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24 Jan 2019
Ministry of National Dev
Suggestion View - 413
Allow young people to use CPF to buy old HDB flats

At present, young people cannot use CPF to buy old HDB flats with a remaining lease of less than 60 years.

This has caused the prices of these old flats to fall sharply. Even so, the owners cannot find a buyer at a fair price. They have to take a very big cut. If they bought the flat on resale and paid a high price, they would suffer a large loss. 

What can be done about this problem?

Here is my suggestion - allow young people to use CPF to buy the old flats, i.e flats with a remaining lease of more than 40 years. This will relieve the pressure for the next 20 years.

Is this a prudent measure?

Let me quote with a hypothetical example:

a) An HDB flat with 70 years remaining lease sells in the market for $384,000.

b) When the remaining lease drop to 60 years, the fair value of the flat, allowing for the shorter lease, should be $362,000, a drop of 6%. This assumes that property prices remain at the same real level, i.e. there is no inflation.

c) However, the actual value of the old flat could fall to $249,000, a drop of 35%. Why should the old flat drop by 35%, instead of 6%? The additional drop is caused by the inability to use CPF to pay for the flat.

If the govt change the rule and allow CPF to be used to pay for HDB flats that have a remaining lease of more than 40 years, which I have suggested, I expect the value of the 40 year old flat (with a remaining lease of 60 years) to move to the fair value of $362,000. This is much better than $249,000, right?

This will restore the market for old HDB flats and allow them to reflect their fair value, instead of a depressed value.

Should young people be allowed to buy a flat with a remaining lease of 40 years? The lease will expire when they reach age 70 (or earlier). This is a separate problem. The young people should not pay too much for the old flat. They should set aside some CPF and personal savings for their retirement needs.

Will the voluntary enbloc redevelopment scheme (VERS) that will be introduced in 20 years time solve the problem? It may or may not. We cannot afford to wait 20 years time to find out. 

It is now urgent for the govt to allow young people to use CPF to buy old HDB flats. We need to restore the market to its fair value.

Tan Kin Lian


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