Central Provident Fund Purchase of property
The current govt policy is to allow CPF to be used to buy a leasehold property of at least 60 years. This is to ensure that the owner will have a place to stay for a lifetime, on the assumption that most people will buy their flats in their late twenties or later. The govt does not want to see the remaining lease run out while the owner is still alive.

When someone buys a property with a remaining lease less than 60 years, he can still use CPF to pay for the property but a formula is applied to reduce the amount of CPF that can be used. This formula is complicated, but effectively it reduces the use of CPF significantly.

The restricted use of CPF and the awareness that the HDB flat will have no value at the end of the lease has caused the prices of HDB flats over 40 years old to drop sharply. Someone told me that the value dropped by 20% after the national development minister said that the value of a HDB flat will be zero at the end of the lease.

Many owners of old HDB flats are not able to find a buyer at a price that they expect.

What can be done to solve this problem?

I give my views.

I prefer the CPF rules to be relaxed to allow CPF to be fully used for property with a remaining lease of 40 years. I am suggesting that the current rule that now applies to flats with 60 years or more in remaining lease will now apply to flats with a remaining lease of 40 years. 

This will help to stabilize the prices of the leasehold properties for another 20 years. The price will still drop with the shorter remaining lease, but it will not be a drastic drop.

There will still be a sharp drop in 20 years time. By that time, the voluntary enbloc redevelopment scheme (VERS) may be introduced and may help to cushion the drop. Perhaps some other solutions could be found. 

My proposal has the negative aspect that the lease may run out when the owner is in the early 70s, maybe earlier.

I do not consider this to be a serious problem. The owner can move to a smaller rental flat or buy another short lease flat. 

Most owners expect to change their residence a few times during a lifetime. There is no need for them to buy a long leasehold flat to last a lifetime.

The owner who buys an old flat pays a lower price. He does not have to use all of the CPF. He can invest a larger part of the CPF savings for the future. This will provide additional money to be used to rent or buy another flat in the future.

The sharp drop in the value of old flats is a matter that needs urgent attention. If the market is disrupted severely, as it has happened now, it will have cascading effect on the rest of the property market. It could seriously harm the economy.

I urge the government to act quickly.

Tan Kin Lian
 

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