On March 7, National Development Minister Lawrence Wong revealed that his ministry is looking into relaxing the Central Provident Fund (CPF) loan rules for buying older HDB resale flats.
The details about the revised rules will be released soon and changes will be implemented by May this year. Here’s a summary of the current restrictions.
- As of 1 July 2013, CPF usage and HDB loan were restricted for the purchase of flats with a remaining lease of less than 60 years. Banks are also reluctant to extend loans to finance the purchase of flats that are around 64 years old.
- For flats which are which are 69 years old or have less than 30 years of lease remaining, the down payment and monthly mortgage cannot be paid using your CPF money.
- The flat has to be paid for in cash if it is beyond its 79th year.
In Wong’s speech, he highlighted that “Some banks take reference from these CPF restrictions when assessing how much loan to extend. As a result, both the CPF and loan quantums may be reduced for the purchase of such flats”.
This creates barriers for buyers who want to purchase older flat, particularly those with less than 60 years lease.
Wong also admits that while “The CPF rule is intended to safeguard the retirement adequacy of buyers who purchase older flats … its design has led to some unintended consequences.”
He cites the example that if a buyer would like to buy a 39-year-old flat, he is entitled to use his full CPF. However, a year later, the amount of CPF the buyer can use is limited. This should not be the case just because the flat turned a year older.
As such, new rules coming May will relax the rules for CPF usage – this will make it easier for buyers to purchase flats that are 60+ years old. It also signifies a change in emphasis: rather than look at the lease, the focus is now on adequacy of the lease (i.e. whether it will last to the end of the owner’s life).
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