Understanding the Private Properties Scheme by CPF
Home ownership provides financial stability as well as a sense of security. If you need to rent a place to stay, you will pay a substantial sum every month to your landlord.
This money could be better spent on repaying a home loan instead. At the end of all the payments, at least you will be the proud owner of a home, especially if it's a private residential property.
But this is sometimes a distant goal for many because of the heavy financial commitment required when buying a property.
While loans are easily available for eligible borrowers, financial institutions and banks have strict credit norms which many individuals do not meet.
Is there any way for a person who cannot get a sufficiently large bank loan to raise the money to buy a home? The Central Provident Fund Board’s Private Properties Scheme presents an excellent option.
The Private Properties Scheme (PPS) allows CPF members to use the sum in their CPF Ordinary Account to buy or build a private residential property.
According to the CPF Board’s rules, the property should be located in Singapore. The property purchased using this money can be used by the CPF member or rented out.
Conditions to be satisfied to use your CPF Ordinary Account funds to buy a home
Private properties in Singapore are built on land that is either freehold or leasehold. Most properties are leasehold. If the remaining lease on a private property is less than 30 years, then you cannot buy it using money from your CPF Ordinary Account.
In certain circumstances, the property will be ineligible to be purchased using your CPF money even if 30 years or more are still remaining on the lease. This rule applies if your age plus the remaining lease of the private property is less than 80 years.
Why should the CPF Board make such a rule? The intention is that the lease on the property should not expire during your lifetime.
For example, if your age is currently 25, and the remaining lease is 35 years, it will expire when you are 60. Such a property will be ineligible under the PPS.
How much of your CPF savings can you use?
The maximum amount of CPF savings that you can use for buying a private property is 120% of the valuation limit. This valuation limit is the purchase price or the value of the property, whichever is lower.
But there are certain conditions to draw out that 120% of your valuation limit. If you are under the age of 55, you need to first set aside the Basic Retirement Sum prescribed under CPF rules in your Special Account.
This is to ensure that you have sufficient money to support yourself when you retire. If you are over the age of 55, you will need to meet the Basic Retirement Sum in your Retirement Account.
The application process
You will need to apply to use your CPF savings to buy the private property and as well as get a valuation report for the property prepared by a licensed valuer.
When you receive a letter of approval, you will have to instruct your lawyer to coordinate with the CPF Board’s lawyer to complete the legal documentation for the transaction.
The release of your CPF savings for the purchase of private property is subject to three conditions:
All the legal documentation for the transaction should be completed.
You should have made a cash down payment of at least 5% of the valuation limit
You should also have paid the balance purchase price after taking into account both the CPF funds that are being diverted to your property purchase and your housing loan amount.
Use of Special Account
CPF members often ask whether the sum in their Special Account can be used to pay off a part of their housing loan.
According to CPF rules, the Special Account is set aside to provide funds for the old age of members. It can be invested in retirement-related financial products, but cannot be used to pay off a housing loan.
What happens if you sell the private property that you had bought using your CPF savings?
You will have to refund the CPF amount to your account. You will also have to refund the interest that would have accrued to your account if you had not withdrawn your savings.
After having sold the first property that you bought with your CPF savings, can you buy another? This is allowed under CPF rules. But if you are over 55 years, you will first have to ensure that your Retirement Account has a balance that meets your Full Retirement Sum.
A boon for aspiring homeowners
Many Singaporeans who are keen to buy private property are unable to do so because of a shortage of funds. The Private Properties Scheme enables these individuals to access their own savings so that they can become homeowners.
By implementing this scheme, the CPF Board has helped Singapore’s residents to buy their own homes and to build wealth over the long term.