, new rules regarding the use of CPF funds and HDB loans have been just been introduced on 10 May 2019.
What is it about?
The new rules are based on whether the property’s remaining lease can cover the youngest home buyer up to the age of at least 95 years old. According to the authorities, this gives greater flexibility to home buyers when buying older flats, while at the same time ensuring sufficient funds for retirement. This is good news for older home buyers looking to get older homes in mature estates.
How will it impact HDB buyers?
For older home buyers
Let’s understand these changes through a scenario. Imagine a couple aged 40 and 43 who wish to buy a home with 55 years remaining on its lease. Previously, the amount that they would be able to withdraw from their CPF is capped at the pro-rated Valuation Limit (VL) of the home, which is the lower of purchase price and valuation. They would also be restricted on the amount of HDB housing loan they can get since the remaining lease is less than 60 years.
Under the new rules, they would be able to withdraw CPF funds totaling up to 100% of the property’s VL, or potentially more if they have set aside the Basic Retirement Sum. They would now also be able to obtain the maximum HDB housing loan of up to 90% of the VL.
For younger home buyers
However, not all will benefit from the new rules. Younger home buyers getting older resale flats will need to fork out more cash. Let’s take, for example, a couple aged 24 and 25, looking to get a flat with 60 years remaining on its lease. Previously, they would be able to utilise CPF funds for up to 100% of the VL of the property. They would also be able to take out the maximum HDB housing loan of 90% of the VL. With the new changes, the amount of CPF funds they can use will be pro-rated based on the extent that the remaining lease can cover the youngest buyer up to age 95. Similarly, the amount of HDB loan they can take will be pro-rated from 90% of the VL, based on the extent that the remaining lease can cover the youngest buyer up to age 95.
Why were these changes made?
These rules are a response to changing demographics and societal trends. More and more houses will face the effects of depleting leases once their remaining leases decrease to below 60 years. Just last year, about 15% of HDB flats have remaining leases of less than 60 years. This number will only increase in time to come. If the rules are not revised, many will face restrictions when buying such aging homes, which could deter them from buying aging homes. The values of these older homes may then be adversely affected. The change in the rules could prevent this from happening, as older homes will be just as affordable and attractive for buyers whom the remaining lease can cover them up to age 95. With an aging population, these new rules could be a welcome change as older home buyers will face fewer restrictions when looking for resale flats.
Another benefit of the new rules is that it will help ensure more prudence and preparedness when it comes to preparing for retirement. It ensures that, if younger buyers are buying flats that may not last them up to their lifespan, they will still have CPF funds in case they need to rent or buy a replacement home after their flat’s lease runs out. For older buyers, it recognises that if they wish to buy an older flat, so long as it can last them up to their lifespan, they can use more CPF funds and thus have more liquid cash on hand for their retirement use.
Will these changes see more Singaporeans opting to buy older flats? Only time will tell. If you’re more motivated than ever to sell your home, post a listing for free on our platform or call 6886 9009 to learn more about our fixed-rate agent services.
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