Recent suggestion for changes on housing loans using CPF.

[DACH]

 

This was brought up a few days ago, in the "President" 's policy suggestions...

Instead of stopping people using their CPF to pay for their mortgages, why not reduce the prices if HDB flats and not peg them to market prices with land prices? Then Singaporeans will have more money to save with lower HDB flats prices.

 

What Would Happen if You Couldn't Use Your CPF Savings to Buy a Home?

https://sg.finance.yahoo.com/news/happen-couldn-apos-t-cpf-213202807.html

In response to President Halimah's call for policy suggestions, economist Walter Theseira suggested disallowing the use of CPF savings for home purchases. The measure was proposed in order to address inadequate retirement saving. This could be a logical concern, as putting a significant amount of one's retirement into home may leave them with too few remaining assets to retire comfortably, especially given the uncertainties around the 99-year HDB lease.

This proposal would likely have a massive impact on the housing market—over the past decade, around S$82 billion was withdrawn from CPF accounts in order to purchase HDB flats. Given the scale of this proposal, it is worth asking: how would homeowners and prospective homebuyers be affected?

 

How Does The Current System Work?

 

Currently, the Public Housing Scheme (PHS) allows individuals to use their CPF Ordinary Account to pay for a part of their HDB flat purchase. However, homebuyers are limited in the amount that they can withdraw from their CPF savings for the purchase of a HDB lease. Limits are based on the number of years remaining in the lease at the time it is purchased.

How Would This Proposal Affect the Real Estate Market?  

In the short-term, we expect that housing prices would drop as result of proposed rule. The rule will likely prevent many prospective homeowners from being able to afford to purchase homes, as they would have significantly less money to contribute to the purchase. The decreased ability to buy a property should lead to a decline in market demand, which should in turn cause a decrease home prices.

For example, we can approximate the scale of change with some basic calculations. In 2017, $7.4 billion was withdrawn for the purpose of purchasing new and resale HDB flats. There were 22,077 resale applications and approximately 17,500 new units in 2017. Assuming average resale values of S$450,000 and average BTO prices of S$310,000, the S$7.4 billion withdrawn in 2017 represents about half (48%) of the total HDB market transactions (S$15.4 billion). Although these are rough estimates, roughly 20% of this might be supporting the actual home value, while the other 30% is being used to pay interest on home loans. In the long run, it seems reasonable to expect that HDB prices could drop by 10-20% as developers acquiesce to consumers' reduced purchasing power while prospective buyers take longer to build enough savings to buy a flat.

 

Good News for Prospective Home Buyers?  

 

Overall, this proposal appears that it would be a net-neutral event for prospective home buyers. On one hand, these individuals may have to save longer in order to purchase a home since they will not be able to access their CPF savings. On the other hand, a drop in housing prices could offset their reduced ability to purchase homes. Additionally, these individuals will benefit from having additional retirement savings since their CPF will be able to compound untouched over a long period of time.

 

Bad News for Existing Homeowners  

 

However, this proposal definitely could have a negative impact for current property owners. If all buyers in the market are less able to afford current real estate prices, the market forces tend to adjust the prices lower until people can afford flats without the help of their CPF accounts. This would ultimately mean a reduction of wealth for those who already own HDB flats.

Additionally, current homeowners may face another negative consequence. Currently, individuals re-selling their HDB flats must refund their CPF account based the principal amount withdrawn for their HDB flat purchase, as well as the amount of accrued interest that the savings would have earned if they had not withdrawn from the CPF account initially. If property values drop significantly, these homeowners will have much more difficult time meeting this refund requirement.

 

How to Make a Smooth Transition  

 

The proposal would certainly incentivize increased personal savings and promote wealthier retirement, which could be a financially responsible goal. In order to make this transition easier, however, there are a few concepts to consider.

First, because existing homeowners must refund their CPF account based on the amount withdrawn for purchasing a home, declining home prices could put them at significant financial risk. One way to make the proposed rule more palatable would be to decrease the refund requirements for current homeowners.

Additionally, if HDB leases were extended, policy makers might be able to both buoy short-term home prices as well as mend a long-term structural issue related to HDBs. It could also help the owners of older flats, whose retirement savings could benefit from increased resale value if leases were easily extended beyond 99 years.

 

____________________________________________________________________________________________________________

The truth behind proposal to prevent CPF for housing

https://sg.finance.yahoo.com/news/truth-behind-proposal-prevent-cpf-065043359.html

 

An academic’s suggestion which seemed to propose that the Central Provident Fund (CPF) monies no longer be allowed to be used to buy residential properties, has in recent days stirred the hornet’s nest. Walter Theseira, professor of Economics at UniSIM, made that suggestion in responding to President Halimah’s call for policy suggestions.

 

Prof Dr Theseira said that  the use of CPF savings for housing should be curbed in a bid to prevent the people from over-investing their savings on housing. He noted that people typically over-invest on housing as a way of “unlocking their CPF funds” and that installing measures to limit the use of CPF monies for housing could help the people conserve their savings for retirement and health.

He said: “My view is that the CPF system tries to do a little too much, and we should consider focusing CPF on retirement and health…I do believe there is some over-investment in housing, which creates retirement risks if housing values do not grow, and this over-investment is because Singaporeans see housing as a way of unlocking their CPF funds.”

 

One such measure the authorities could instate is slashing CPF contribution rates, Theseira suggested.

This would mean that workers would receive more take-home pay that they could allocate to housing. “A CPF system focused on retirement and health would require lower contribution rates, and allow people more choices in using their higher take-home income on housing, investments, business, and family.”

 

While Theseira advocated for a redesign of the CPF system “so that people no longer need to pay for housing out of CPF, by cutting contribution rates to focus on retirement and health,” he added that he is unsure what the right contribution rate should be.

His views on the redesign of the CPF system drew sharp criticisms from the members of the public. Some were initially even confused that it was President Halimah who had made that suggestion in her call that there were ‘no sacred cows’. 

After the public uproar, the professor took to his Facebook to clarify that he did not argue for CPF to be removed completely or even for the housing component of CPF to be removed completely – since it may help people save for their first home.

Theseira said: “What the right contribution rate should be, I cannot say. Perhaps some housing component remains important to help people save for their first home. Nor would I argue to remove CPF, because mandating retirement savings remains important, even for (especially for?) people who believe they can do a better job on their own. But this is a topic for another day.”

 

Elaborating, the economist asked: “What choices would we make if a different policy was in place? What trade-offs would we accept if we designed policy? It’s easy to make fun of policymakers, and it’s also easy to critique policy. Finding workable solutions that promote the public interest is a lot harder, but more than ever, we need to work together to help improve policy in Singapore.”

Prominent commentator on economic policies, Chris Kuan, said that Theseira’s views on CPF usage are generally sound.

Kuan explained: “This bring Singapore back to normality in terms of what social security is used for and will go a long way to minimise the large trade-off between paying for housing and saving for retirement and healthcare. It will also reduce the known tendency of Singaporeans of over-extending housing affordability and hence driving up prices because of the instant gratification they received over CPF being released to pay for property when that gratification can only otherwise be realised decades into the future.”

 

Kuan added that the trade-off between CPF being used for housing and retirement is a complex one, to which there are no easy answers.

 

“There is always that easy argument that the whole problem of the trade-off between housing and retirement is due to HDB affordability and that tiresome mantra that all it takes is just make HDB affordable. Well, making HDB affordable from this point forward is the easy part. The difficult part is how to make HDB affordable without destroying the housing equity and hence retirement proposition of current HDB owners. That is the intractable part of the problem.”

 

“I always held that the huge increase in CPF assets due to the high contribution rates are too much of a temptation for the government,” Kuan, a former international banker, said.

 

Adding: “What better way to use it up than let public housing prices rise – it increases the government reserves which is essentially a very large transfer of wealth from households to the state and slow down the accumulation of government indebtedness.”

Although highly unlikely, if Theseira’s proposal was accepted by the Government, it would mean that housing prices will drop drastically. This is because without CPF, many home buyers will be deterred by the large out-of-pocket down-payment that they would have to pay for their prospective homes. This would in turn lead to a decline in demand in the residential property market, driving down prices significantly. A scenario which would be prevented from happening at all costs by policymakers who have vested interests in a healthy real estate market.

 

____________________________________________________________________________________________________________

What the forefathers has given Singaporeans the flexibility to buy homes with their CPF money in the past, and now these people are thinking of removing this scheme? 

https://www.cpf.gov.sg/Members/AboutUs/about-us-info/history-of-cpf

The evolution of CPF

a) CPF and housing – the twin pillars of retirement adequacy

To help workers save for retirement, the CPF was established on 1 July 1955. Workers contributed part of their monthly income to their CPF to build up their retirement savings.

In 1968, the government introduced the Public Housing Scheme, allowing Singaporeans to pay for the mortgages of their HDB flats using their CPF savings instead of having to use their take-home pay. This increased the affordability of housing and provided many Singaporeans with a home. Home ownership became a key pillar of retirement security as it relieves Singaporeans from having to pay rental fees out of their retirement funds during their senior years.

 

Edited May 15, 2018 by DACH

[Cauldron]

House of glass cards.

 

Difficult to withdraw totally, but maybe system can be tweated so that people have more choices during their first purchase.

 

No one politician in the hot seat will want to be remembered as the trigger for a negative property cycle. But then time is also ticking as more flats pass the half way point of the 99 yr lease and transist from + asset to negative asset.

[Buadongdong]

The price of HDB will fall if not using CPF to fund it? Total BS.. They will find a million and one reason to increase the price of HDB citing increase in production and raw material costs, blah blah blah... In the end, SGporeans will be f**ked both ways. 

[Carbon82]

Floating test balloon. Period.

 

But on having a deeper thought, I began to ponder if this suggestion has something to do with our government needing more $$$ for whatsoever investment / perks? Someone mentioned in other thread that CPF contribution is technically a loan to our government, which I wouldn't disagree, so is it money not enough?    

[Leo72]

Floating test balloon. Period.

 

But on having a deeper thought, I began to ponder if this suggestion has something to do with our government needing more $$$ for whatsoever investment / perks? Someone mentioned in other thread that CPF contribution is technically a loan to our government, which I wouldn't disagree, so is it money not enough?    

 

After reading fully what the prof suggest, maybe people will benefit more if government slash the cpf contribution rate to allow more take home pay to pay for the loan not using CPF to pay for the housing loan.

 

By using cash to pay for the housing loan, when the owner decided to sell the flat to either upgrade or downgrade, the owner will get back more cash on hand (remember, you need to pay back the CPF principal sum + interest back to CPF upon sales of HDB flat if you use CPF).

 

Also if the above mentioned, the amount money that CPF Board going to get will reduce since they'll not be getting interest from the sales of HDB flat since the owner is not using CPF to pay for the HDB Flat.

 

So if want to stop using the CPF for hosuing loan, the government need to slash the CPF contribution rate to allow higher take home pay. Must read the full article.

 

But be careful that the government may want both end of the good deal, meaning to disallow using CPF to pay for housing loan and yet only reduce the CPF contribution rate by a bit or only reduce the CPF contribution rate of employee to zero but maintain the contribution rate by the employer which end up the hdb flat owner will suffer more as it'll reduce the spending power of the hdb flat owner as of now the CPF Contribution rate by the employer help to pay of part of the housing loan.

[Freeder]

The price of HDB will fall if not using CPF to fund it? Total BS.. They will find a million and one reason to increase the price of HDB citing increase in production and raw material costs, blah blah blah... In the end, SGporeans will be f**ked both ways. 

Till now , we still dun know the actual cost of an HDBee flat....after so many years..

Why dun they tell us the actual cost of the flats before selling to the public for every new flat project release...

After all , it's public housing...

[inlinesix]

Till now , we still dun know the actual cost of an HDBee flat....after so many years..

Why dun they tell us the actual cost of the flats before selling to the public for every new flat project release...

After all , it's public housing...

 

How to tell you when they don't even know the main cost?

 

i.e. STATE land.

[Freeder]

How to tell you when they don't even know the main cost?

 

i.e. STATE land.

 

Then how they set the selling price?

den tell me they've been using Jib kor pattern?

Pending GST increase can count until so zhun...

Edited May 17, 2018 by Freeder

[Kusje]

How to tell you when they don't even know the main cost?

 

i.e. STATE land.

 

Just give construction cost lor.

 

Or split it out and tell us what the transfer price between ura and hdb is.

[Freeder]

 

This was brought up a few days ago, in the "President" 's policy suggestions...

Instead of stopping people using their CPF to pay for their mortgages, why not reduce the prices if HDB flats and not peg them to market prices with land prices? Then Singaporeans will have more money to save with lower HDB flats prices.

 

What Would Happen if You Couldn't Use Your CPF Savings to Buy a Home?

https://sg.finance.yahoo.com/news/happen-couldn-apos-t-cpf-213202807.html

In response to President Halimah's call for policy suggestions, economist Walter Theseira suggested disallowing the use of CPF savings for home purchases. The measure was proposed in order to address inadequate retirement saving. This could be a logical concern, as putting a significant amount of one's retirement into home may leave them with too few remaining assets to retire comfortably, especially given the uncertainties around the 99-year HDB lease.

This proposal would likely have a massive impact on the housing market—over the past decade, around S$82 billion was withdrawn from CPF accounts in order to purchase HDB flats. Given the scale of this proposal, it is worth asking: how would homeowners and prospective homebuyers be affected?

 

How Does The Current System Work?

Currently, the Public Housing Scheme (PHS) allows individuals to use their CPF Ordinary Account to pay for a part of their HDB flat purchase. However, homebuyers are limited in the amount that they can withdraw from their CPF savings for the purchase of a HDB lease. Limits are based on the number of years remaining in the lease at the time it is purchased.

How Would This Proposal Affect the Real Estate Market?

In the short-term, we expect that housing prices would drop as result of proposed rule. The rule will likely prevent many prospective homeowners from being able to afford to purchase homes, as they would have significantly less money to contribute to the purchase. The decreased ability to buy a property should lead to a decline in market demand, which should in turn cause a decrease home prices.

For example, we can approximate the scale of change with some basic calculations. In 2017, $7.4 billion was withdrawn for the purpose of purchasing new and resale HDB flats. There were 22,077 resale applications and approximately 17,500 new units in 2017. Assuming average resale values of S$450,000 and average BTO prices of S$310,000, the S$7.4 billion withdrawn in 2017 represents about half (48%) of the total HDB market transactions (S$15.4 billion). Although these are rough estimates, roughly 20% of this might be supporting the actual home value, while the other 30% is being used to pay interest on home loans. In the long run, it seems reasonable to expect that HDB prices could drop by 10-20% as developers acquiesce to consumers' reduced purchasing power while prospective buyers take longer to build enough savings to buy a flat.

 

Good News for Prospective Home Buyers?

Overall, this proposal appears that it would be a net-neutral event for prospective home buyers. On one hand, these individuals may have to save longer in order to purchase a home since they will not be able to access their CPF savings. On the other hand, a drop in housing prices could offset their reduced ability to purchase homes. Additionally, these individuals will benefit from having additional retirement savings since their CPF will be able to compound untouched over a long period of time.

 

Bad News for Existing Homeowners

However, this proposal definitely could have a negative impact for current property owners. If all buyers in the market are less able to afford current real estate prices, the market forces tend to adjust the prices lower until people can afford flats without the help of their CPF accounts. This would ultimately mean a reduction of wealth for those who already own HDB flats.

Additionally, current homeowners may face another negative consequence. Currently, individuals re-selling their HDB flats must refund their CPF account based the principal amount withdrawn for their HDB flat purchase, as well as the amount of accrued interest that the savings would have earned if they had not withdrawn from the CPF account initially. If property values drop significantly, these homeowners will have much more difficult time meeting this refund requirement.

 

How to Make a Smooth Transition

The proposal would certainly incentivize increased personal savings and promote wealthier retirement, which could be a financially responsible goal. In order to make this transition easier, however, there are a few concepts to consider.

First, because existing homeowners must refund their CPF account based on the amount withdrawn for purchasing a home, declining home prices could put them at significant financial risk. One way to make the proposed rule more palatable would be to decrease the refund requirements for current homeowners.

Additionally, if HDB leases were extended, policy makers might be able to both buoy short-term home prices as well as mend a long-term structural issue related to HDBs. It could also help the owners of older flats, whose retirement savings could benefit from increased resale value if leases were easily extended beyond 99 years.

____________________________________________________________________________________________________________

The truth behind proposal to prevent CPF for housing

https://sg.finance.yahoo.com/news/truth-behind-proposal-prevent-cpf-065043359.html

An academic’s suggestion which seemed to propose that the Central Provident Fund (CPF) monies no longer be allowed to be used to buy residential properties, has in recent days stirred the hornet’s nest. Walter Theseira, professor of Economics at UniSIM, made that suggestion in responding to President Halimah’s call for policy suggestions.

Prof Dr Theseira said that the use of CPF savings for housing should be curbed in a bid to prevent the people from over-investing their savings on housing. He noted that people typically over-invest on housing as a way of “unlocking their CPF funds” and that installing measures to limit the use of CPF monies for housing could help the people conserve their savings for retirement and health.

He said: “My view is that the CPF system tries to do a little too much, and we should consider focusing CPF on retirement and health…I do believe there is some over-investment in housing, which creates retirement risks if housing values do not grow, and this over-investment is because Singaporeans see housing as a way of unlocking their CPF funds.”

 

One such measure the authorities could instate is slashing CPF contribution rates, Theseira suggested.

This would mean that workers would receive more take-home pay that they could allocate to housing. “A CPF system focused on retirement and health would require lower contribution rates, and allow people more choices in using their higher take-home income on housing, investments, business, and family.”

While Theseira advocated for a redesign of the CPF system “so that people no longer need to pay for housing out of CPF, by cutting contribution rates to focus on retirement and health,” he added that he is unsure what the right contribution rate should be.

His views on the redesign of the CPF system drew sharp criticisms from the members of the public. Some were initially even confused that it was President Halimah who had made that suggestion in her call that there were ‘no sacred cows’.

After the public uproar, the professor took to his Facebook to clarify that he did not argue for CPF to be removed completely or even for the housing component of CPF to be removed completely – since it may help people save for their first home.

Theseira said: “What the right contribution rate should be, I cannot say. Perhaps some housing component remains important to help people save for their first home. Nor would I argue to remove CPF, because mandating retirement savings remains important, even for (especially for?) people who believe they can do a better job on their own. But this is a topic for another day.”

Elaborating, the economist asked: “What choices would we make if a different policy was in place? What trade-offs would we accept if we designed policy? It’s easy to make fun of policymakers, and it’s also easy to critique policy. Finding workable solutions that promote the public interest is a lot harder, but more than ever, we need to work together to help improve policy in Singapore.”

Prominent commentator on economic policies, Chris Kuan, said that Theseira’s views on CPF usage are generally sound.

Kuan explained: “This bring Singapore back to normality in terms of what social security is used for and will go a long way to minimise the large trade-off between paying for housing and saving for retirement and healthcare. It will also reduce the known tendency of Singaporeans of over-extending housing affordability and hence driving up prices because of the instant gratification they received over CPF being released to pay for property when that gratification can only otherwise be realised decades into the future.”

Kuan added that the trade-off between CPF being used for housing and retirement is a complex one, to which there are no easy answers.

 

“There is always that easy argument that the whole problem of the trade-off between housing and retirement is due to HDB affordability and that tiresome mantra that all it takes is just make HDB affordable. Well, making HDB affordable from this point forward is the easy part. The difficult part is how to make HDB affordable without destroying the housing equity and hence retirement proposition of current HDB owners. That is the intractable part of the problem.”

 

“I always held that the huge increase in CPF assets due to the high contribution rates are too much of a temptation for the government,” Kuan, a former international banker, said.

 

Adding: “What better way to use it up than let public housing prices rise – it increases the government reserves which is essentially a very large transfer of wealth from households to the state and slow down the accumulation of government indebtedness.”

Although highly unlikely, if Theseira’s proposal was accepted by the Government, it would mean that housing prices will drop drastically. This is because without CPF, many home buyers will be deterred by the large out-of-pocket down-payment that they would have to pay for their prospective homes. This would in turn lead to a decline in demand in the residential property market, driving down prices significantly. A scenario which would be prevented from happening at all costs by policymakers who have vested interests in a healthy real estate market.

 

____________________________________________________________________________________________________________

What the forefathers has given Singaporeans the flexibility to buy homes with their CPF money in the past, and now these people are thinking of removing this scheme?

https://www.cpf.gov.sg/Members/AboutUs/about-us-info/history-of-cpf

The evolution of CPF

a) CPF and housing – the twin pillars of retirement adequacy

To help workers save for retirement, the CPF was established on 1 July 1955. Workers contributed part of their monthly income to their CPF to build up their retirement savings.

In 1968, the government introduced the Public Housing Scheme, allowing Singaporeans to pay for the mortgages of their HDB flats using their CPF savings instead of having to use their take-home pay. This increased the affordability of housing and provided many Singaporeans with a home. Home ownership became a key pillar of retirement security as it relieves Singaporeans from having to pay rental fees out of their retirement funds during their senior years.

This is a very sensitive issue and they dare to float this idea around..

Really lost touch with the ground liao,.

Confirmed chopped n sealed..

Then can they offer alternative solutions?

[inlinesix]

Just give construction cost lor.

 

Or split it out and tell us what the transfer price between ura and hdb is.

 

I thought land belongs to SLA

[inlinesix]

Then how they set the selling price?

den tell me they've been using Jib kor pattern?

Pending GST increase can count until so zhun...

 

You can always go to meet ppl session and ask the relevant mini star.

[Freeder]

You can always go to meet ppl session and ask the relevant mini star.

Boss.. u think I’m so free huh?

I rather surf MCF than see those (self serving , action many many )people there...

[Kusje]

I thought land belongs to SLA

 

you should be correct.

 

but ura/sla/whatever agency... any practical difference?

[Spring]

After reading fully what the prof suggest, maybe people will benefit more if government slash the cpf contribution rate to allow more take home pay to pay for the loan not using CPF to pay for the housing loan.

 

By using cash to pay for the housing loan, when the owner decided to sell the flat to either upgrade or downgrade, the owner will get back more cash on hand (remember, you need to pay back the CPF principal sum + interest back to CPF upon sales of HDB flat if you use CPF).

 

Also if the above mentioned, the amount money that CPF Board going to get will reduce since they'll not be getting interest from the sales of HDB flat since the owner is not using CPF to pay for the HDB Flat.

 

So if want to stop using the CPF for hosuing loan, the government need to slash the CPF contribution rate to allow higher take home pay. Must read the full article.

 

But be careful that the government may want both end of the good deal, meaning to disallow using CPF to pay for housing loan and yet only reduce the CPF contribution rate by a bit or only reduce the CPF contribution rate of employee to zero but maintain the contribution rate by the employer which end up the hdb flat owner will suffer more as it'll reduce the spending power of the hdb flat owner as of now the CPF Contribution rate by the employer help to pay of part of the housing loan.

 

Whilst I see some merits to your suggestion, the principal objective of CPF is for retirement so you can't slash the contribution rates without having an effect on our retirement fund which is already insufficient for most of us when we retire ie we need to supplement it with our own savings, investments etc.

[Enye]

if don't allow cpf use on housing.... govt will need to return many hundreds of thousands to each individual at 55 years old

 

govt got enough cashflow every year bo?

 

 

[Leo72]

if don't allow cpf use on housing.... govt will need to return many hundreds of thousands to each individual at 55 years old

 

govt got enough cashflow every year bo?

 

 

hmm... you sure govt will need to return our cpf at 55? They have been increasing the min sum for all the CPF components every year and also the retirement age.

[Kusje]

if don't allow cpf use on housing.... govt will need to return many hundreds of thousands to each individual at 55 years old

 

govt got enough cashflow every year bo?

 

 

 

The amount owed to you is in SG fiat dollars.

 

Why not enough?