CPF FUNDS FOR PRIVATE PROPERTY (Raise to full Valuation price)

Mr Leong Horn Kee asked the Acting Minister for Labour, in line with his recent decision to increase the percentage of investible Central Provident Fund savings to purchase gold and securities, whether he will also consider increasing the use of CPF funds for the purchase of a private property from 80% to 90% or 100% of the valuation of the property.

Mr Lee Yock Suan: Mr Speaker, Sir, the amount of CPF savings which can be used to purchase a private residential property is limited to 80% of the value of the property. The 80% limit is to ensure that should the market price of the property fall, the member's CPF money invested in the property will be safeguarded. This is the same limit which financial institutions apply when extending loans for residential properties. A CPF member can invest up to 100% of his Ordinary Account balance in one or more properties. In the extreme case, a member may, therefore, have no cash balance in his Ordinary Account at age 55, having invested all of it in properties. If a property is partly financed with a bank loan, a significant portion of the CPF withdrawn would have been used to pay the interest on the loan and is therefore in a sense consumed. In comparison, only 40% of CPF investible savings may be invested in Singapore trustee shares and gold with a sub-limit of 10% for gold. Thus, only part of the existing balance, excluding the minimum sum of $30,000, can be invested in shares or gold. The rules are therefore already more liberal for property investments. The 80% limit on property financing appears reasonable and prudent. It should not be changed unless there are strong justifications having regard to the basic objectives of the CPF scheme.

Mr Leong Horn Kee: Sir, may I ask the Minister whether it is correct that in the case of HDB and HUDC flats, the CPF does allow up to 100% of the valuation price for purchase of such properties? If this is true, why is there a difference in standard between application of the use of CPF for purchase of HUDC and HDB flats as compared to the purchase of private properties?

Mr Lee Yock Suan: In the case of HDB and HUDC flats purchased from HDB, the buyer can borrow from the HDB up to 80% of the value of the property. He can also use his CPF for the 20% downpayment. In other words, the full purchase price, including the interest on the loan, can be met from CPF savings. If you add up the total sum of money withdrawn, capital plus interest, it exceeds 100% of the value of the property. In my opinion, this is too generous actually, but it is already there and it helps the lower income groups to own HDB flats. You may compare the sum withdrawn with the appreciation of the flat. The total sum withdrawn could be maybe 140% or 150% of the purchase price of the flat. And if the property value appreciates by that extent or more, then the CPF withdrawn would have been secured. But if the appreciation is less than that amount, part of the CPF has, in fact, been spent on housing. Therefore, for private properties, I am cautious and at this point there is no reason for us to liberalize further. As I have explained, part of the money is, in fact, consumed, and I think it is prudent for the buyer to estimate and calculate carefully, based on the 80% limit. They could either save more in their CPF so that they need to borrow less, or perhaps buy a smaller property, or even service the instalments partly from CPF and partly from their own cash.

Dr Augustine H.H. Tan (Whampoa): Is the Acting Minister for Labour aware of the difficulties faced by buyers of private properties who make use of their CPF funds in two respects? Firstly, because of the limit of 80% of the valuation of property that may be used from CPF funds, very frequently the valuation by the banks or finance companies is already 10% or 15% below the market price at which the property is purchased. That means the purchaser already has to foot something like 20% to 30% of the total amount in cash. Furthermore, in a few years' time, is he aware that many of these purchasers will be in financial difficulties because they will no longer be able to use their CPF funds to meet their monthly repayments?

Mr Lee Yock Suan: Mr Speaker, Sir, it is true that lenders tend to under-estimate the value of the property. The market price agreed upon may therefore be more than the valuation by the bank. But in the recent property market, with intense competition amongst the banks, I think they are tending more and more towards the market price. But this is one of the safety factors really. Whether or not the buyer eventually ends up in financial difficulty depends on how he has planned his purchase. It is very important for him to go in with his eyes open and do the calculations. For example, those who have bought their properties at high prices, at the peak of the market, I think nobody can help them because the prices have come down severely. But for the new buyers going in, they should realize that the maximum they can withdraw for property is 80% of the valuation. So they should plan their cash flow accordingly.