CPF Board reaches out to real estate agents to educate Singaporeans on the use of CPF for housing
In October, the Singapore Estate Agents Association (SEAA) & financial advisory firm SingCapital jointly hosted the “CPF Policies for the Real Estate Industry” seminar, with the support of the Central Provident Fund Board (CPF Board).
SEAA represents the real estate agencies and salespersons in Singapore and works closely with the Council for Estate Agencies (CEA) and major real estate agencies. They are committed to maintaining the high standards of the real estate agency profession, by promoting continuous learning, upgrading, ethical standards and professional development amongst its members.
SingCapital is a leading financial advisory firm in Singapore, and they are dedicated to providing quality financial services and holistic solutions for their clients’ insurance and investment needs, to help them achieve their financial goals.
Over 300 real estate professionals attended the seminar to hear from Wong Koon Yin, the Assistant Director of Outreach and Partnership at CPF Board, and Alfred Chia, the CEO of SingCapital. This is the first time the CPF Board has reached out to the real estate agents, to enlist their support in disseminating the right information about the use of CPF in property transactions, to the potential property buyers and sellers in Singapore.
The crux of the CPF Board & HDB’s policies lie in the primary use of the CPF for retirement needs. Wong explained that the CPF is designated for 3 specific retirement needs: retirement expenses, medical costs and housing. That also explains the recent policy change to allow CPF to be used to finance homes that can last the youngest homeowner to the age of 95, essentially ensuring that the home purchase will provide for a home to retire in.
This is also why CPF members who own a property that lasts them to the age of 95 are allowed to pledge their homes and withdraw their CPF savings above the Basic Retirement Sum (BRS), when they turn 55. CPF members who do not own a property that can last them to age 95 when they reach 55, they would have to set aside the Full Retirement Sum (FRS) before they can withdraw their CPF savings.
Here are some of the other points Wong (pictured below) raised during the seminar.
Understanding the valuation limit and the withdrawal limit.
When buyers purchase a new HDB flat with a HDB loan, they are not faced with any limits on withdrawing from their CPF.
However, if they purchase a resale HDB flat with a lease that lasts the youngest owner to age 95, they can only withdraw up to the valuation limit, or the lesser between the purchase price and the valuation price.
For buyers using a bank loan to purchase a private property or resale HDB flat with a lease that lasts the youngest owner to age 95, they would be faced with both the valuation limit and the withdrawal limit.
Once buyers have withdrawn up to the valuation limit, they would only be allowed to use their Ordinary Account savings to continue financing their home after they have set aside the Basic Retirement Sum within their Special Account and Ordinary Account balances. The withdrawal limit, which is 120% of the valuation limit, is the maximum that buyers can withdraw from their CPF for that particular property.
What if the property lease does not last the owners to age 95? The amount they can withdraw from their CPF will then be pro-rated.
What if CPF members intend to purchase another property? The excess savings in their Ordinary Account above their BRS can be used towards financing another property, if they already have a property that lasts them to age 95. If none of their properties meet that criteria, CPF members would only be able to use the excess savings in their Ordinary Account that are above their FRS towards their next property purchase.
CPF members who want to find out how much they can loan or how expensive a property they can afford, can also try out the First Home Calculator online tool on the CPF website.
Repaying the loan after a property sale
Wong continued with a discussion into the repayment of the HDB loan into the CPF member’s CPF accounts after a property sale.
Once a property financed with CPF monies is sold and any outstanding loan is repaid with the sales proceeds, the principal loan amount and its accrued interest must be returned into the CPF members’ own CPF accounts. With two owners, each CPF member will need to return the amount they contributed towards the property and its accrued interest.
If the property is sold at a loss and the proceeds are insufficient to repay the full principal loan and accrued interest from CPF, all of the sales proceeds after paying outstanding loans, and any options monies would need to be disbursed back to both co-owners’ CPF in the proportion of their contributions. No further top up would be required.
What about grants received from the government during the purchase of their first property? Wong explains that the grant money received is given to the CPF members, though it is earmarked for property purchases. Once a property that was purchased with grants is sold, the grant money has to be refunded back into the CPF members’ own CPF accounts, and can then be used again towards the purchase of another property.
Wong also went into detail to discuss how these refunds would work in the case of a divorce, where the sale of the property is determined by a court order and may result in a CPF refund that is less than what is required. In these cases, Wong explained that CPF members would need to first refund their CPF accounts then pay what is required by the court order to their ex-spouse in cash, on top of the remaining cash proceeds.
CPF members who need to check how much they must refund to their CPF accounts can do so through the CPF website, or through the myCPF mobile app.
Planning to purchase a property after 55? You would not be able to use your CPF monies for it.
“You can’t use your monies in your retirement account to buy a property after you have joined CPF LIFE,” said Wong. “Generally, we don’t encourage property purchases after the age of 55, because your total CPF contribution decreases after 55, and contributions into your OA decreases correspondingly. That means, there will be less money in your OA to service your instalments.”
CPF Retirement planning with your HDB property
During the seminar, Wong also talked in detail about CPF LIFE, or Lifelong Income For the Elderly, the annuity plan by CPF.
When CPF members reach 55, the full retirement sum would be transferred from their OA and SA into their newly created retirement account (RA).
“The money in this account will become the basis of your retirement fund, so you can start to receive your monthly payouts when you turn 65,” says Wong.
As a guide, a CPF member who sets aside the FRS can expect to receive $1,400 per month for the rest of his life from the day he turns 65. A CPF member who sets aside the BRS will receive about $800. “The higher your RA savings, the higher your monthly payouts will be when you start receiving your payouts.”
Wong also clarified a common misconception that CPF members can only receive higher payouts when they meet the BRS, FRS or ERS. “That’s actually not true. If today you are unable to meet the FRS of $176,000 and only have $120,000, then your monthly payouts will be adjusted accordingly to about $1,000.”
So how does a HDB property help with someone’s retirement? Wong showed how HDB homeowners can utilise the Lease Buyback Scheme by HDB to bump up their retirement savings so they can enjoy monthly payouts with CPF LIFE.
The LBS is a housing monetising scheme that allows the elderly to sell part of their lease back to HDB, while continuing to live in their flat. The sales proceeds can be used to top up their RA and the rest can be retained in cash for their expenses. However, homeowners will no longer be able to sell their flat once the have joined the LBS.
What if the homeowners outlive their lease? Wong assures that HDB will provide alternative housing arrangements for them. If they passed away with lease still remaining on their home, Wong adds that the property becomes part of their estate and the property can be sold back to HDB for proceeds.
Maximising CPF for retirement
For CPF members who wish to maximise their and their loved ones’ CPF for retirement, they can choose to do a top up in cash, subject to an annual limit of $37,740.
They can also choose to do a CPF transfer, with some limitations.
For their own CPF, they can do an irreversible transfer of a portion of their OA savings into their SA or RA, to take advantage of the higher interest rates. For their spouses, parents, or grandparents, they can do a CPF transfer for the savings above their BRS.
What about siblings, parents-in-law and grandparents -in-law? They can transfer the savings above their FRS.
CPF transfers can be done through the CPF website or the myCPF mobile app, while cash top ups can also be done through AXS, e-cashier and with hardcopy forms.
Wong emphasised that any monies that are topped up in a CPF member’s account cannot be withdrawn when they turn 55, as these funds are strictly earmarked for their retirement needs.
As Chia explains it, the various rules set by the CPF Board stem from the fundamental function of the CPF as a retirement fund.
“What the CPF board is trying to do is to ensure that all Singaporeans and PRs have a basic retirement fund,” Chia says, adding that CPF LIFE provides just $1,400 per month for a CPF member who set aside the FRS and chose the standard CPF LIFE plan.
“To a lot of people, $1,400 amount is not enough. You’re retiring, you’re not retiring from enjoyment. The CPF only provides for our most basic needs, which is why they need to enforce these rules to refund your CPF after you sell a property so you can achieve your FRS. Otherwise people who are not responsible, or fall into scams, could easily squander their money away.”
Wong agrees. “Most of the CPF policies are designed to make people self-sufficient. If we don’t have all these things in place, and we let people withdraw freely, there may be cases where some people use up all their money and then look to the state to provide for their basic needs,” he tells the audience. “Ultimately, all this money will come from taxpayers.”
“That’s why there are certain policies in place to prevent this from ever happening.”