PAYMENT OF HDB MONTHLY LOAN INSTALMENTS WITH CPF (Topping up Ordinary Accounts with savings in Special Accounts)

Mr Chiam See Tong asked the Minister for Labour, in view of the increasing prices of Housing and Development Board (HDB) flats, whether he will allow HDB flat purchasers to top up their Central Provident Fund (CPF) savings in the Ordinary Accounts with their savings in the Special Accounts when the need arises, so that they can pay the HDB monthly loan instalments with their CPF.

The Minister for Labour (Dr Lee Boon Yang): Mr Speaker, Sir, the Special Account forms part of every CPF member's account. Out of the total employer's and employee's contribution of 40%, 4 percentage points are credited to the Special Account. Savings in the Special Account cannot be used for servicing housing loan or investment purposes. This is to ensure that a CPF member will be able to accumulate some cash savings to meet his or her old age requirement. The cash savings in the Special Account will help many CPF members to satisfy the cash component of the revised Minimum Sum Scheme. Since the savings in the Special Account cannot be withdrawn for other purposes, Government has since 1st July 1995 paid a higher rate of interest on the Special Account savings. The premium is 1.25% more than the interest rate for the rest of the CPF savings.

Sir, if the savings in the Special Account are routinely transferred for mortgage repayment, then we will not be able to achieve the objective of meeting CPF members' retirement needs. Nevertheless, we have under special circumstances allowed CPF members to use the Special Account savings for mortgage repayment. Members may recall that when the CPF rate was cut back by 15 percentage points in 1986 during the last economic downturn, CPF members were indeed allowed to use their Special Account savings to supplement mortgage repayments from their Ordinary Account savings. However, this practice was stopped in 1991 with the restoration of the CPF contribution rate to 40%.

Mr Chiam See Tong: Sir, is the Minister aware that there are cases of flat purchasers who at the time of making a booking for a flat had enough money in the Ordinary Account to purchase the flat and also to pay for subsequent monthly loan instalments but, due to a delay or extended time, by the time they purchase the flat, it has already increased in price, and therefore the savings in the Ordinary Accounts are all exhausted to pay for the flat and the cash in hand is used to renovate the flat? Therefore, they have not enough savings in the Ordinary Account to pay for the monthly loan instalments. So they may need money from the Special Account to tide over, maybe for the first few instalments, so that they could save up enough to pay for subsequent monthly loan instalments.

Dr Lee Boon Yang: Mr Speaker, Sir, there may well be some home buyers who face the situation described by Mr Chiam. But as Mr Chiam himself pointed out, many of these people would have money for renovation but yet they say that they have inadequate CPF savings to meet the mortgage repayment. I would suggest that this is a matter of priority - which should come first? Purchase the home and then renovate it at some later stage when you have more money or to proceed immediately for renovation now and to draw on the Special Account savings which are meant for very long term old-age retirement needs?

I think we have to ask ourselves what was the original objective of the Special Account. It was to enable CPF members to put aside some cash savings, so that when they reach the age of 55, there will always be some cash savings which can go towards forming their retirement account under the Minimum Sum Scheme. If we allow this money to be withdrawn to meet mortgage repayment while the member spends his cash savings on renovation, then we are really eroding this effort to meet the retirement needs of the member, and I think in the long run it is not at all prudent to do so. We have debated extensively on the merits of the Minimum Sum Scheme. We should try our best to help members to accumulate sufficient cash savings so that they can meet all the requirements of the Minimum Sum Scheme.

Mr Chiam See Tong: Is the Minister suggesting that a flat purchaser move into the flat without renovating the flat? In practice, I think you can hardly find one person who would move in without renovating the flat. In such circumstances, can the Minister not make a provision for payments to be paid out of the Special Account?

Dr Lee Boon Yang: Mr Speaker, Sir, I am not suggesting that you move in without any renovation. I think it is a question of how extensive and how much money you want to spend on the renovation. If indeed you are short of a couple of payments on your mortgage loan, as the Member himself suggested earlier on, then maybe you could save on some of the other renovation items in order to make sure that you can meet these payments.

Arising from this question, Mr Speaker, Sir, I asked my officers to check with HDB whether this is in fact a serious problem. The answer is that in 1995, the average sale price of a 4-room flat, for example, which was sold by HDB was around $125,000. These are flats in non-mature estate. We found that a person with a household income of about $1,753 could buy such a flat with a mortgage loan of 80% repayable over 25 years. At this rate of repayment, the person is not consuming more than 25% of the household income, in which case the ordinary saving component of the husband and wife's income will be more than sufficient to meet the mortgage repayment. And therefore, it is not a problem to the vast majority of the home buyers in Singapore. In fact, 93% of all HDB home buyers, who are servicing their mortgage loan with CPF or cash, are able to do so from their CPF savings. In other words, 93% meet all their mortgage repayments completely from their CPF savings. There is very little need for them to top up with cash.

Mr Chiam See Tong: Sir, what about flat purchasers, who have already budgeted what they already have in their Ordinary Accounts but could not meet the repayments because of increased prices in the flat? That is why they fall short.

Dr Lee Boon Yang: Mr Speaker, Sir, when a person applies to buy a flat, he has to take into account that there is a potential for some price increases. He cannot say that because he wants to buy a home at this price and when the price has gone up, we must change the whole rules of the game. It is quite clear that when he applies to buy a flat, he knows that he can only use the savings in his Ordinary Account. He should size the flat that he intends to buy on that basis, taking into account there is a potential for price increase or adjustment in the future. Investing in a home is a long-term investment. All of us are obliged to make careful calculation and consideration on the size or type of flat that we want to buy to make sure that we can afford it and we can service the mortgage repayments.